This article was written by Matthew Austin, Anna Vella and Julian Ilett.
As previously reported on 4 May and 9 May, the Queensland government is in the process of reforming the financial assurance and rehabilitation framework for mining activities undertaken in Queensland. The redesigned framework aims to provide a ‘tailored solution’ to guide mining resource sector operators as to their security obligations based on a bespoke risk assessment process.
On 7 September 2017, the Queensland government released a further discussion paper about how resource operators could potentially provide financial assurance sureties. In addition, two consultation report papers were released responding to consultation undertaken to date and detailing the changes and variations now proposed as part of the financial assurance and mine rehabilitation reforms.
Financial assurance framework
The latest releases from government indicate that the current reform package has evolved so that:
Types of security
The ‘tailored solution’
For most projects, it is expected that ‘tailored solution’ allocation will be based on a determination of the overall soundness of the project and its estimated rehabilitation cost.
The tailored solution options are:
- contribution to the pooled fund – which will be available to some entities based on their assessed risk profile (discussed further below).
- third party surety – being cash collateral or an irrevocable, unconditional, payable on-demand surety (being a bank guarantee or potentially, insurance bond or other form of surety).
- for ‘significant resource entities’ (whose fund contribution represents more than 5% of Queensland’s total estimated rehabilitation costs), a hybrid arrangement is proposed so that 5% of the financial assurance security amount is provided to the pool and the remainder is secured by way of a third party surety.
- for ‘small operators’ with a mining rehabilitation exposure of less than $100,000, they will be by arrangements outside the proposed tailored solution framework.
The framework no longer contemplates a ‘select partner arrangement’ between the State and significant resource entities.
For operators at risk of dropping out of the fund, the operation of a 12 month ‘notice period’ will be provided to enable companies to lower their risk profile or to negotiate third-party surety arrangements. Operators moving from surety to the fund will be advised of their contribution payment requirements and the surety will be returned –detail as to how this will occur in practice has not been provided.
The government is not supportive of participants who are profiled as being suitable for the pooled fund ‘opting out’ and providing security by way of surety.
The scheme is to have periodic actuarial assessment, including a review of the pooled fund contribution rates – initially after 5 years of the scheme operating and then every three years.
The framework will require all resource sector companies to pay an administration fund – not just those companies who are within the pooled fund.
Risk assessment process
The financial assurance scheme manager (which is to be created, with support from Queensland Treasury) will undertake the risk assessment categorisation process which is to be divided into two distinct elements, being a:
- project risk assessment; and
- financial risk assessment.
The risk assessment will be used by the scheme manager to inform whether a resource project will be required to make contributions to the pooled fund or provide third party surety.
Resource project risk assessment factors
The scheme manager’s risk assessment for each resource project, may include considering, among other things:
- available remaining resources;
- third-party agreements in place for the resource;
- the extent of rehabilitation undertaken on site to date;
- the probability of a resource site not being sold (if the company fails);
- compliance with the environmental authority;
- whether the mine is in a ‘care and maintenance’ phase; and
- factors such as the ‘commodity outlook’ and the remaining economic value of the resource at that location.
Financial risk assessment factors
The scheme manager’s financial risk assessment may include considering, among other things:
- any existing external credit rating given to a company;
- the risk of company failure;
- subsidiary/parent structures and international ownership arrangements;
- any budget allocated to site rehabilitation; and
- the company’s present and future risks to government.
The reforms propose that ‘financial assurance categorisation’ be calculated on a site by site basis, as opposed to a total entity basis, which may result in different ratings being allocated to different sites operated by the same company. A report is to be released soon, outlining further detail and key considerations which will inform the financial and resource project risk assessment factors to be considered.
Assessment review of operators, and their location within the scheme, is to be undertaken on an annual basis. However, an immediate review will be triggered in circumstances where there is a change:
- as to the environmental authority holder;
- in control of the company holding the environmental authority; or
- which significantly increases the expected area of land disturbance.
At this stage, further information is still to be released in relation to matters such as:
- how the various factors are to be weighted;
- how joint ventures and complex corporate structures are to be profiled under this assessment process;
- how sites operating under a joint venture arrangement will be categorised; and
- whether ‘discounts’ will be possible under the new regime.
It is expected that detail will be provided in the near future to enable environmental authority holders to make an accurate judgement as to where they are likely to fit within the scheme arrangement.
Other issues arising from the reform package
The consultation reports also acknowledge that:
- further legislative amendments are required to ensure that financially sensitive information provided by resource operators and the risk allocation given to operators is kept private and confidential where possible;
- operators are to undertake annual reporting which will be prescribed by legislation;
- the opportunity for resources operators to seek review or appeal against credit assessment and assessed rehabilitation obligations will be considered further; and
- funds from the scheme are to be made available to the abandoned mine lands unit, subject to consultation with an independent advisory panel.
Other ‘mine life’ reforms: update
By way of update on the broader ‘beginning to end of mine life’ reforms being undertaken by the State:
- In relation to the ‘life-of-mine’ plans proposed by the Department of Environment and Heritage Protection as part of mining rehabilitation reforms for large mines – it appears that the concept of those plans is to be merged with an existing Plan of Operations to generate one Progressive Rehabilitation Closure Plan (PRCP) which mirrors existing consultation and notification processes under the Environmental Protection Act 1994 (Qld).
- Detailed guidance is still to be provided as to the content of PRCPs and milestones to achieve suitable rehabilitation criteria. Further, the government intends on streamlining the amendment process in relation to both environmental authorities and PRCPs to cater for both ‘major’ and ‘minor’ amendment processes. It is expected that the minimum content requirement for PRCPs will mirror that of the minimum content requirements for environmental authorities.
- A high-level discussion paper outlining a formal residual risk framework is also proposed to be released sometime in the near future – however, no definite timing indicators have been to date. The government has indicated that prior to the discussion paper being released, industry feedback is likely to be sought to determine the financial assurance percentage which should be imposed to cover residual risk arising during the life of the mining operation and how this cost is to be treated.
The Queensland government remains committed to a timeframe whereby:
- Draft legislation to create the new financial assurance framework and amend the Environmental Protection Act 1994 (Qld) to deal with rehabilitation forms is expected in late October or early November 2017. It is expected that a large portion of detail around how the new regime will work will be left to regulations and guidelines produced at a later date.
- The new arrangements are to commence on 1 July 2018.
In the interim:
- the Financial Assurance Review – Providing Surety discussion paper is open for submission until 22 September 2017; and
- further information, industry consultation and government workshops are expected.
Currently, it is expected that a transitional period of up to 3 years will be provided for in the legislation with the expectation that many eligible mining operators will choose to start contributing to the pooled fund as soon as possible.
If you would like any further information as to how you may be affected by these reforms, please contact us.