The provisions that miners need to set aside for future clean-up and other restoration costs after their mining operations have ended are already extensive. If not properly managed, they could become a credit risk for their bonds, says Jaap Smit, Credit Analyst for Metals and Mining at Robeco.
“Mining companies are already obliged to make provisions for so-called restoration and decommissioning of their assets,” he says. “These provisions are liabilities to restore the environmental disturbance that was caused by the operations of the mining sites and to rehabilitate the environment when the asset is depleted and closed.”
Before and after: how a former mine is restored.
Source: Goldcorp Marlin
“Every large mining company remains responsible for a sizeable number of closed mining sites, including the tailings dams used to store byproducts of mining operations, along with old processing facilities and so forth. For example, Rio Tinto has 13 old mine sites in closure, some of them decades old, plus 200 other industrial legacy sites, compared to 57 active mine sites. Remediation sometimes costs hundreds of millions of dollars per site, and often requires costly annual monitoring and maintenance.”
“By way of comparison, about 20% of BHP’s total provisions are reserved for closed sites. One of Rio Tinto’s most expensive projects – the former Holden copper mine in Washington state – cost the company USD 500 million and took five years to rehabilitate. Environmental regulation across the world is becoming more demanding and can be an inflationary cost factor.”
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong. This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions. The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.