Mining for Closure: Policies, practises and guidelines for sustainable mining and closure of mines

– even where nation states may not. Where such conditions exist, investors seeking finance from such sources may be disadvantaged in their en- deavours when compared to those potential min- ers accessing alternative capital markets with more limited requirements relating to closure funding (Nazari, 1999). There is a higher likelihood that miners seeking finance outside the realm inhab- ited by reputable financial institutions are also those that have substandard operational practices. In such a scenario, it appears that an absence of ad- equate frameworks for mine closure may actually serve to “penalise” investors seeking financing or political risk insurance through respectable inter- national financial institutions. The second area introduced is that of Mining for Closure as a potential barrier to investment. In particular, this is indicative of perceptions regard- ing reduced profits for miners but it also indicates the possibility of pollution haven scenarios being relevant. 57 A possibility here is that national en- vironmental requirements representative of best environmental practice in mining may result in po- tential (and perhaps much needed) miners going elsewhere with their investment resources. While empirical evidence of the validity of this scenario was not found in the review conducted in order to generate this document, there are clearly serious implications for countries eager to attract private sector investment if this is the case. 58 However, this issue should be considered in the light of at least three important points. First, is that mineral resources are immovable. The likelihood that a po- tential developer can choose between two compet- ing mineral resources based upon “laxity of regu- lation” appears small. Second is that Government has at hand fiscal frameworks within which they can create attractive packages for prospective min- ing activity. As Andrews (2002) of the World Bank Group indicates, the taxation, royalty and/or in- 56. The updated and revised governance principles are also avail- able at: http://www.rec.org/REC/Programs/EnvironmentalLaw/ PDF/Governance_Principles.pdf 57. Pollution havens have been described and debated by a wide range of authors such as Bommer (1999), Brunnermeier (2004) and Millemet (2004), to name but a few. The concept involves the preferential movement of an industrial activity to nation states or regions where environmental regulations are less stringent, less well developed or where enforcement is weak. There is significant debate whether the hypothesis regarding moves to lax regulation actually holds. 58. Indeed, significant evidence to the contrary was found – See in particular the citation from the Government of Ontario in Section 2.3.1.

ence where Mining for Closure was launched and was also specifically noted in the Declaration of the High-Level Panel of the Sub-regional Conference included as Appendix A to this report. The governance principles are intended to apply primarily to foreign direct investment (FDI) in in- dustrial, mining and other activities with particular focus upon those with significant social and envi- ronmental impacts, especially in countries in tran- sition, under-developed regions and developing countries. These principles have been designed to complement voluntary international codes of con- duct, compacts and other instruments. Many of the principles are relevant to the content of this work and the reader is encouraged to examine them. 56 The text for the Governance Principles is included as Appendix D. In closing this second chapter, it is felt necessary to add context to discussion of financially related barriers to Mining for Closure that the have been al- luded to, or explicitly stated during the preceding sections. Having addressed the topic of investment from the firm internal point of view, it is also necessary to provide insights into a number of real or perceived challenges to Mining for Closure . The first area is related to the source of mine activity financing. A second area is related to perceptions regarding the potential yields of a development. This second area has three facets, firstly perceptions of the yield (rents) available to a miner, secondly, perceptions regarding distribution of the economic yield avail- able to a host government and thirdly, economic benefits to individuals in positions of power. An important message here is that responsible gov- ernance is central to good environmental and social performance in mining. It has far-reaching implica- tions for the financing of mining, and to the distri- bution of economic rents from mining activities. As a first point, the absence of national require- ments for adequate mine closure provisions and/ or integrated mine closure planning may actually act against more responsible miners. It should be noted that international financial institutions typi- cally require consideration of closure related issues real or perceived financial barriers 2.4

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MINING FOR CLOSURE