Sustainable finance and the role of mine closure

Authors: Leahy, K; Farrer, G Download Paper Open access courtesy of:

DOI https://doi.org/10.36487/ACG_repo/2315_085

Cite As:
Leahy, K & Farrer, G 2023, 'Sustainable finance and the role of mine closure', in B Abbasi, J Parshley, A Fourie & M Tibbett (eds), Mine Closure 2023: Proceedings of the 16th International Conference on Mine Closure, Australian Centre for Geomechanics, Perth, https://doi.org/10.36487/ACG_repo/2315_085



Abstract:
Undertaking a robust environmental, social, governance (ESG) due diligence assessment of a mine or portfolio of mines supports informed sustainable investment decisions. While ample international guidance has been developed by reputable international lenders, and these serve as a structure to undertake a thorough ESG assessment, guidelines are largely silent on inclusion of mine closure considerations. Mine closure should be considered a cross-cutting theme which influences the majority of Performance Standards and Principles and so must be considered at all stages of project development from Pre-Feasibility onwards, as well as in the context of transaction due diligence. In the case where closure liability estimates are not comprehensively estimated, transactions may significantly increase financial provisions and portfolio-wide closure liabilities of a corporation, diminishing shareholder value and increasing risk. Undertaking a detailed review of available information, developing or challenging an existing closure base case, appreciating closure risks and opportunities, and developing conceptual liability estimates can support more sustainable transactions within proposed assets, operational assets and/or assets in closure or post-closure. Over the last decade, ERM has contributed on transactional ESG projects for hundreds of operational or legacy mine sites, either individually, or as part of portfolios that can be very large. In this paper/presentation we provide a brief overview of the international guidance on mine ESG Due Diligence, with emphasis on the factors that can affect closure liability. We highlight the process by which environmental and social data, either publicly available or within a transaction data room, must be critically analysed to identify material issues that will impact the closure liability estimates. We then present examples of two of the most common issues that are uncovered - water and social performance - and how incorporating them into a revised conceptual closure base case provides a more realistic financial model to inform the valuation. Almost invariably, these revised closure cost estimates exceed the provisions made in corporate reporting, Feasibility Studies or NI43-101 documents, and we conclude with an analysis of why this is the case and why, therefore, a more comprehensive consideration of mine closure has a fundamental role in sustainable finance.

Keywords: sustainable finance, ESG, closure liability estimates, water stewardship, social performance

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