The question of how to account for outstanding rehabilitation costs of mining ventures was again before the Senate Environment and Communications References Committee on 7 March 2018, in Perth WA.
The submission of Environment Victoria explained the issue well.
“Outstanding rehabilitation costs are currently financially reported as contingent liabilities, and are mostly disclosed in footnotes of financial statements only, not as part of the balance sheet. They are therefore not subject to independent auditing. A general rule for contingent liabilities is that they should be part of the balance sheet if the contingency is probable and the amount of the liability can be reasonably estimated. We submit that outstanding mine rehabilitation is both a probable contingency – as mines have to be rehabilitated when mining activities cease, and all mines will ultimately close – and that costs can be reasonably estimated through consultation with the regulators”.
The submission goes on to make this recommendation.
“We therefore recommend that rehabilitation liabilities should be required to appear in the accounting records and reported publicly through documents lodged with the Australian Securities and Investments Commission (ASIC). This would subject mining companies to proper auditing of these liabilities, requiring them to be transparent about how they arrived at the estimated rehabilitation costs and enabling independent assessment of the adequacy of these estimates. The Commonwealth should ensure that ASIC prioritises accurate reporting of mine rehabilitation obligations. Regulatory guidelines for financial disclosure and the lodging of accounts for public companies exist to ensure the public can make informed decisions about their investments in particular companies. If these companies are able to lodge documents that dramatically underestimate their real rehabilitation obligations, a fundamental element of corporate regulation is failing”.
In respect of the directors of mining companies, the submission continues:
“ASIC should further ensure that directors of mining companies fully comply with their duties laid out in the Corporations Act. Directors are obliged to declare whether the company will be able to pay its debts when they become due and to scrutinize how obligations influence the future financial health of the company. They are also obliged to exercise diligence and examine if any matters of relevance may not have been disclosed or disclosed fully. Directors should also review cash flows and assumptions made by experts or management, and cannot rely on auditors to do so. These points encompass the responsibility of directors to assess the adequacy of rehabilitation liabilities presented in the financial report and take the necessary action if it is deemed inadequate. Through thoroughly testing the company’s directors’ diligence in reviewing the financial reports, and holding them to account, ASIC would further encourage transparency on rehabilitation liabilities and increase the pressure of assessing and reporting liabilities as correctly as possible”.
The WA government made a similar submission but it goes further into its difficulties with the insolvency provisions under the Corporations Act.
A number of parties gave evidence before the Committee on 7 March 2018.
One witness asked this ethical question:
” … we benefit greatly from mining both in our GDP and in the material aspects of living. It seems completely unethical to me that we would be leaving an uncosted and unknown liability for future generations. Now really is the time we need to address it… “.
My last comments on this issue, and other issues concerning the remediation of mining sites in Queensland – Linc Energy, and Canada – Redwater Energy, and COAG, are here.