Financial assurance for mine closure in Chile Alfonso Olivari. National Geological and Mining Survey, Chile

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1 Financial assurance for mine closure in Chile Alfonso Olivari National Geological and Mining Survey, Chile

2 General aspects of the law Objective To avoid and mitigate environmental liabilities once the mine site is closed, ensuring the physical and chemical stability of the mine site, mining facilities, and the disturbed area, and to protect the life, health, and safety of people and the environment. Physical stability Chemical stability Slopes stabilization (geotechnical characteristics of a mine site) and dismantling facilities. Water, air and soil control of eventual chemical reactions.

3 General aspects of the law APPROVAL PROCEDURES New Projects Ongoing Projects General Application Procedure Simplified Procedure Transitory Regime General Application Procedure

4 General aspects of the law Closure plan content requirements for mine categories Big and medium-sized mines Technical aspects (engineering) Small-sized mines Technical aspects (engineering) Risk assessment Cost estimation Financial guarantee Content requirements objectives: To mitigate mining industry environmental effects to ensure physical and chemical stability where mining activity takes place To safeguard the life, health, and safety of people and the environment To establish financial guarantees to ensure mine closure To create a postclosure fund to finance the monitoring of closed mine sites To avoid abandonment of mine sites and environmental liabilities after mining operations have finished

5 Main innovations of the Law CLOSURE PLAN AUDITS CLOSURE PLAN UPDATES TEMPORARY CESSATION FINANTIAL GUARANTEE CLOSURE CERTIFICATE POST-CLOSURE FUND

6 Financial guarantee amount Definition: The guarantee amount is based on the net present value (NPV) of the yearly cost estimation for all closure work, requirements, and activities associated with the mine site since the beginning of the mining operation through to the end of the life of the mine (LOM). This amount also includes the NPV of postclosure costs. Unit of account: Foment Units. Discount rate: Central Bank of Chile bond in foment units (BCU)at least 10 years duration. LOM: Proved and probable mineral reserves certified and determined by a competent person specialized in mineral reserves and resources, divided by the annual extraction level of ore

Fix rent instruments addressed in the article 45 of the DL 3.500 risk rated at least A*.

7 Financial guarantee instruments A.1 A.2 A.3 Certificate of Cash Deposit. Bank Guarantee. Certificate of Cash Deposit no longer than 360 days term. Stand by Letter of Credit issued by a bank risk rated at least A. Fix rent instruments addressed in the article 45 of the DL risk rated at least A*. Ore Sale Contract Cession Pledge on Export Returns Corporate Guarantee (ensured by a mining company s controller, risk rated at least A, yearly certificated) *DL Law that regulates Pension Funds System in Chile

8 Financial guarantee instruments Guarantee qualification: The guarantee must be submitted through a qualification procedure for approval by Sernageomin and the Chilean Securities and Insurance Supervisor (SVS), the Chilean authority in charge of regulating securities and insurance. SUITABILITY SUFFICIENCY Appropriated instruments endorsement Guarantee valuation matches with the closure plan costs Appropriated instruments custody Obeys the instrument intervals or tracts Requirement of guarantee liquidation NVP of the guarantee match with the guarantee given

9 Terms and patterns to establish financial guarantee LOM <20 years 100% of the NPV during the first 2/3 of the LOM LOM 20 years 100% of the NPV during the first 15 year of the LOM

10 Terms and patterns to establish financial guarantee % of established guarantee year A.1. A.2. A.3. 1 st Third 2 nd Third 3 rd Third *Example for LOM longer than 20 years

450,000 400,000 350,000 300,000 250,000 200,000

11 NPV Closure Costs Example Guarantee Constitution LOM 20 years. 450, , , , , , , ,000 50,000 A.1. A.2. A Year

certificate Done all significant and permanent milestones

12 Guarantee releases Previous Sernageomin verification Start of closure implementation 30% Given partial closure certificate Done all significant and permanent milestones 30% Contribution to Postclosure fund 40% Deliver final closure certificate

13 Guarantee adjustment and review periods Guarantee adjustments Changes of closure plan costs Partial closures Guarantee adjustments Lost of suitability and sufficiency Substantial change of the mining project

14 Guarantee adjustment and review periods Guarantee review At least once a year Closure plan audits

15 Postclosure fund OBJECTIVE COMPOSITION FUND ADMINISTRATION To finance postclosure activities Mining companies contribution fines Donations Expenses Subsidies Professional institution specialized in financial assets administration and authorized by the SVS* chosen by a public bidding * Securities and Insurance Supervisor

16 THANKS

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