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Environmental financial assurance : current coverage, institutional challenges, and alternative financial guarantee arrangements

University of British Columbia

Mining activities provide comprehensive socio-economic benefits to a nation. There are, however, varying degrees of environmental risks and financial liabilities related to mining. Governments expect mine operators to rehabilitate the environmental condition of disturbed lands once they complete their extraction activities. In the event of insolvency or bankruptcy, regulators also require them to establish that they possess adequate, financial assurance to ensure that mandatory reclamation and closure requirements are performed in accordance with the approved mine closure plans before initiating their mine operations. Such an approved ‘hard’ financial assurance instrument is typically held by the government or in trust by a third-party in escrow until the end of mining and only released when closure and reclamation operations are completed, which in some cases could be decades into the future or sometimes never. Financing these obligations come with a set of other challenges. Requiring a mining company facing both financial difficulties and unsettling market conditions, an epidemic of current times, to take on tens of millions or even hundreds of millions of dollars in ‘hard’ financial liabilities only increases the possibility of its financial collapse and potential reclamation failure. The dissertation focuses on the evaluation of a proposed structured finance mechanism that is expected to offer greater access to required funds from the capital markets and one that aims to assist government regulators with their regulatory compliance, oversight, and enforcement efforts. Even though securitisation has demonstrated the ability to take an illiquid asset or group of such assets, and through financial engineering, transforming it into a marketable financial security for sophisticated investors to invest in, it has yet to be applied to the securitisation of financial assurance requirements. The available financial assurance funding tools and options are also assessed. The dissertation is expected to deepen the discussion surrounding seeking more effective and readily accessible environmental financial assurance instrument solutions for the resource extractive industries. No literature evidence seems to exist to support any earlier study on the prospect of such a financial assurance-backed securitised mechanism. It is therefore of interest to investigate its potential.

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2020-05-14

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/74451

Mining Engineering

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/