State acts on environmental bonds

Some financial relief for mining companies with projects in Western Australia with the state government freezing rate rises for environmental bonds.

The former Labor government had planned to increase the minimum rate for bonds from $10,000 to $20,000 per hectare for a waste dump or tailings facility.

However, Mines and Petroleum Minister Norman Moore said the government will place a 12-month moratorium on the rates due to the global financial crisis.

The move has been welcomed by lobby groups the Chamber of Minerals and Energy and the Association of Mining and Exploration Companies.

Mr Moore said the moratorium will take effect at the start of next year.

"The Government will then re-evaluate the economic climate and the likely effect of their reintroduction," he said.

Earlier this month, WA Business News flagged the growing concern mining companies had over environmental bonds, with banks increasingly insisting on cash backing to support the bonds as opposed to other firms of security.

The Labor government had also planned to change the method of calculation from the blanket per-hectare price regime to one determined on a case-by-case basis, which was to come into effect in July next year.

"CME believes that the current bond system works well and is keen to work with the State Government to ensure that we continue to have effective environmental safeguards into the future," CME chief executive Reg Howard-Smith said.

The Minister's announcement is below:

The State Government has provided much needed financial relief to mining companies by placing a moratorium on a rate rise for environmental bonds.

The minimum rate for bonds, which are payable at the start of a mining project, was increased on July 1, 2008 from $10,000 to $20,000 per hectare for a waste dump or tailings facility.

Mines and Petroleum Minister Norman Moore said the increase reflected a more realistic cost of rehabilitation and was intended to reduce the financial risk of companies not meeting their tenement obligations.

"In light of the current global financial crisis, the State Government realised this has created added cost pressure for companies," Mr Moore said.

"An industry-wide moratorium on the rate rises will take effect from New Year's Day until the end of 2009.

"The Government will then re-evaluate the economic climate and the likely effect of their reintroduction.

"The moratorium provides particular benefit for small-to-medium sized companies that may experience difficulties getting new projects off the ground."

The financial pressure on mining companies has been exacerbated by banks adopting a cash-backed policy for those considered to have a higher risk profile.

Mining securities in the form of unconditional bank guaranteed performance bonds were first introduced to the WA mining sector in the late 1980s to encourage compliance with rehabilitation requirements.

In June 2008 the former Carpenter Labor Government endorsed the recommendations of a review of bond policy that involved widespread consultation with industry and other stakeholders.

"In light of current economic conditions the Liberal-National Government, with industry participation, will re-evaluate the other recommendations of this review," the Minister said.

"It remains a priority to reduce the State's financial risk for rehabilitation and to bring its bond policy into line with other Australian jurisdictions.

"In the meantime, this moratorium will allow mining companies the best opportunity to continue to develop WA's valuable resources for the good of the State."