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Risk management of environmental issues critical for local mining companies

03 March 2011 Aon

The new and evolving environmental regulatory regime in South Africa means management, mitigation and control of environmental risks has become increasingly vital for mining and related companies operating in the country.

According to Willie van Graan, Business Unit Head for Mining at Aon South Africa, most mines take care of their day-to-day operational risk such as mine accidents, equipment failure, strike action, flooding and other natural events, by putting in place standard insurance covers, including property insurance, public liability and general liability.

“These standard covers kick in for sudden accidental events. The cost to clean up an accidental spillage of 10 000 litres of diesel will typically be covered out of your public liability cover. However, this cover cannot protect against the wide range of regulatory and third party risks that go hand in hand with today’s mining businesses.”

He says these risks are better addressed by putting in place an environmental insurance policy - also referred to as environmental impairment liability or pollution legal liability. “From an Aon perspective, this specialised type of insurance has been extensively tested in North America and Europe and has now been made available locally.”

He says the huge accident at the MAL Magyar Aluminium plant in Hungary, which spilled 700 000 cubic metres of aluminium tailings when a reservoir wall broke, is the kind of incident typically covered by this type of policy. “The Hungarian firm was unprepared for an incident of this magnitude and had to rely on government for “clean up” assistance.”

“Environmental insurance plays a valuable role for companies in their management, mitigation and control of risks, providing a vital risk transfer tool against the new and evolving environmental regulatory regime in South Africa,” says Van Graan. He refers here to the Environment Conservation Act 1989, National Environmental Management Amendment Act 2008 and the Waste Act 2008, which demand specific action from company management.

  • The Environment Conservation Act enforces the protection of the natural environment and control of pollution.
  • The National Environmental Management Amendment Act, effective since February 2009, gives increased powers and control to the state’s Environmental Management Inspectors, and spells out the financial provisions companies must make for rehabilitation.
  • The Waste Act 2008 creates a cradle-to-grave responsibility for producers of waste, making companies responsible for their waste from production through to its eventual destination, either treatment or landfill. The Act also provides guidelines on contaminated land, defining who is and may be liable in addition to the original polluter.

Government is doing its part to prevent a recurrence of the devastating acid mine drainage threat doing the rounds in the media today. South Africa’s mines fall under the control of the Department of Mineral Resources (DMR) which requires mines to put up environmental rehabilitation guarantees (ERG) with each new right mining licence. “There’s a clear distinction between environmental insurance and ERG,” says Van Graan. “The latter is a facility put up by the mine, and overseen by the DMR, to ensure enough funds are ring-fenced to restore each mine environment to its original condition upon mine closure.”

Environmental insurance is applicable to a number of industries which operate in environmentally sensitive areas. It is essential these companies cover all their insurance bases, including asset protection, public and general liability, environmental liability insurance, ERG, etc. “We cover the entire spectrum of mining risk and offer solutions to both new and existing operations involved in the beneficiation of coal, metals and industrial minerals. Aon can implement bespoke risk management programmes and tailor insurance solutions from our local and global insurer network.”

The company also consults to non-mining companies that have operations with heavy environmental impact.

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