Financial assurance for

mine closure in Chile

Alfonso Olivari
National Geological and Mining Survey,
Chile
 General aspects of the law 20.551
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 Slopes stabilization (geotechnical characteristics of a

mine site) and dismantling facilities.

Chemical stability Water, air and soil control of eventual chemical

reactions.
General aspects of the law 20.551

APPROVAL PROCEDURES

New Projects Ongoing Projects

General Application Transitory Regime

Simplified Procedure
Procedure

General Application
Procedure
General aspects of the law 20.551
Closure plan content requirements for mine categories
Big and medium-sized mines Small-sized mines

Technical aspects (engineering) 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
Main innovations of the Law
 CLOSURE PLAN AUDITS

 CLOSURE PLAN UPDATES

 TEMPORARY CESSATION

 FINANTIAL GUARANTEE

 CLOSURE CERTIFICATE

 POST-CLOSURE FUND
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
 Financial guarantee instruments
A.1 A.2 A.3
•Fix rent instruments
• Certificate of Cash Deposit. addressed in the article 45 of • Ore Sale Contract Cession
the DL 3.500 risk rated at
least A*.
• Bank Guarantee. • Pledge on Export Returns

• Certificate of Cash Deposit no • Corporate Guarantee (ensured

longer than 360 days term. by a mining company´s
controller, risk rated at least A,
• Stand by Letter of Credit yearly certificated)
issued by a bank risk rated at
least A.

*DL 3.500 Law that regulates Pension Funds System in Chile

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 Guarantee valuation

instruments matches with the
endorsement closure plan costs

Appropriated Obeys the

instruments instrument intervals
custody or tracts

Requirement of
NVP of the guarantee
guarantee
match with the
liquidation
guarantee given
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
Terms and patterns to establish
financial guarantee

1st Third 2nd Third 3rd Third

% of established
guarantee
year

A.1.
A.2.
A.3.

*Example for LOM longer than 20 years

Example
Guarantee Constitution LOM 20 years.

450,000

400,000

350,000

300,000
A.1.
NPV Closure Costs

250,000
A.2.
200,000

150,000
A.3.
100,000

50,000

-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
Guarantee releases
Previous Sernageomin verification
Start of closure
implementation 30%

Done all significant

Given partial closure certificate and permanent
milestones
30%

Contribution to
Postclosure fund 40%

Deliver final
closure certificate
Guarantee adjustment and review
periods
Guarantee adjustments Changes of
closure
plan costs

Lost of
Partial Guarantee suitability
closures adjustments and
sufficiency

Substantial
change of
the mining
project
Guarantee adjustment and review
periods
Guarantee review

At least Closure
once a year plan audits
 Postclosure fund
OBJECTIVE COMPOSITION FUND ADMINISTRATION

•Mining companies
contribution

•fines • Professional institution

• To finance postclosure
specialized in financial
activities
•Donations assets administration
and authorized by the
•Expenses SVS* chosen by a public
bidding
•Subsidies

* Securities and Insurance Supervisor

THANKS