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Decommissioning a mining operation in Australia involves risk management planning to ensure safety, compliance and environmental protection. The regulatory requirement is for prospective operators to submit a mine closure plan that includes a government approved rehabilitation strategy, as well as an assurance of funding for its execution.

Mining rehabilitation requirements are specified in state governments' regulatory conditions for approving operations. As a condition of approval companies are required, where practical, to progressively rehabilitate mined land during operations.

Financial assurance is a critical aspect of decommissioning planning and necessitates having adequate financial capacity to cover the costs involved. This may be in the form of funds set aside or lodging financial security to cover potential liabilities.

Exploring financial options: the role of surety bonds

Surety bonds and the surety market offer mining companies a broader range of options and capacity for managing their capital structures. These bonds provide an alternative and often complementary source of finance, freeing up established credit lines or capacity for liquidity, working capital, or other purposes.

The Gallagher Credit, Surety and Political Risks team has the expertise and relationships with sureties to assist mining businesses in navigating the complex underwriting criteria required by surety bond providers, delivering efficient and competitive solutions tailored to each client's specific circumstances and objectives.

How surety bonds enhance rehabilitation planning

Before mining operations can begin, and throughout the life of the mining operation, state and territory governments require some form of financial surety (bond) 1. (This does not remove the obligation for companies to rehabilitate land.)
These funds are generally sized to cover the full third party costs of rehabilitating mine sites and are returned only once the regulator is satisfied the agreed rehabilitation objectives have been met.
Depending on the requirements of the relevant jurisdiction, companies may be required or have the option to lodge cash bonds, unconditional financial institution guarantees or non-refundable contributions to pooled funds.
If mining businesses buy or sell a mine, state regulators usually require a matching bond to be lodged by the purchaser and the previous owner to be released from their obligations before the sale can proceed.
Benefits for mining companies
  • Compliance with regulatory requirements
  • No need to utilise established credit lines for bonding facilities
  • No tangible or collateral security is required (exceptions may apply)
  • Enhanced liquidity/working capital
  • A fast, efficient process for issuing bonds

How mining companies can position themselves for eligibility for obtaining surety bonds

In evaluating a potential client, surety underwriters undertake a detailed review of both the mine(s) (including technical, commercial, operation and environmental factors) and the mining company (or group) itself in terms of balance sheet and financial strength.

Mining companies need to be prepared to disclose comprehensive details about their financial structure to demonstrate their creditworthiness and ability to fulfil the obligations which the bond is securing.

This information enables the surety provider to determine appropriate terms and conditions for the issue of the bond.

The specific information required can vary depending on the surety provider and the type of bond, but generally includes:

  • audited financial statements, including balance sheets, income and cash flow statements
  • the company's credit history, including any existing debts, credit lines and payment history with creditors
  • outlines of the company's operations, future projects and financial projections
  • any assets that can be used as collateral for the bond
  • ownership structure and key management personnel, including their experience and qualifications
  • existing contracts, obligations and any pending litigation that might affect the company's financial position
  • existing insurance policies, including coverage limits and terms, to ensure that the company is adequately protected
  • information about any previous surety bonds the company has obtained, including claims history and performance on those bonds
  • analysis of current market conditions and how they might affect the company's operations and financial performance.

Leveraging Gallagher expertise in surety bond applications

The Gallagher Credit, Surety and Political Risks team offers extensive experience in designing and executing sophisticated risk and insurance solutions to our clients, with particularly deep expertise in the mining and resources sector.

We draw upon this industry insight and experience when engaging with clients in evaluating and developing strategies through to preparing a professional and comprehensive underwriting submission and closely monitoring and engaging with sureties throughout their underwriting and due diligence processes.

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Sources

1'Environment Planning and Assessment Act 1979 (NSW),' NSW legislation, accessed 17 Mar 2025.

'Mining Act 1971 (SA), South Australian Legislation, accessed 17 Mar 2025.

'Mining Act 1978 (WA),' Western Australian Legislation, accessed 17 Mar 2025.

'Environment Protection Act 1994 (Qld),' Queensland Legislation, accessed 17 Mar 2025.

'Mining Management Act (NT),' Northern Territory Legislation, accessed 17 Mar 2025.

'Mineral Resources (Sustainable Development) Act 1990 (Vic),' Victorian legislation, accessed 17 Mar 2025.

'Minerals Resources Development Act 1995,' Tasmanian Legislation, accessed 17 Mar 2025.

Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

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