Abstract

The law 20.551 of Chile, which regulates the closure of mines and its facilities, implies the immobilization of capital for the mining sector. Therefore, these companies, and the mining industry as a whole, should be interested in studying how to minimize the financial impact of such regulation. This paper explores two complementary mechanisms that could end up in diminishing the burden of this regulation. First, the financial methodology proposed by SERNAGEOMIN to estimate the closure cost of a mine, can generate differences between what is reported in the financial statements and the real cost in which the companies incur when closing. That methodology can overestimate the cost of closure, as it considers the closing activities will be carried out by an external company and not by the mining companies themselves. On the other hand, the mentioned methodology can underestimate the real cost of closure, and therefore the provisions the companies have to make, by assuming that the cost remains stable in time, which is not necessarily true. This paper investigates the extent of such mismatches and examines its overall impact on the financial statements of companies. Second, this paper examines the close relation between design and execution of the mine closure and financial planning. Aspects such as choosing the right time to close a specific facility, developing an engineering plan to reduce the percentage associated with contingencies and choosing the right type of financial instrument as a guarantee, could generate a significant reduction in the financial cost faced by companies when closing a mine. This paper explores how efficient planning may determine a reduction in the total amount immobilized, as well as a reduction in its associated financial costs.