The numbers just do not add up. As I read the many sites on the web, I learn that British Columbia has about thirty operating mines. The BC government has about $172 million in closure bonds. Say about five or six million a mine. That seems grossly inadequate to me. I have just finished estimating closure of one mine and it came to nearly $60 million. Does this mean BC should have $1.7 billion in closure bonds? Here are some observations from various websites that may help you ponder this issue.
From the British Columbia government website:
MEM seeks to provide reasonable assurance that the Province will not have to contribute to the costs of reclamation if a mining company defaults on its reclamation obligations. As a condition of Mines Act permits, the permittee must post financial security in an amount and form acceptable to the Chief Inspector of Mines. This security is held by the government until the Chief Inspector is satisfied that all reclamation requirements for the operation have been fulfilled. Every mine site has unique management requirements and operational constraints; thus, the assessment of financial security is done on a site-specific basis. The security is set at a level that reflects all outstanding reclamation and closure obligations. For example, mines that require long-term drainage treatment for metal leaching and/or acid rock drainage require full security to cover outstanding liability and ongoing management.
The Fair Mining Collaborative tells us this about closure bonds in other jurisdictions:
BC law does not specify a minimum amount of security. This differs from other jurisdictions where minimum securities have been set. For example, in Montana the legislation mandates that a minimum security of $200/acre is required. In New Mexico, a minimum security of $10,000 is legally required. In India, different minimum securities are required for different categories of mines: larger securities are required for mines that require heavy machinery to perform operations such as deep-hole drilling, excavation, loading and transport. In Western Australia, as of January 1st 2012, tailings facilities were bonded at a minimum rate of A$18,000 per hectare, and waste rock piles are bonded at a rate of A$15,000 per hectare.
The Juneau Empire commenting on the KSM mine says this:
The bond KSM will be required to post has been a large concern for many Alaskans; the cost just to treat the water flowing over the mine site and into the Unuk River, which will be necessary at least for 200 years after the mine’s closure, is estimated at current prices to cost around $25 million per year, according to Seabridge Gold Inc. Vice President of Environmental Affairs Brent Murphy. Seabridge is the company behind KSM.
Now to the costs of Mt Polley. The Vancouver Observer notes:
Analysts say cleanup costs for Imperial Metals’ Mount Polley tailings disaster could cost anywhere from $50 million to $500 million, but the security bonds available today to help cover that are now a fraction of that.
Documents from the Ministry of Energy and Mines on July 25, 2013 suggest that Mount Polley Mining Corporation (owned by Imperial Metals) was expected to pay security bonds of $38 million by 2023, and that it had deposited $14.5 million as of March 2014. The Ministry said clean up is expected to be paid for by the company. But when the Vancouver Observer asked what would happen in the event that Imperial Metals went bankrupt, a media representative from the Ministry wrote in an email:
“The Ministry of Energy and Mines holds $14.5 million in security bonding for the Mount Polley mine in the event that the company defaults on its responsibilities.”
But critics have warned in the past that the amount of funds available through security bonds is far less than the mining industry’s liabilities. A report in 2001 by West Coast Environmental Law warned that the liabilities of BC mines far outweighed the total amount available in reclamation bonds. The report estimated BC mine reclamation liabilities at the time to be around $400 million, but the total available in bonds was less than half that amount, at just $172 million.
The Globe and Mail gives us the number of mines in BC.
The independent inspections of all other B.C. tailings ponds must be completed by Dec. 1. The province currently has 98 permitted tailings ponds at 60 operating and closed metal and coal mines. Thirty-one of the ponds are at active mines.
If there are but thirty one tailings ponds to be closed and the total in bonds is $172 million, that works out at about five to six million per mine or per tailings facility, not quite sure.
In a detailed paper Hutchison and Detorre say this about mine closure costs:
- Using an “optimistic” approach and assuming that the lowest cost elements are going to be required yields a total closure cost of $16.1 million. This has been the approach in some instances in the past. Using the worst case assumptions yields an unrealistically high cost of $57.0 million.
- Using the conventional approach and selecting the most likely costs for the highest probability closure elements yields a total closure cost of $29.8 million. This is often the approach used in the mining industry.
- The statistically based expected closure cost is $29.0 million.
- The statistically based most likely closure cost is $34.3 million. At a 90% confidence level the most likely cost is $36.4 million. These costs are higher than the conventionally estimated costs.
Goldcorp says this of their closure cost obligations:
Effective January 1, 2003, Goldcorp adopted accounting standards under both Canadian and US Generally Accepted Accounting Principles (GAAP) relating to Asset Retirement Obligations. The two standards, CICA 31101 and FAS 1432, are substantially the same. In general, these standards apply to legal obligations associated with the retirement of a tangible long-lived asset that result from its acquisition, construction, development or normal operation. Goldcorp’s provision for closure amounted to $298.9 million in 2010, compared with a provision of $306.5 million in 2009. The slight drop in provision for 2010 is due to the closure work completed during the year, particularly at the San Martin and Porcupine mines.
Whatever the correct numbers, it is clear that you cannot close a mine for less than $50 million. Thus if BC has 30 operating mines, MEM should have $1.5 billion in the bank, not a mere $172 million. Maybe we can get MEM to correct me if I am wrong. Please weigh in with your comments.
