Outsourcing mine closures can save owners headaches
Many mining companies would love to find a better way to manage closure and its ongoing maintenance commitments.
Most owners and operators want to be good social and environmental citizens, have good relations with stakeholders, meet their regulatory obligations and manage risk of legal repercussions, yet their main concern is around developing mines and operating them — efficiently processing resources.
To help ensure stewardship and that post-closure obligations are met, mining companies in many jurisdictions are required to post financial surety amounts to tens, if not hundreds of millions of dollars.
Mine closure projects don’t generate revenue, nor do they contribute positively to the bottom line. As they are completed, however, they do free up surety funds which can then be put to work elsewhere in the company to support and develop mining interests elsewhere.
In many cases, the closure and ongoing maintenance of a former mine property are handled by employees who are near retirement. They may have worked at the mine for years and have deep roots in the local community. They don’t want to uproot their lives by moving to another project, and welcome the chance to stay involved in the mining industry and maintain their income by managing the property.
Because they are thoroughly experienced and familiar with the property, near-retirement employees have long been a common way for mining companies to meet their regulatory and environmental obligations on a closed property.
These employees often report to a small core Closed Sites Management team with oversight duties that extend on a national or international stage.
What’s changing is the increased public awareness being felt by politicians and being enshrined in legislation in many jurisdictions, about the environmental, social and economic dangers posed by some closed mines.
A failure of a tailings dam due to a severe flood, or of the cap on an underground mine, can cause a significant environmental problem, such as damage to fisheries and fish habitat.
This can have serious impacts on the company’s operations, soaking up financial resources, management time and legal resources, as well as impacting the company’s credibility and reputation with regulators and the general public. It can impact financial surety, both present and future and may reduce the company’s abilities to access financing in future.
Taking a leaf from the mine-development playbook
For an answer to this growing concern, it may be good to look at another established practice within mining companies — the outsourcing of the engineering, procurement and construction (EPCM) of the mine infrastructure to third parties, usually consulting engineering firms that offer these skills in-house. Many have observed that mining companies are focused on operating mines, not so much on building them.
Outsourced EPCM is one way they can focus on their strengths, and accessing the engineering resources of other organizations.
Because of the difficulties in managing the closure process and ongoing maintenance — coupled with the growing penalties for failure in this area — does it make sense to apply the outsourced EPCM model to closure, in effect, “reverse EPCM?”
Commissioning a third party such as a consulting engineering firm to manage the company’s closed mine properties can involve delegating the firm to take charge of the closure operations, which might include capping an underground mine or installing the mine water treatment facilities. Then, the firm takes responsibility for ongoing maintenance, inspection, record-keeping and reporting.
This takes an obligation off the to-do lists of senior executives, allowing them to focus on what they do best — developing and operating mines. This meets regulators’ concerns as well, who like the idea of having just one call to make sure that closure requirements are met on schedule and within established permits. Stakeholders such as NGOs and First Nations also like the fact that their interests will be safeguarded by a single responsible entity.
As well, the engineering firm has specialists in areas such as fisheries habitat assessment, evaluating the stability of a tailings dam, and other key aspects of problem-free mine closure.
Success factors in reverse EPCM contracts
When executing an EPCM contract, there are several factors that need to be considered beyond the management of scope, schedule and budget. Here are some success factors for how mining companies and consulting engineering firms can get good results in working with a contractor that carries out implementation, based on our firm’s experience.
Execution team
Keep it lean. The contractor’s execution team does not need to be large, but it does need to bring the right people, with appropriate skill-sets and experience.
Contractor procurement
Select a contractor using a quality-based selection process, supported by evaluation interviews with potential contractors. Closely review the schedule with the contractor and have them show their understanding of project requirements of the project, by having them explain how they intend to execute their scope of services.
As well, the consulting engineering firm must work with the contractor to identify suppliers that are capable of successfully delivering the project. Don’t fall into the “low bid” trap.
Project control
When executing a project, it must be controlled, either by the project manager or a dedicated project controller depending on the complexity of the undertaking. Project control refers to all aspects of the work breakdown structure for project execution, the performance of the engineering firm’s team and the performance of the contractor.
When delivering the project, a baseline schedule must be developed by the contractor and rigorously tracked by the consultant to help ensure success. Remember that if there is slippage in the delivery of the contractor’s services, it will negatively impact the rest of the schedule as well. In the case of schedule slippage, the contractor must be notified and required to provide a plan as to how they will adjust execution activities and resources to get the project delivery back on plan.
The consulting engineering firm must also work with site personnel and the contractor to identify opportunities to accelerate the schedule, reduce costs and recognize savings for the mining company.
Risk identification
Before work begins, and at pre-determined milestones, the mining company and the consulting engineering firm must review the project work breakdown to identify risks which could manifest over the course of the project. With each risk identified, the likelihood and resulting severity must be gauged.
Mitigation measures can then be developed to help control project execution and manage change as it becomes apparent.
Risk contingency
When risks are identified and mitigation measures developed, it may be necessary to allocate some financial contingency. The amount can be estimated during the budgeting process, and refined during risk evaluation and taking of mitigation steps.
Our experience so far, with ‘reverse EPCM’ projects for mining companies, is that this way of working may not be best in all applications, but that it does answer a number of concerns that mining companies have. As the ‘long tail’ of liability for closed properties continues to grow due to increased regulatory and public concern, this approach to closure may see greater application in future.
Information for this article provided by John Pugh and David Bleiker. John Pugh, M.Eng., P.Eng., is Senior Environmental Engineer and Geotechnical and Mining Project Manager with AMEC, based in Fredericton NB and David Bleiker, MASc, PEng is Principal Engineer, Mining Sector Leader, Environment & Infrastructure with AMEC, based in Mississauga ON.
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