Closing a MInes Takes Experience
Cleaning up after making a mess is simply good manners, but in mining it’s the law.
In fact, in most parts of the world, mining companies that do not comply with clean-up or rehabilitation agreements are subject to heavy fines and, in extreme cases, criminal charges where corporate executives are held responsible.
In any event, care must be given when a mine closes and it’s only good business practice to make sure it’s done properly for the sake of safety and the company’s reputation.
To further illustrate the importance of site clean-up, here’s a story that serves as a quick guide to proper property management.
The Toronto community of Swansea-located some 10 kilometres west of downtown-acquired its name from a company that operated a steel fabrication plant near the mouth of the Humber River for several decades starting in the late 19th century. The Swansea Bolt Co. eventually sold out to Hamilton-based Stelco Inc., which closed the plant in 1989. The 13-acre property then sat unused and derelict for 11 years until a consortium called REON Development Corporation came along and bought it. REON demolished the buildings, cleaned up soils contaminated by heavy metals and other toxic materials and sold the site to a residential developer.
Today, a middle income neighbourhood called Windermere-By-The-Lake stands on the old Swansea Bolt lands. It consists of nearly 190 townhouses and 790 condominiums in two towers.
“Stelco had developers coming to see them every two weeks trying to buy the property,” recalls Michael Peterson, the former president of REON, which has since been disbanded. “They had no confidence in any of them and wouldn’t sell until we came along. They sold it to us cheap and said: ‘We never want to hear about this site again.”
Over the years, Peterson helped transform several abandoned and contaminated industrial sites into usable Greenfield properties. Now he is turning that expertise to the mining industry. He has created Mine Closure Services LLP and he has formed a strategic partnership with Paul Fitzgerald, a Richmond Hill, Ontario-based risk management consultant who has nearly three decades experience buying liability and environmental insurance policies for mining companies.
“We can offer a company cost certainty and peace of mind,” says Peterson. “We will take an old property off their hands, close it down for a fixed price and they never have to think about it again.”
Peterson and Fitzgerald believe they have a service that is right for the times. In most developed countries, mining companies are required, by law, to prepare a closure plan before they are granted permits to begin extracting resources. Regulatory agencies such as the Ontario Securities Commission are also demanding more stringent and standardized reporting of closure costs on corporate financial statements. As well, chartered accountants in some provinces have developed standard methods of reporting what they call asset retirement obligations.
Besides that, there is an emerging consensus that mining companies have to clean up after themselves, even when they are operating in less developed countries.
“Virtually every Canadian company realizes they have a duty toward the local community and the government regardless of whether the laws are as rigid as they are here,” says Peterson. “They have an obligation to close an operation without leaving gallons of cyanide leaking into a nearby watershed.”
Major multinational corporations may be able to fund a closure out of current cash flow. Smaller companies, on the other hand, usually have to set aside funds annually to cover the future costs of shutting down a mine. However, neither approach provides an iron clad protection against nasty surprises that can send costs soaring.
“You can have a sudden catastrophic event like an earthquake or a once-in-a-century rainfall that causes a breach in your tailing pond and you’ve got a major spill,” says Fitzgerald. “Or you can start closing the mine according to your plan and find other areas of concern and your costs go from $20 million to $28 million.”
The second issue is the potential drain on a company’s human resources, which can be especially onerous for junior or mid-sized miners.
“I was involved with a firm from Edmonton that had an old property in eastern Ontario,” says Peterson. “Every time there was a problem they had to send somebody down here to deal with it.”
Mine Closure Services has developed a method of transferring those risks: one modelled on the experience Peterson gained while cleaning up polluted industrial sites.
First, the company sets up a legally defined special purpose entity (SPE) for each transaction. The SPE is either a trust or an incorporated company. The mining firm transfers ownership of its worked-out property to the SPE and hires Mine Closure under a fixed-price remediation contract.
Naturally, the company must protect itself against unanticipated liabilities or environmental black holes that can send the clean-up costs skyrocketing, and that’s where Fitzgerald comes in. He uses his insurance expertise to acquire policies that provide protection against such contingencies.
“You have to have an insurance partner,” says Fitzgerald. “There are a couple of big firms that have expertise in this area and will accept these risks.”
He and Peterson hire consulting firms with a variety of capabilities to carry out the closures. In most cases, that means dismantling and removing surface structures, capping shafts and ramps and dealing with tailings ponds.
“We’ve had discussions with a number of big international mine engineering and environmental firms and they’re all eager to partner with us,” adds Fitzgerald.
Peterson and Fitzgerald are confident that government regulators will give their blessing even though the service is new to the Canadian market. Peterson points to precedents south of the border. The U.S. Environment Protection Agency has approved several liability transfer agreements, under which ownership of highly contaminated sites was shifted to special purpose entities created specifically to handle closures and clean-ups.
The most celebrated case involved the Iron Mountain Mine in northern California which operated from the 1860s till 1963. The multinational pharmaceutical company AstraZeneca inadvertently acquired the property in its 1987 takeover of Stauffer Chemical. Some 13 years later, the EPA approved the transfer of the mine to an entity called a Superfund and granted AstraZeneca a release from all past and future liabilities after the pharmaceutical giant set aside several hundred million dollars to fund the clean-up.
But regardless of which route a mining company chooses, there are no shortcuts these days when it comes to disposing of depleted property.
“They have to pay full freight whether they do it themselves or transfer it to us,” says Peterson.
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