DOING SOME DIGGING The Dirt on Environmental Disclosure

Canadian miners consider themselves good corporate citizens. They abide by full disclosure laws enacted by the secu...
Canadian miners consider themselves good corporate citizens. They abide by full disclosure laws enacted by the securities commissions; they provide value for shareholders; they create safe and productive workplaces; and they are environmentally responsible. All true. Now comes word that this may not be enough.

Last month the YALE SCHOOL OF FORESTRY & ENVIRONMENTAL STUDIES released a report pointing up the fact that omitting disclosure of environmental liability has put more than one mining company into bankruptcy. "Silence is Golden, Leaden, and Copper" was authored by Robert Repetto, a U.S. consultant and expert on the interface between the environment and economics. He based his report on companies on both sides of the 49th Parallel and their operations around the world. In nine of the 10 cases he examined, he found deficiencies in their disclosures.

It didn't take long for ANVIL RANGE MINING to go bankrupt after it purchased the lead /zinc mine near Faro, Yukon. Anvil bought the property from another bankrupt enterprise, Curragh Resources, in 1992. The mine was reopened and operated into 1997. By April 1998, Anvil declared its insolvency. The company collapsed under the weight of dropping zinc prices at the same time inflation and the growing volume of tailings drove the cost of remediation from $125 million (all monetary amounts are reported in U.S. dollars) in 1993 to the $140-150-million range five years later. Right up to the end, Anvil said it had set aside funds in a reclamation trust that would cover its clean-up obligations at Faro, the report concludes, but it failed to disclose the increasing costs of its obligations that made its contribution inadequate.

Another favourite whipping boy, ROYAL OAK MINING, takes its lumps in Repetto's report. That company went bankrupt in April 1999, although its assets outweighed its liabilities by about $200 million as late as the third quarter of 1998. Royal Oak failed to mention the cost of dealing with 240,000 tons of arsenic trioxide warehoused underground in the Giant gold mine in Yellowknife, NWT. Now the Canadian government anticipates footing most of the $200-million clean-up bill.

BOLIDEN was on the hot seat for the failure of its tailings dam at the Los Frailes base metal mine in Spain. The company's stock fell 28% on the Toronto Stock Exchange in the five days after the spill was reported in April 1998. Repetto alleges that Boliden knew of deficiencies in the design and construction and the risks they posed to the integrity of the dam. Following complaints from its own engineer and a Spanish environmental group, the company improved seepage containment and installed inclinometers to monitor movement. Despite data indicating deformation of the inclinometers in 1997, Boliden applied for and was granted permission to increase capacity by raising the height of the dam. Any mention of structural problems at the Los Frailes tailings pond did not make it into the company's annual reports or interim financial statements before the dam burst.

The examples in Repetto's report outline cases of failing to disclose environmental liabilities, refusal to acknowledge liability, or at least downplaying those liabilities that have a material impact on a mining company's financial health. In the end, individual shareholders suffer monetarily and corporate managers face a loss of confidence.

Fuller disclosure of environmental liability is a must. Repetto points out that only full disclosure can forestall attempts by corporate managers to boost short-term profitability at the expense of long-term shareholder value or to pursue risky environmental policies.

This may be the time for regulations and laws specific to full environmental disclosure from mining companies. The added red tape won't be welcome, but Repetto has evidence that full voluntary disclosure is absent nine out of 10 times.

Robert Repetto can be reached at The executive summary of his report may be downloaded for free or the full report purchased from Click on the report entitled "Silence is Golden, Leaden, and Copper".


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