Adequate Amount of Security

The volumes of material, metals and chemicals handled in the mining sector, and the long time period over which they can create contamination, suggest to us that adequate financial assurances are important to maintain and must be examined periodically.

– BC Auditor General (2002)⁷²

Overview of BC Law

In BC, the amount of security required is determined on a case-by-case basis, based on the miner’s reclamation estimate and negotiations carried out between the miner and the lead government agency. In addition, BC policy outlines various permissive (as opposed to mandatory) purposes for which security may be required. As described in the following Recommended Solutions, other jurisdictions have enacted legislation that provide greater certainty that adequate securities will be collected to cover all necessary costs.

Issue

BC’s law on setting security amounts does not ensure that adequate funds are secured to cover remediation costs.

Recommended Solutions

Set minimum mine securities applicable to all mines

[Tags: Minimum; Bonds; Assurance; Surety; Security]

BC law does not specify a minimum amount of security. This differs from other jurisdictions where minimum securities have been set.⁷³ For example, in Montana the legislation mandates that a minimum security of $200/acre is required.⁷⁴ In New Mexico, a minimum security of $10,000 is legally required.⁷⁵  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.⁷⁶ 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. ⁷⁷

Require preliminary site inspection before setting security

[Tags: Bonds; Assurance; Surety; Security; Site Inspection; Mine Permit]

There is no requirement under BC law that the Chief Inspector conduct a site visit or perform an inspection to assess pre-disturbance environmental conditions before setting the amount of mine security. In contrast, in South Dakota, the regulatory authority must complete an inspection of the proposed mine site before issuing a mine permit. This inspection is used as a basis to set an appropriate amount of security for the environmental conditions pre-site disturbance.⁷⁸ Similar legal requirements are in place for exploration activities in Oregon.⁷⁹

Consider site-specific conditions and probability of successful reclamation when setting security amount

[Tags: Security; Bonds; Assurance; Surety; Site-Specific Conditions; Reclamation; Site Rehabilitation]

Site-specific conditions can have a significant impact on the success of remediation efforts. Although this is implicitly recognized in the Health, Safety and Reclamation Code for Mines in British Columbia (HSR Code),⁸⁰ other jurisdictions have adopted legal provisions that explicitly recognize these potential challenges.

For example, in Alberta, the amount of security must be sufficient to ensure completion of reclamation based on various factors, including the probable difficulty of conservation and reclamation considering the local topography, soils, geology, hydrology and re-vegetation.⁸¹ Similarly, in Nova Scotia, the amount of security must be sufficient to ensure complete site rehabilitation based on the probable difficulty of rehabilitation considering various environmental factors.⁸²

Reduce security only where a miner’s past performance warrants reduction

[Tags: Bonds; Assurance; Surety; Reduced Security; Company Performance]

A miner needs ready access to funds to conduct progressive reclamation activities. Therefore, taking into account a miner’s performance record in setting the amount of security can serve as a strong incentive to adopt strong environmental practices throughout mine life. In BC, provincial policy states that less than full security may be acceptable where the miner’s wealth greatly exceeds the liability of the mine site, and the company is considered a low risk to default.  No mention, however, is made of the company’s past environmental or regulatory compliance track-record.⁸³ Provincial policy also indicates that a risk premium may be required to provide for unexpected costs where there is a high risk that a miner may default on its obligations or there are highly uncertain cost predictions.⁸⁴ However, the provincial government’s risk assessments to gauge the financial capacity of the companies and the risk of the project have been criticized as being inadequate.⁸⁵ In addition, in light of the significant discretion granted to the Chief Inspector under BC mining law, these policy requirements carry little legal weight.⁸⁶

Laws in many other jurisdictions require that a miner’s past performance be taken into account when the amount of security is set. In the Yukon, for example, the legislation lists factors that the regulatory authority must take into account when setting the amount of security. These include the ability of the miner to pay remediation costs and the miner’s past performance in respect of other licences.⁸⁷ Similarly, in Washington the regulatory authority must consider the miner’s compliance history and the state of that miner’s existing surface mines before approving a blanket performance security.⁸⁸ In Queensland (Australia) a discount in security is permitted based on previous environmental performance.⁸⁹ Similarly, in South Dakota the regulatory authority must consider the financial and technical capability of the operator to respond to accidental releases when determining the amount of security to be posted.⁹⁰ Washington State allows the deposit of a blanket security bond in lieu of individual bonds for miners with two or more mines based on the track-record of the miner.⁹¹

Queensland (Australia) takes it one step further: where financial assurance is required for mining activities under the Environmental Protection Act 1994, the regulatory authority must take into consideration “the degree of risk that environmental harm will be caused; the likelihood that action will be required to rehabilitate or restore or protect the environment; and the environmental record of the holder” of the mining lease.⁹²

Reduce security for reduced site ‘footprint’

[Tags: Bonds; Assurance; Surety; Reduced Security; Footprint; Reclamation; Progressive Reclamation]

Security can also be used as a tool to promote reduced land disturbance and ongoing reclamation. For example, in Colorado, the mining legislation encourages concurrent reclamation by setting lower amounts of security (for limited-impact operations) if less land is disturbed at any one time.⁹³

Apportion security relative to the degree of disturbance of lands across the mine site

[Tags: Security; Bonds; Assurance; Surety; Apportionment; Remediation; Levels of Contamination]

Specific areas of a mine site may be exposed to different levels of contamination. As recognized by BC policy, in the event of a miner’s default, the remediation of different parts of a mine site will be prioritized differently.⁹⁴ It is therefore important that a broad reclamation costing strategy not be imposed across the entire site, but rather that specific costing be completed for areas of the site with higher environmental risks and associated reclamation costs. This approach is adopted in Alberta where the legislation states that the Director may designate separate portions of the disturbed lands and attribute separate security to different designated areas.⁹⁵ Nova Scotia has also enacted legislation that provides for apportionment.⁹⁶

Require security for reclamation of tailings impoundments

[TAGS:  Security; Bonds; Assurance; Surety; Environmental Assessment; Resource Policy]

Tailings impoundments often require special attention during mine closure, and it is therefore beneficial to separate the financial security requirements for this work from other more general reclamation requirements. This is recognized in Idaho, where legal provisions require financial security to be filed specifically for tailings impoundments.⁹⁷

Require calculation of security based on independent contractor rates and/or government rates

[Tags: Security Amount; Bonds; Assurance; Surety; Contractor Rates; Government Costs]

To ensure a realistic reclamation estimate, reclamation costs should be calculated based on independent contractor rates or government rates, including travel costs and machinery transport costs associated with remote or difficult to access mine sites. This is imperative because it is independent contractors or government employees that will be completing the remediation work if the owner defaults on obligations and leaves the mine site in need of restoration. It has been estimated that where government, rather than the mine operator, must complete the clean-up, the overall cost increase ranges from 50% to more than 500%.⁹⁸

BC mining policy states that “liability costs are generally based on government’s cost to do the work”, ⁹⁹ and where the government undertakes reclamation work, unit equipment rates set out in the “Province of British Columbia B.C. Hydro and Power Authority and B.C. Rail Ltd. Equipment Rental Rate Guide” apply.¹⁰⁰ These ‘in-house’ requirements allow no room for third-party estimation or assessment outside government and leave open the possibility of inflated reclamation forecasts and cost-overruns.

Conversely, under EU law, the security calculation for waste facilities must be calculated based on independent and suitably qualified third party rates.¹⁰¹ US federal law¹⁰² and mining laws in Nevada¹⁰³ and Ontario¹⁰⁴ also require that security be based on independent contractor rates.

In Montana,¹⁰⁵ Oregon,¹⁰⁶ Colorado¹⁰⁷ and the Yukon,¹⁰⁸ legal provisions mandate that security be based on costs as if the regulatory authority were to complete the work. In California, the legislation provides that securities are to be calculated based on either the regulatory authority or third party costs.¹⁰⁹

Require professional certification of reclamation cost estimate

[Tags: Security; Bonds; Assurance; Surety; Remediation; Professional; Cost Estimate]

To increase the certainty that the reclamation cost estimate has been carefully and adequately prepared, professional approval should be legally required. This approach is adopted in Manitoba where the estimated rehabilitation costs that are submitted along with the closure plan must be certified by both an officer or director of the mining company, as well as either a professional engineer, geologist, or accountant.¹¹⁰

Adjust amount of security annually to compensate for inflation

[Tags: Inflation; Bonds; Assurance; Surety; Security]

Inflation costs arise from a change in dollar value from the time of the original estimate and the time when reclamation activities are ultimately undertaken.¹¹¹ As such, securities should be automatically adjusted on an annual basis to account for inflation. BC law does not set any clear legal requirements for inflation to be taken into account in securities.  Other jurisdictions, such as the State of Florida, legislate that surety bonds be adjusted annually for inflation to allow for the reality of price and currency fluctuations.¹¹²

Include additional amount in security to cover administrative costs

[Tags: Security; Bonds; Assurance; Surety; Administrative Cost]

Administrative costs can place a significant burden on the public purse. This is recognized in several jurisdictions, where an amount must be added to the security to cover government administrative costs. For example, in Colorado the security must include an additional 5% to cover the cost of administration.¹¹³ Mining legislation in California also provides for administrative costs and expenses associated with the security to be included in the security amount.¹¹⁴

Require security for unexpected occurrences

[Tags: Unexpected Occurrences; Disaster; Bonds; Assurance; Surety; Security]

BC mining policy broadly lists various costs that may be included in the calculation of security, including costs for contingencies.¹¹⁵ However, other jurisdictions have enacted legal provisions that explicitly include costs associated with unexpected occurrences. For example:

• The Canada Oil and Gas Operations Act: requires proof of financial responsibility to be sufficient to also face liability in the event of an oil spill or other discharge.¹¹⁶
• In New Zealand, security may be required to address “adverse effects on the environment that become apparent during or after the expiry” of the mining permit.¹¹⁷
• In Oregon, the security must be determined based on the reclamation estimate and the use a credible accident analysis.¹¹⁸
• In California, a contingency amount of up to 10% of the reclamation costs is to be included in the security.¹¹⁹

Notably, the need for security to cover unanticipated adverse impacts has been recognized for some environmental assessments in BC.¹²⁰

Require security to cover costs for alternate water supplies

[Tags: Watershed; Water Supply; Bonds; Assurance; Surety; Security]

Closely associated to the issue of unexpected occurrences is the potential need for alternate water supplies where contamination from mining activities impact groundwater or surface water sources used for drinking water or agricultural purposes. This is recognized in Ontario where the legislation explicitly empowers the regulatory authority to impose a security amount to provide alternate water supplies if there are reasonable and probable grounds to believe that the primary water supplies are likely to be contaminated.¹²¹

Legislate additional security for mines using cyanide and toxic chemicals

[Tags: Toxic Chemicals; Bonds; Assurance; Surety; Cyanide Leaching; Security]

Some jurisdictions have adopted progressive requirements for additional security at mines that use cyanide leaching or other toxic chemicals. For example, in Oregon additional security is required for operations that employ toxic chemicals.¹²² In South Dakota, additional security ranging from $25,000 to $500,000 is required for mines that employ toxic chemicals.¹²³ In Idaho, specific security provisions are outlined for cyanide operations.¹²⁴