THE RISING COST OF SHUTTING DOWN: The cost of doing mining

Only a few years ago, mine closures in Ontario were uncomplicated and inexpensive. Sell the grinding mills and pumps, salvage the mill buildings and haul up the scoops and jumbos and auction them off. The receipts pretty well covered the closure costs. However, the practice is about as relevant today as is the concept of a Soviet Union.

“Up until now, typically the salvage value has equalled the cost of closure. That rule no longer applies,” says Normand Champigny of Coopers and Lybrand. In a review of financial close-out provisions in the annual reports of 16 large mining companies, Champigny found there were no financial provisions in the reporting year 1986. In 1990, this same group of majors had earmarked $130 million for closeouts. Today, a single company, like Noranda or Inco, can set aside that sum and more.

In Ontario especially, the rule changes have been dramatic and profound. And they will be extremely costly. In effect, the rules have created another cost centre for the companies, Champigny said.

The revised mining act, Bill 71, administered by the Ministry of Northern Development and Mine’s Mineral Development and Rehabilitation Branch and its director, Michael Klugman, requires all mining companies to submit comprehensive, extremely detailed closure plans for each operating and inactive mine, mill and smelter. Even companies with “advanced” exploration plays must submit closure plans.

But requiring financial assurance of some description (cash, letter of credit, bond) and not just the company’s promise of proper closeout worries industry most.

“We are not happy with the guidelines as they are,” says Warrent Holmes, president of the Ontario Mining Assocation (OMA). “We could end up with cost estimates (for reclamation) that are astronomical.” For Inco’s 37 active sites and 27 inactive sites in the Sudbury region, the closeout cost, and thus the financial assurance, could add up to $1 billion or more.

Says Charles Ferguson, Inco’s vice-president, environment: “If that’s how the government interprets it (Bill 710) that’s a mistake. Why in the world would we set aside that kind of money?” Inco, working through the OMA, wants permission to submit conceptual rather than highly detailed closeout plans for long-term operations, such as its Copper Cliff smelter. As a shutdown approaches, the conceptual framework would become progressively more detailed. To fund closeouts, Inco favors a pay-as-you-go formula. Banking it up would be Inco’s promise, based on its solid, profitable record in the province.

Says Ferguson:”If we have to estimate costs of decommissioning and post money now under the assumption we might go bankrupt before we come to the actual decommissioning… if that is the interpretation it is draconian. For years society has shared the problems. All of a sudden they’re turning it around and imposing (on the mining companies) 100% of the shared liability up front.”

But citing a company’s financial record as reasonable assurance that closeout obligations will be met is not as straightforward as it sounds, even for an Inco or a Noranda. For example, Michael Klugman, the ministry’s branch director, reminds an interviewer that the formerly rock-solid, billion-dollar Denison now teeters on the brink of insolvency, its only significant asset a multi-million-dollar lawsuit against Ontario Hydro. And it wasn’t that long ago that Noranda was selling assets to see it through the last recession. “The thing that’s giving everyone heartburn is financial assurance,” Klugman readily concedes.

The way the act is written, the buck stops at Klugman’s door. Whatever the form of financial assurance, in the end it must be “acceptable to the director”.

The OMA recommends the director accept financial assurance that is rational, systematic and recognizes remaining ore reserves, “because the instant recognition of a potentially significant retroactive obligation would result in a significant initial financial burden.” It recommends “funding over time” and progressive rehabilitation. As well, “closure costs estimates are to be determined on a normal engineering basis without reference to a highest-plan cost.” The industry also requires favorable tax treatment (a federal responsibility) for the financial assurance.

On the positive side, the industry says the reclamation branch of the ministry has hired competent, professional people with a knowledge of mining, “not yahoos or placard-waving students wearing Jesus boots.” Within about two years, this branch of the ministry will have grown to 100 people from an initial two. As well, there is a single-window approach. The rehabilitation branch spearheads the whole effort, coordinating closure submissions internally among the various ministries. The branch has signed memoranda of understanding with MEO and other ministries, setting the guidelines for each ministry’s role in the approval process.

Just as important is the fact that both Klugman and David Walters, Manager, Mines Rehabilitation, are sensitive to industry concerns.

“We need to keep the industry health.” Walter says. “To slap it with horrific financial liabilities would not achieve our goals… You don’t fix it (the environmental problem), if the company is dead. Says Klugman: “I’ve been preaching ‘come talk to us’.”

The second key aspect of the legislation relates to closure plan submissions. These plans must detail the measures that will render a closeout acceptable, both environmentally and from a public health and safety perspective. Beyond capping shafts, ensuring crown pillar stability, leveling surface structures, and so on, acid mine draining from tailings and waste dumps represents the most expensive and contentious closeout component.

Falconbridge has divided its Sudbury operation into 13 to 15 active sites requiring such plans. Bob Michelutti, Superintendent, Environmental Services, Falconbridge Ltd., said developing closure plans for smelters and concentrators could take anywhere from $150,000 to $250,000. “We’re negotiating a time frame (with MNDM) for submitting closure plans,” Michelutti says.

Inco Ltd. has tentatively identified nearly 40 active sites that may require closure plans. Inco has submitted a projected schedule of closure plan submissions and is awaiting ministry approval.

Both companies – in fact, all mining companies in the province – are now working with the Mineral Development and Rehabilitation Branch to arrive at a workable submission schedule for closure plans. The government itself must prepare its own closure plans on abandoned sites, which number up to 7,000. They can range from little more than a shallow shaft to a full brown mine with tailings and surface buildings.

At Kidd Creek in Timmins, mine site closure plans must be submitted by October, 1994; the metallurgical site plans, by October of the following year.

The Superintendent of Environmental Control and Services Dennis Bordin says Kidd Creek is currently developing a conceptual mine close-out plan. Fortunately, there is little waste rock on surface, and no tailings at the site. The open pit, which is 1,200 ft. deep, one-half mile wide and one mile long, could eventually solve Toronto’s landfill problems. “That (the mine site) should be easy to walk away from,” Bordin says.

The metallurgical site contains a copper smelter, concentrator, zinc plant and 100 million tonnes in tailings. Kidd Creek hopes to convert the smelter to custom feed. The current mine life will ensure ore feed till 2006, unless new ore is found.

While the tailings are potentially acid generating, the problem isn’t nearly as severe had Kidd not built two acid plants that convert 98% of the sulphur dioxide to sulphur acid. In addition, the tailings impoundment was planned with an eye to environmental impact, Bordin said. A thickened, sloped discharge system was used. This retains moisture and inhibits acid generation. Tails are confined by an impermeable dyke of grave and clay (monitor holes show no acid-generating fluid).

While developing closure plans and posting financial assurances may be bearable for the big companies with in-house expertise, what about the one-mine company or the exploration firm? William Napier, Director, Environmental Affairs, International Corona, has experienced the new closure process in shutting down the Renabie mine. He concludes the new rules may make only mega-orebodies viable. “Mining ventures may be restricted to ore bodies such as those found in the Hemlo camp and Sudbury basin.”

Walters acknowledges the burden placed on small companies and says his branch can advise and help them develop closure palns. “We’re trying not to make the process horrendous… for the little guy.” But almost everyone interviewed agreed that small companies will have a tougher go in Ontario now that Bill 71 is law. Says Ferguson: “The tougher the rules, the thougher it is for the small operators.”

But both big and small companies must come to terms with the legislation. Currently, Klugman’s branch is negotiating with the industry on financial assurance alternatives and the level of detail required in plans. Until those discussions come to some conclusion, the industry remains in uncertainty.

As Ferguson sees it: “We’ve got a monkey on our backs. We don’t know if it’s a gorilla or a chimpanzee.”