Editorial Mining costs include decommissioning

The mine reclamation issue that gets the most attention today is how to clean up yesterday’s mistakes. Who pays for cleaning up acid tailings, for example, when the mining company that created them is long gone? Who salvages surface facilities and caps the shafts?

The problems posed by abandoned mines have to be addressed, but the more important question is how to prevent those mistakes from recurring.

The mining industry doesn’t argue that reclamation and decommissioning costs should be borne by the companies who extract the minerals and make a profit from them.

“All reclamation (and) decommissioning costs should be recognized in the feasibility study and as costs of production,” said the Mining Associat ion of Canada in a brief presented at a conference of Canada’s mines ministers earlier this year. “Any mine project that cannot support the full cost (of reclamation and decommissioning) should not be developed,”

So if the public expects the industry to clean up after a mine closes and the industry accepts that responsibility, what’s the problem?

The problem, of course, is money.

Mining companies feel the cost of mine reclamation should be considered a cost of doing business. If development and construction costs spent prior to commercial production are considered part of a mine’s overall investment, so too should the cost of cleaning up after the orebody is depleted.

However, if most of the expense for reclamation comes after the mine closes, there’s no income to apply the expense against.

The obvious alternative is to set money aside while mining is going on so the company can pay for reclamation when mining is completed.

Today, however, any money set aside for such purposes is fully taxable, and that makes it almost impossible for a company to set funds aside.

Considering the onerous level of taxation on the industry now — companies spend as much on taxes and other government mandated charges as they receive in profits, even in the good years — mining companies are justifiably concerned about how the money should be treated for tax purposes.

Many in the industry are advocating a mechanism whereby mining companies can contribute to a fund earmarked for mine reclamation and decommissioning. Contributions to the fund would be deductible from corporate revenue for tax purposes.

The MAC goes so far as to suggest the industry would support legislation that would permit such funds.

Contributions to these funds would be deductible from current mine revenue. Earnings of the fund would be tax-sheltered and the accumulated earnings would be included in any specified annual contribution levels. Any capital expenditures a company makes during operations would reduce the final reclamation costs and the required fund contributions accordingly.

If the fund ends up showing a surplus, the money would go back to the company and become taxable at that point.

The concept is fairly simple, but the wheels of the federal tax department move slowly. The first step should be a joint committee of task force of representatives from federal and provincial governments and industry.

With industry agreeing to pay the bills, it’s only fair that such costs should be deductible.

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