Increasing costs foreseen for environmental controls (June 18, 1990)

Shoal Lake, a source of drinking water for Winnipeg, Man., is the location for Consolidated Professor Mines’ (TSE) Duport gold project. Trying to convince Winnipeg residents that mine effluent won’t contaminate their water has become a major factor in developing the property. Last year, despite the company’s efforts and in response to angry Shoal Lake cottagers, Duport became the first private mining project in Ontario to be designated for review under the Environmental Assessment Act. A new environmental consciousness has been sweeping the globe. Industry, including the mining sector, is taking the brunt of criticisms. As new laws and regulations reflect this public concern, industry is being forced to clean up its act.

For mining companies, the increasingly rigorous environmental standards are creating unexpected costs. The American Mining Congress estimates that mineral processing industries in the U.S. have spent nearly US$14 billion since the Earth Day was introduced in 1970 on plant modernization and equipment to control pollution. Noranda (TSE) alone has spent some $650 million in the past decade.

While the larger, cash-rich companies such as Inco (TSE) and Noranda have so far been able to absorb these costs with minimal impact on their bottom line, some marginal mining operations are suffering. And as the price of environmental responsibility continues to grow, many of these marginal mines could be forced out of production, while development of new orebodies may be delayed or cancelled altogether.

“A problem may arise at an existing mine when the rules are changed in midstream,” said George Miller, president of the Mining Association of Canada. “There may be cases where we might be looking at closures.”

Last year, a failure of the effluent treatment system at the Hope Brook Gold (TSE) mine in Newfoundland forced the company to close its mill for five weeks and install a new treatment system. As a result, the company “incurred considerably more expenditure for environmental control than had been anticipated originally,” said Chairman David Claydon in his letter to shareholders. The unexpected costs, including a $10,000 fine, helped the company generate an $18.8-million loss for 1989. In this case, environmental damage that might have been ignored even five years ago could prove to be too expensive for a mine already battling with production costs of over $500 per ounce.

When the revolutionary decision to subject the Duport gold project on Shoal Lake to an environmental review was brought to public attention, mining analysts advised shareholders of Consolidated Professor to sell their shares in the wake of soaring environmental costs. Today, Consolidated is just beginning to calculate the effect these unexpected costs will have on the feasibility of the proposed gold mine.

Environmental concerns are also creeping into the agenda at the annual meetings of several mining companies. Recently, at the Geddes Resources (TSE) meeting in Toronto, the Sierra Club of Canada stated their commitment to have mine construction at the Windy Craggy copper deposit stopped. “This project will actually be delayed for many, many years,” said Elizabeth May, representative for the Sierra Club. If current lobbying for environmental reviews of potential acid mine drainage at Windy Craggy is successful, she may be right.

In order to avoid the expensive problems Hope Brook, Consolidated Professor and Geddes are having to endure, many mining companies are anticipating future environmental costs and implementing preventative strategies.

At RTZ Corp., a mining multi- national, company policy dictates the use of up-to-date, well- engineered technology on any new project so that it may withstand environmental standards anywhere in the world. In Canada, new milling equipment at Inco’s mines is reducing sulphur emissions by rejecting a higher proportion of pyrrotite in the ore. And at many operations, closed circuit treatment plants for water recycling are already in place.

“As standards improve, technology is also improving,” said Miller. We may find that by the end of the decade, new technology will be able to combat any arising environmental problems, he added. But in some cases, the rising cost of environmental measures in industrialized countries may convince mining companies to move their operations to areas where political risks are high but costs are lower. According to the latest World Commodities Forecasts report put out by the Economist Intelligence Unit, the rewards of mining in the Third World may outweigh the risks. The report makes an example the Ok Tedi mine in Papua New Guinea. In that country, the government cannot afford to impose environmental standards on the copper mine that might result in its closure.

And in Chile and Peru, the report says, “smelters are reported to recover only between one-third and a half as much sulphur dioxide as U.S. smelters, a differential that could widen with more complete U.S. compliance with the Clean Air Act.”

In future, costs are likely to escalate. Over the next decade, new environmental controls could cost the mining industry a minimum of $7 billion, said Carl Soonen, vice- president of Informetrica, speaking at the Canadian Institute of Mining conference in May. Miners must adjust to these new costs or be prepared to suffer the consequences, including mine closures. As Tom Stephens, chief executive of Manville, pointed out, the mining sector does not have the “luxury of focusing on today’s law. Ultimately, business is accountable for tomorrow’s law.”

Shoal Lake, a source of drinking water for Winnipeg, Man., is the location for Consolidated Professor Mines’ (TSE) Duport gold project. Trying to convince Winnipeg residents that mine effluent won’t contaminate their water has become a major factor in developing the property. Last year, despite the company’s efforts and in response to angry Shoal Lake cottagers, Duport became the first private mining project in Ontario to be designated for review under the Environmental Assessment Act. A new environmental consciousness has been sweeping the globe. Industry, including the mining sector, is taking the brunt of criticisms. As new laws and regulations reflect this public concern, industry is being forced to clean up its act.

For mining companies, the increasingly rigorous environmental standards are creating unexpected costs. The American Mining Congress estimates that mineral processing industries in the U.S. have spent nearly US$14 billion since the Earth Day was introduced in 1970 on plant modernization and equipment to control pollution. Noranda (TSE) alone has spent some $650 million in the past decade.

While the larger, cash-rich companies such as Inco (TSE) and Noranda have so far been able to absorb these costs with minimal impact on their bottom line, some marginal mining operations are suffering. And as the price of environmental responsibility continues to grow, many of these marginal mines could be forced out of production, while development of new orebodies may be delayed or cancelled altogether.

“A problem may arise at an existing mine when the rules are changed in midstream,” said George Miller, president of the Mining Association of Canada. “There may be cases where we might be looking at closures.”

Last year, a failure of the effluent treatment system at the Hope Brook Gold (TSE) mine in Newfoundland forced the company to close its mill for five weeks and install a new treatment system. As a result, the company “incurred considerably more expenditure for environmental control than had been anticipated originally,” said Chairman David Claydon in his letter to shareholders. The unexpected costs, including a $10,000 fine, helped the company generate an $18.8-million loss for 1989. In this case, environmental damage that might have been ignored even five years ago could prove to be too expensive for a mine already battling with production costs of over $500 per ounce.

When the revolutionary decision to subject the Duport gold project on Shoal Lake to an environmental review was brought to public attention, mining analysts advised shareholders of Consolidated Professor to sell their shares in the wake of soaring environmental costs. Today, Consolidated is just beginning to calculate the effect these unexpected costs will have on the feasibility of the proposed gold mine.

Environmental concerns are also creeping into the agenda at the annual meetings of several mining companies. Recently, at the Geddes Resources (TSE) meeting in Toronto, the Sierra Club of Canada stated their commitment to have mine construction at the Windy Craggy copper deposit stopped. “This project will actually be delayed for many, many years,” said Elizabeth May, representative for the Sierra Club. If current lobbying for environmental reviews of potential acid mine drainage at Windy Craggy is successful, she may be right.

In order to avoid the expensive problems Hope Brook, Consolidated Professor and Geddes are having to endure, many mining companies are anticipating future environmental costs and implementing preventative strategies.

At RTZ Corp., a mining multi- national, company policy dictates the use of up-to-date, well- engineered technology on any new project so that it may withstand environmental standards anywhere in the world. In Canada, new milling equipment at Inco’s mines is reducing sulphur emissions by rejecting a higher proportion of pyrrotite in the ore. And at many operations, closed circuit treatment plants for water recycling are already in place.

“As standards improve, technology is also improving,” said Miller. We may find that by the end of the decade, new technology will be able to combat any arising environmental problems, he added. But in some cases, the rising cost of environmental measures in industrialized countries may convince mining companies to move their operations to areas where political risks are high but costs are lower. According to the latest World Commodities Forecasts report put out by the Economist Intelligence Unit, the rewards of mining in the Third World may outweigh the risks. The report makes an example the Ok Tedi mine in Papua New Guinea. In that country, the government cannot afford to impose environmental standards on the copper mine that might result in its closure.

And in Chile and Peru, the report says, “smelters are reported to recover only between one-third and a half as much sulphur dioxide as U.S. smelters, a differential that could widen with more complete U.S. compliance with the Clean Air Act.”

In future, costs are likely to escalate. Over the next decade, new environmental controls could cost the mining industry a minimum of $7 billion, said Carl Soonen, vice- president of Informetrica, speaking at the Canadian Institute of Mining conference in May. Miners must adjust to these new costs or be prepared to suffer the consequences, including mine closures. As Tom Stephens, chief executive of Manville, pointed out, the mining sector does not have the “luxury of focusing on today’s law. Ultimately, business is accountable for tomorrow’s law.”