Cleanup costs make past producers unpopular – It’s hard to sell an

It was once the case with dormant mines that any prospects for a re-opening rested with the underground potential. In today’s environmental climate, the focus has shifted to the surface, specifically to the waste dumps and old tailings that might generate acid.

If there is even a hint that acid drainage, arsenic in the tailings or some other environmental hazard lurks above ground, the property is immediately viewed as tainted.

“A lot of these properties don’t interest us,” said John Harvey, president of Noranda Exploration, a unit of Noranda (TSE). “The environmental clean-up might far outweigh the economics of the property.”

Noranda takes the precaution of having an environmental professional assess sites of old producers that attract the interest of its evaluations department.

Placer Dome (TSE) is also cautious. “We don’t have a policy not to take on these things, but we do have a policy to take a good, hard look at them,” said Henry Brehaut, Placer’s senior vice-president environment.

The majors are especially wary of such properties because of the generally held perception that they can absorb the costs of any cleanup orders.

“When a major takes over, the deep-pocket syndrome sets in,” Brehaut said. All this is bad news for junior companies. Many of them have acquired properties of old producers, on the theory that, for some reason or other, ore remains at depth. In some cases, a geologist has re-evaluated the geology and fastened on some new theory that hints at reserve potential. Whatever the reason, the junior often tries to option the property to a major. In the past, it was a tough enough sell. “It’s hard to sell (an option) on an old mine, unless the junior has improved it in some way,” said Fenton Scott, president of the Prospectors and Developers Association of Canada. “Some juniors are now in the position where they bought properties that are virtually worthless.”

Lynda Bloom, president of Citadel Gold Mines (TSE), said that potential joint venture partners in the past “were typically happy to find past producers with some reserves.” But now, because of the fear that environmental liabilities might also accrue, she said “potential joint venturers are hesitant to become involved.”

Unfortunately for the juniors, they have little recourse currently but to turn to the majors for funding. Equity markets are flat. And the banks, chronically averse to high-risk exploration lending, are even less eager to consider loaning money on a project that carries with it environmental risk.

“In the event of a default, a lender takes over the environmental liability,” Scott said. “The banks are reluctant, to put it mildly.”

Olav Svela is editor of The Northern Miner Magazine.