Editorial Setting aside funds for mine closure

When an orebody is depleted, mining companies have to ensure safe and complete mine closure, but that responsibility cannot be at such a cost that the mining operation itself becomes uneconomic. Miners are well aware that they are morally and legally obligated to clean up mine sites as they are abandoned. The Mining Association of Canada and other professional organizations have, on several occasions, raised the question of how best to fulfill that responsibility.

Two issues are of particular concern. One is the question of handling mistakes of the past. It is easy to blame today’s companies for environmental problems arising from mining practices of an earlier era. Judging yesterday’s actions by today’s standards, however, is not only unfair, it is unproductive. Attempts to find culprits for mistakes of the past are a waste of time and energy.

Even so, the mining industry is making efforts to right yesterday’s wrongs. Tailings reclamation is now standard practice in the industry and research into alleviating acid runoff from mine waste has progressed with the strong support and financial assistance of the mining community.

A second concern about mine reclamation is cost. One thing is certain. With new or revised legislation concerning mining in virtually all mineral producing jurisdictions, post-closure requirements are getting tougher and more expensive. Equity Silver and the British Columbia government, for example, are still trying to thrash out what it will cost to close Equity’s mine at Houston, B.C., in 1992. The company has already set aside $31 million but the government may demand more. Ontario and other provinces are likely to follow British Columbia’s example.

There are various ways of ensuring that the money for mine closure is there when needed — insurance policies or letters of credit, for instance. Provincial governments, however, seem intent on demanding cash, put up in advance. That added cost, under existing tax laws, could easily prevent development of a deposit.

Mining companies have long realized that mine closure is a cost of doing business, but tougher regulations require that some consideration be given to how that cost can be absorbed.

One method, proposed by the MAC to Finance Minister Michael Wilson, calls for changes in the tax treatment of reclamation funds. It is essentially a matter of timing. Under current tax regulations, money spent on post-closure costs are deductible, but only at the time the money is spent. That means that tax is paid on the money today even though it will be tax-deductible when it is spent 10, 20 or even 50 years from now. The MAC proposes that money put into a reclamation fund during a mine’s productive life be deductible as it is set aside rather than as it is used.

The MAC’s proposal would allow money set aside for mine closure to be treated much like a registered retirement savings plan. During a mine’s productive years, money set aside would be non-taxable. Then, when the mine’s life was complete, the funds would be withdrawn as needed to pay for closure.

Such a change to the Income Tax Act would accomplish several things. Most important from the government’s point of view, it would ensure that the money is there so that a company is in a position to meet its mine closure responsibilities. From the industry’s point of view, it spreads the cost over time in such a way that more of Canada’s mineral resources could be economically extracted.

Perhaps most important of all, it would be fairer. For companies facing a multitude of requirements from a variety of provincial governments, an equitable means of taxing mine closure funds would give some measure of stability for planning purposes.