Sustainable Mining Challenge: account for perpetual mine-water treatment

My Challenge

Here is a neat little challenge for my friends in the Sustainable Mining Business. This challenge is prompted by a fight I had yesterday over the Kemess North Mine, B.C. report as recently issued by a three person expert panel.

I conclude that the panel rejects the mine for this basic reason: At best the mine will last about a decade. Thereafter for thousands of years, the government will have to pay to treat water from the lake, now contaminated by the tailings. Here is a quote from the Executive Summary to support my conclusion:

The Panel notes that the Project’s benefits accrue for only a relatively short period (two years of construction and 11 years of mining production). This period could be reduced if the Project, which is not economically robust, were to close prematurely. Key adverse effects include ….the creation of a long-term legacy of environmental management obligations at the minesite to protect downstream water quality and public safety. These obligations may continue for several thousand years, and include ongoing treatment of poor quality water from the open pit (the “North Pit”), and regular monitoring and maintenance of the waste disposal impoundment (the “Duncan Impoundment”) and its three dams, to preserve the desired water balance and water chemistry in the Impoundment and to ensure the health of its aquatic ecosystem.

My opponent claimed that if Kemess North had been able to mine for one-hundred years, the pannel would have concluded that perpetual lake-water treatment would have been acceptable.

Let us assume that he is right. Such an assumption gives rise to an interesting economic problem,which can be stated in any one of the following ways:

1. How long must a mine operate to justify perpetual contaminated water treatment?
2. How long should a mine operate to justify a given number of post-mining years of water treatment?
3. How much money should a mine pump into the local economy to justify dumping long-term mine-water treatment onto local taxpayers?
4. How do you quantify long-term (i.e., an hundred, a thousand, perpetual) mine-water treatment costs using Net Present Value or any other equation?
5. How much money should a mine put into trust at various stages of mine operation to provide for perpetual mine-water treatment by the government?

I submit that unless we answer this (these) question(s), we will find ourselves going down a road blazed by Montana and Idaho. Here follows what I have previously written about the move to ban mines that may result in perpetual mine-water treatment in those two USA states.

Montana and Idaho

The first time I wrote on this topic was in connection with what has happened in Montana and Idaho: no new mining unless you can prove up front that you won’t need perpetual water treatment when you shut down. The same folk who stopped mines that use cyanide in Montana are behind this new move, in spite of protests from the Northwest Mining Association.

The Water Environment Federation(WEF) reports that Senator John Andreason, Republican from Boise, Idaho, is pushing a bill to ban the opening of new mines that require long-term water treatment. Andreason has an alternative bill that would require companies to post a bond to cover the costs if Idaho is left with a water problem at the end of mining. The Idaho Mining Association opposes an outright ban. The Senate Resources and Environment Committee approved “printing” both bills.

In late 2005, the Montana Environmental Quality Council proposed this requirement for a mine reclamation plan:

The reclamation plan must conclusively demonstrate that, after .. [two years] … no treatment of surface or ground water for carcinogens or toxins will be required to meet water quality standard at the point of discharge.

In early 2006, the Board of Environmental Review amended the language of the proposed rule change to lower the standard of proof that water treatment would not be required beyond two years from “conclusively demonstrate” to “demonstrate by clear and convincing evidence.” This was considered to reduce the 100 percent guarantee to a 70 percent probability.

In a study of the economic impact of this regulations entitled Economic Impacts of The Petition for Proposed Amendment of ARM 17.24.116 Pertaining to Hard Rock Mining Applications requirements for operating permits issued in February 2006 is this conclusion:

As a result of adopting the proposed rule as amended in January 2006, an estimated 50 to 90 percent of future metal mining economic output and 10 to 25 percent of future industrial mineral mining economic output in Montana would be prevented from developing… Overall, these two mining sectors comprise less than 1.5 percent of Montana’s total economy in terms of jobs, wages, economic output and tax revenue. Therefore, the state economy as a whole would not be significantly affected by the proposed rule. However, mining’s prominent history in Montana culture, its concentration in select counties, and the fact that mining jobs are high-paying would ensure that localized significant effects would occur.

Laura Skaer of the Northwest Mining Association kindly let me know that the proposal was tabled indefinitely when the Montana Department of Environmental Quality came out against it. She also told me that the bill in Idaho has been referred to a committee for further study, effectively killing it for this year [2007].

Island Copper

A classic Canadian case history is in the proceedings of Mine Closure 2006. In a paper Planning for In-Perpetuity Mine Closure CostsG.L. Pierce of BHP Billiton and M.E. Wen of Rescan Environmental Services Ltd. note that the now-closed Island Copper Mine on Vancouver Island, created 16,500 person years of employment with a payroll of over C$700 million, spending on supplies and services in British Columbia of over C$1.2 billion and out-of-province spending of almost C$1 billion. Then they tell a sad tale of miscalculated closure cost estimating and finally admit that perpetual care is needed to deal with acid mine drainage. They conclude: “for most existing acid generating mines, we believe that planning for in-perpetuity costs is essential and that the concept of financial closure for these mines is unrealistic.”

What this otherwise informative paper fails to tell us is what perpetual care will cost and who will pay. Was this information edited out of the paper before its publication? It seems such an obvious bit of information to provide, particularly when the abstract includes this promise:

“The closure plan was reassessed for post-closure residual risks, which are those risks that remain after closure and reclamation activities have been executed. For each risk, the timing and probability of the risk eventuating were evaluated. The consequence of each risk, should it eventuate, was considered and the associated activities and cost were estimated….A discounted cash flow model captured the estimated costs for closure, with any cash-flows after 50 years assumed to be incurred in-perpetuity. This is-perpetuity cost estimate is fully risked and can help estimate long-term liability at the site.”