The Lessons from Cloud Peak


Open Pit Mine (upper right) and Tailings Storage Pond (lower left), Sonora Mexico (from 35,000 feet)

Open Pit Mine (upper right) and Tailings Storage Pond (lower left), Sonora, Mexico (from 35,000 feet). he pond is held by the very dangerous “upstream” dam type.

As WC noted yesterday, Cloud Peak Energy has filed Chapter11. The promises, actual and implied, Cloud Peak made in its mining plan and environmental impact statements are in very serious jeopardy, because the continued existence of Cloud Peak itself is doubtful. What are the lessons to be drawn from all this?

First, and most obviously, the costs of mine closure and environmental remediation have to be fully bonded. The mining company, before it begins production or even significant development, must post a bond, a kind of pre-paid insurance policy, for the full cost of performing remediation to current and future remediation standards.1 You simply cannot rely on the mining company to perform remediation and closure, as the Cloud Peak case is demonstrating. The bond has to be big enough to allow for unknown risks; that is, if science concludes that a currently tolerated contaminant presents an unacceptable risk then the remediation has to accommodate those future risks and the cost of those future risks. By definition they are unknowable, but WC suggests a bond of 200% of the estimated costs of future closure and remediation is the minimum level.

A second, separate bond or insurance policy must be required for the risk of mine operations failure during the life of the mine. The Mt. Polley Mine disaster is an example of the kind of operational failure, as opposed to failure of remediation, that WC is focused on here. The amount of insurance (or cash bond) should be something like 1.5 times the cost of remediating the worst-case scenario mining catalstrophe. Otherwise, the mining company may be operated as an asset-less shell, designed to be insolvent in the event of an operational failure. If this risk is addressed by an insurance policy, then failure to maintain the policy should invoke immediate closure and remediation. Remember, we don’t let folks drive automobiles in Alaska or Idaho without insurance against an accident. Why in world do we allow mining companies to operate when the injuries can be orders of magnitude greater?

A corollary to these requirements is that some mines will not be able to afford the bonds and insurance policies. What that means, of cours,e is that when the true costs of operation are included, those mines are not profitable and should not be constructed. In some cases – Pebble Mine comes to mind – the costs of catastrophic failure are so high – loss of large amounts of wild salmon habitat – that the risks of failure are uninsurable.

WC regards wilderness and wild salmon habitat as too precious to risk anyway, but if you are going to reduce it to economics, the “cost of mining” has to include the cost of mine failure as well as the cost of full remediation. And that means a cost that it too high for the would-be mining operation to be profitable, that’s just the way it is. Failure to consider those costs is simply punting them to the taxpayers. WC is tired of that. You should be, too.

The second lesson of Cloud Peak’s Chapter 11 is that mining leases need to be non-assignable. What that means is that the leases for the land to be mined, whether, federal, state or private lands, by law need to be written so that the leases cannot be conveyed to another mining company without the consent of the lessor. That would give more control to the landowners and help keep the vulture mining companies at bay.

Vulture mining companies” are the outfits that buy the mining rights of insolvent companies but don’t assume any of the remediation, cleanup or operational responsibilities. They are typically “shell” companies, created for the purpose, that have no other assets beyond the mining rights they purchase, that try to get any remaining value out of the ground without regard to environmental damage, or the unfulfilled obligations of the prior owner-operator of the mine. Vulture mining companies frequently do a lot of harm to a site that it is already causing harm to the environment. By linking government approval of the proposed sale and assignment to the lease, you give the government the right to evaluate the proposed successor company. The idea is to not permit the separation of the environmental obligations from the right to mine.

Put another way, the law currently sets the priority of paying creditors by selling the bankrupt copany’s mining rights ahead of the duty to mitigate the environmental damage. That needs to stop.2

You say these changes will cause the price of coal, oil, gas and minerals to rise? WC suggests it will rather make the prices reflect their true costs, and shift risks back to the risk-creators and away from the taxpayer. You say will keep some mines from being developed at all? WC would say you are preventing an unacceptable level of risk.

It’s long past time.

 

 

 


  1. The costs of remediation can be a very tricky calculation. In the case of tailings ponds, for example, it involves maintenance of dams and water treatment facilities forever. Not for a hundred years; to infinity. Through the consequences of future anthropogenic climate change, the risk of earthquake, and the whole suite of risks associated with mine waste. 
  2. On an unrelated note, the bankruptcy laws also place paying other creditors ahead of paying pension obligations and ongoing health insurance obligations of employees. Again, the policy betrays a shabby sense of priorities. 

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