Part 3 Sustainable Mining Practices: Securing Closure Capital from Exploration to Reclamation

Part 1 presented the observed security release “problem”; Part 2 presents strategies for starting a security release discussion; Part 3 describes an example of a successful security release using the presented strategies.

When the discussions described in Part 2 do not happen, the mine does not move closer to closure, it moves closer to the short-term objectives of the mine manager or corporate office, which are unlikely to be aligned with the closure vision (if there is one). There are many examples of how not to close a mine, some are more expressive than others. One example is when the government took over a mine and started to solicit bids on the closure scope, it insinuated the closure bond may have been underestimated by one or two orders of magnitude. For a mid-size or large mining company, there are more options to fund underestimated closure for a single asset using the revenue from other assets, but for a government or single-asset mining company, the options become exceedingly limited.

Progressive Reclamation Example

Using a mine in northern Canada (Project) as an example, we will illustrate the post-security challenges and solutions described, highlighting how cooperation between regional and federal regulators has led to an agreement to release the security progressively for completed components with prescribed signoff requirements. During the life of the project, reclamation work was carried out in stages, following the approved interim closure and reclamation plan (ICRP). As part of this plan, sections of the tailings containment area (TCA) were covered with sand during operations and monitored. This provided decades of valuable on-site data. The final closure and reclamation plan (FCRP), built on the ICRP, and included additional studies to address any remaining concerns raised by the regulators. These studies were developed in close collaboration with the regulators to ensure the closure design would perform well over the long term. In the end, the regulators agreed that the plan, along with its identified risks, was acceptable.

An updated closure cost estimate was submitted as part of the FCRP submission. For the Canadian territorial jurisdictions, the regulators require the cost estimate to be completed using a spreadsheet tool called RECLAIM (GNWT, 2017). This tool was developed for the Government of Northwest Territories to assist the estimation of closure and reclamation costs at mines and to advance mineral exploration projects. The tool allows all the individual tasks of the closure to be broken down and costed and was specifically designed to help government agencies better understand the multiple components of mine closure. There are guidelines on how the tool should be applied, and the Project’s territorial regulators require the cost estimate to be assessed by a third-party. It should be noted that closure securities in Canada’s three territories are public information. This transparency ensures that the public has a stake in the process, because if the mine is abandoned, it would be managed by the government and therefore a publicly funded project.

The key elements of the cost estimate are the itemized, quantifiable tasks which allow all parties to identify, characterize, and mitigate risks for closure. The tasks are reviewed and refined as part of each license renewal. During the FCRP renewal process, new tasks were inserted and quantified as mitigations for the risks identified in the studies and to address regulators’ concerns. These new tasks in the RECLAIM model were submitted as part of the FCRP and approved with their security amount.

With construction risks that cannot be declassified until actual field work, it is beneficial to have the closure components broken down by individual areas to distribute and minimize the risks. In this example, the Project closure cost was broken down into two major milestone categories: capital costs and indirect costs. The capital costs were generally tied to construction of the closure components whereas the indirect costs were tied to the mobilization/demobilization, management, engineering and contingency. Each of the capital closure costs was further broken down into specific components to allow timely release of security when work was completed. Examples of this bond-return methodology include:

• Instead of calculating TCA closure as one security value, the closure was broken down into more than a dozen items (e.g., specific tailings cell covers, individual dam re-sloping activities, final spillway construction).
• The water treatment task was broken down into three items that were key parts of the work. The cost of the product could be paid upon delivery to site. The treatment plant upgrade cost could be claimed with engineer verifications and confirmation by the inspector. Lastly, the cost of labour for water treatment could be claimed with engineer verifications and confirmation by inspectors.
• The mobilization and demobilization tasks were broken into 15 subtasks (e.g., initial mobilization and final demobilization with photographic documentation compared to the inventory list).
• All the major buildings were separate items. The fuel tank decommissioning was broken down further into three tasks (cleaning, dismantlement, and disposal) which all required engineer’s verification and inspector confirmation.
• The Project is still liable for construction level risks (such as bulking, shrinkage, topographic variance), and these risks will remain with the owner until the task is completed.
• Post-closure monitoring and contingency will be held longer for post-closure assurance.

During the consultation of the FCRP with all the regulators, a list of evidence was proposed in support of the RECLAIM estimate. With the individual closure tasks broken down, release conditions ranged from specific third- party engineer signoff to certified survey to photograph documentation, depending on the exact task. The intent was to identify the signoff requirement to signify individual task completion and release of the associated security. The unique characteristic of the Project is that signoff requirements are included as part of the FCRP and therefore embedded within the license. It should be noted that the closure cost estimate using a construction-based approach is not new, but its presentation in the RECLAIM estimate within the FCRP is.

The security was released annually based on the submission of the signoff documents and confirmation inspections by the regulators. The released security allowed the Project to finance the next phase of closure activities. With financial flexibility stemming from the progressive release of the security, a single-asset company can transition from care and maintenance to closure.

Conclusions and Recommendations

Canadian mines have complied with the closure legislation and there are billions of dollars in securities held in trust in the hands of the regulators. The legislation, policies, frameworks, guidelines, and funds should warrant a high success rate of mine closure—but they have not. In my opinion, two reasons for the lack of successful mine closure are: unawareness of fatal flaws and proper net present value application in closure security estimates, and the unclear method of security release.

By understanding risks and responsibilities early in a project, proactive steps can be taken to reduce those risks and avoid setting security estimates that are too low. Once the security has been calculated and held, releasing it gradually as closure work is completed can free up cash flow during closure. A clear and timely process for releasing security could encourage more mines to move out of care and maintenance, giving them confidence in balancing their finances.

By adopting a more flexible, transparent, and progressive approach, we can unlock capital, reduce long-term risks, and deliver better outcomes for both industry and the public. Let’s shift from holding billions in trust to actively investing in responsible closure.