Part 2 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.

Regardless of the stage of your project, there are always questions related to environmental liability that can spark the discussion of releasing the closure security, either during the initial estimate of closure costs, or when a company tries to access their security. This discussion usually involves interest holders and regulators.

It is important to understand that whether the conversation touches on unfunded liability, ESG liability, environmental liability, closure liability, or assurance/security/bond, all the terms describe roughly the same concept in a mining context, and all are strongly correlated with how sustainably mine waste and water are managed during operations and closure.

Some interest holders or regulators may not be ready to have this type of discussion. The most accessible audience is the one you have already gained trust with and have shared experience. If your audience considers reducing environmental liability rather than reacting to regulations, they might see the benefit in an early discussion.

Exploration/PEA/PFS/FS Stage

Closure costs and liability can decrease through improved options analysis and planning, but usually only if there is a shift in closure vision/strategy, which has a much greater chance of being successful if it is applied early. Often, decisions made before day 1 of mining can significantly change the security calculation. Additionally, taking climate change into account early can avoid closure situations where the company is working against the natural environment.

One of the main challenges regarding proper estimation of closure security is that companies often don’t get serious about closure until they are at the feasibility study (FS) stage and there are no real options for flexibility or creativity. We have observed success with the application of an ESG Evaluation and Guidance Tool that highlights the appropriate level of advancement of each environmental discipline (e.g., mine waste, mine water, biodiversity) at each stage of mine development (e.g., exploration, prefeasibility study PFS, closure). Often, such standards are clumsy and become backloaded with work towards the FS and operational stage but miss opportunities for critical decisions to be made early in the mine life.

Mining companies may avoid applying such a tool early because they are concerned with spending hundreds of thousands of dollars on complex modelling before the resource is even proven. However, with the right integrated people in the room asking pointed questions about environmental liability and risk that are focused on the objectives of the mining company, the cost of applying the tool shrinks. If a mining company understands that the decisions they make now can save them millions of dollars later, there can be a change in perspective. The sustainability indicator tool is critical in uncovering potential “fatal flaws” with the development that can be mitigated throughout the entire PFS, FS, and operational periods. Examples of questions that identify potentially fatal flaws, broken down by discipline, include:

• Climate Change Mitigation and Adaptation – Is the project going to produce considerable amounts of greenhouse gases; Is the project area prone to extreme weather events?
• Energy Management – Does the project have a power supply or is the plan to use diesel generators?
• Water Management – Are there any water management activities required into perpetuity (e.g., water treatment, seepage interception); Are there any water access limitations?
• Waste Management – Are there any critical considerations for physical stability (e.g., rainfall, seismicity, topography) or chemical stability (e.g., ML/ARD potential) of the mine waste? Have vegetation and wildlife requirements been considered when sloping mine waste piles?
• Biodiversity – Is the project located in and around any protected areas, areas with vulnerable species, or sensitive/critical habitats?

If there is a fatal flaw identified within one of the disciplines (e.g., ML/ARD generation into perpetuity from mine waste), decisions can be made early to address these flaws (e.g., co-disposal, dry stack tailings, waste segregation). By being proactive and transparent with liability/risk management, the mining company reduces the chance of an overly conservative security estimate approach, which commonly happens when uncertainty is high. Additionally, closure plans often do not consider subsidy options for portions of the closure landscape that generate revenue (e.g., power generation, pasture, recreation, transfer of water rights). These types of decisions are usually impossible to make later, and the company is usually locked into their decisions by the end of the PFS stage.

Construction/Operation Stage

The security-return limitations described in part 1 suggest that mining companies, regulators, and interest holders need to agree to a transparent, measurable mechanism to progressively release the security at the completion of individual closure components. This process should allow better financial planning for mining companies to carry out mine closure in a timely manner, according to the approved plan.

Applied science can be used for progressive security release prior to closure. Securities are reevaluated every five years, so every company will go through this financing challenge at some point. Security holders in operations don’t have to wait five years after operations to see if closure works; the company can complete pilot studies during operations to derisk closure and progressively return parts of the security. During operations there is more money, time, equipment, and people than at any other stage of the mine lifecycle, making it an ideal time for proof-of-concept studies. Stay tuned for a case study in part 3 of this series, which will describe the successful application of this strategy.

Care and Maintenance (C&M) Stage

Sometimes, uncertainty in security return leads a mining company to enter C&M rather than closure, which has a lower exposure to risk. When a mine reaches this point, although there may be a large security holding, there is no capital accessible to start any closure work. The approach for the C&M stage follows the same general strategy as the operation stage, but it has a different trigger. As there is no capital available to the mining company, there is no incentive to plan or execute any proof-of-concept closure studies. In this case, we need to approach the regulator (security holder) to explain to them that if the mining company is not able to access their security, it is increasingly likely that the closure will end up in the hands of the regulator, which has little capacity and capability to undertake the work. If the regulator is incentivized to release security to pay for pilot studies and future closure, this process will initiate the closure of the mine. If you take this idea one step further, you can imagine a consulting company developing brownfields (getting them out of [C&M]) by leading the initial closure planning with the mining company and regulator, leaving the construction/operation phase to the mining company while guiding them on the closure vision and roadmap, and re-entering after operations have completed to lead the closure execution and post-closure monitoring.

Unique Considerations

Closure work is funded by the security/bond, which is independent of market conditions. The price of the mined commodity has no bearing on the ability to fund engineering activities if no “new” capital is required. In some instances, bond access may be more attractive during low commodity prices, as there are limited sources of operating capital during those times.