Taxpayers to foot the bill for mine closures, Independent Australia 26 July 2016 Mine rehabilitation – to avoid toxic seepage – is a costly business which taxpayers look likely to fund, writes Michael West.
MINING COMPANIES and regulators have gravely underestimated the costs of mine rehabilitation, leaving taxpayers in the gun for billions of dollars in clean-up costs, says Rick Humphries.
He should know. Humphries was Rio Tinto’s top adviser on land use before heading up mine rehabilitation for base metals groupMMG.
The environmental scientist has since “switched sides” to consult for conservation groups on mine closure.
Humphries told us in an interview last week:
“The problem is there is a very large and growing environmental liability and if it’s not put in check it will cost taxpayers dearly, and result in large scale degradation of national resources.”
There are some 50,000 abandoned mine sites in Australia. Many are small and old. Others though, such as Century Zinc Mine, Ranger Uranium and the first of the mega coal mines to close – Anglo American’s Drayton and Rio Tinto’s Blair Athol – are large, toxic and present a formidable challenge to close properly.
The humongous Ranger and Century open cut voids alone, will cost around $750 million to $1 billion to rehabilitate and the residual risks and liabilities for their parent companies (Rio Tinto and MMG) are as yet unknown.
What has been missing in the clean-up debate so far, however, is specifics, detailed research that is of particular company exposures. It is only when investors come to grips with the costs of closure that company directors and regulators will properly address the challenge, says Humphries.
So he has been doing the rounds of stockbrokers and institutional investors in recent days with analysis of Oz Minerals, MMG, ERA’s Ranger Mine, Rio Tinto’s Blair Athol Mine and Australia’s dirtiest power generation assets, the Yallourn, Hazelwood and Loy Yang brown coal mines in Victoria.
It’s “heads we win, tails you lose”
Humphries’ report, Mine Rehabilitation and Closure Cost – a Hidden Business Risk, sheds light on the caprice and inaccuracy of closure provisions and how mining companies account for their liabilities……….
Risks and costs of mine closure are poorly understood
The case of Century raises serious questions over the accuracy of the provisions for MMG’s other assets, says Humphries, and it illustrates (along with the ERA case study below),
“… that mining companies have a habit of systemically underestimating the real cost of closure because the complexity, risks and costs of mine closure are poorly understood.”
ERA’s Ranger Uranium mine is the classic case of escalating cost estimates. Humphries details the continual revision of estimates over the years from $149 million in 2008 to more than $600 million this year. Rio Tinto’s Blair Athol mine enshrines a different challenge entirely, that of a major mining group flogging a depleted asset to a small player with little ability to fund a clean-up.
The deal is not done yet but an agreement was struck a few weeks ago for Rio to sell its Blair Athol coal mine to a small ASX-listed company TerraCom. The mine was sold for $1, including Rio’s slated $79 million clean-up liability.
But as the Humphries report notes, the financial assurance calculated by the government’s methodology comes up with a rehab cost of twice that, $160 million.
IEEFA director Tim Buckley describes this as a “heads we win, tails you lose” scenario for TerraCom’s promoters. The company has $150 million in debt and no equity and its success rides on a bounce in the price of thermal coal. It has risen lately but, as Buckley says, thermal coal appears to be in structural decline………
The Humphries Report illuminates the challenge for the mining sector and state governments and it contains just five case studies……
For the environment, the risks are clear, the Mary Kathleen uranium mine, once controlled by Rio, was rehabilitated and relinquished in 1986, winning an award for technical excellence at the time. The waste dump has since failed and the liability and attendant costs now reside with Queensland taxpayers.
Mary Kathleen, whose AFL side once won three regional premierships, is now a ghost town. Radioactive waste has seeped into the water systems.
This article was originally published on michaelwest.com.au under the title ‘Mine voids: big party, now for the hangover’ and has been reproduced with permission. You can read more from Michael on his website and follow him on Twitter @MichaelWestBiz. https://independentaustralia.net/environment/environment-display/taxpayers-to-foot-the-bill-for-mine-closures,9280