ERM outlines the true cost of mine closure

Mining has long been the source of materials for modern society. It also has been critical in the establishment of associated secondary and tertiary economies. However, mines have a finite life, and mine closure poses a material risk to mining companies, other dependent industries and local economies. To manage this risk, there appears to be a shared recognition of a need to better integrate closure into the overall mining life cycle; designing and operating with closure in mind. Unless mining companies think more strategically about closure, the long lasting trail of liabilities will continue to mount.

Managing the end of life process and closing down mines is far from a mining sector challenge alone. Businesses and communities that have been built up around the mine also need resiliency planning involving local governments and other industry to ensure long-term economic success. Investors, regulators and mining companies are realizing that planning for and executing closure strategies is not just a financial accounting exercise and a mining engineering challenge. Closing a mine poses a material financial and social risk that puts broader economic survival, future investment in mining and maintaining a license to operate in jeopardy.

The ability to relinquish mines post closure remains an enduring challenge. While mines regularly “close”, whereby production ceases and rehabilitation/decommissioning are carried out, achieving relinquishment or being able to hand over the site for next use can take many decades. As the mining sector continues to embrace a changing world and redefines its role in the broader mining and metals ecosystem, there is an opportunity to challenge traditional paradigms to reduce crippling liabilities, create social value and stabilize economies.

Not only has successful relinquishment been unattainable for most, but the financial cost of closure is often many times higher than was ever anticipated and can have a material impact on the bottom line. Credit: ERM.

Mine closure has traditionally been viewed as a means to an end; an eventuality that manifests itself as the boom and bust cycle inherent with mining. Often the stated goal for closure is to relinquish physically and chemically stable lands — a goal that the evidence suggests is largely unattainable. ERM reviewed 57 mines across the world that ceased production between 1945 and 2012. Only five of these mine sites have been relinquished for next use, with no further mining company obligations. Of the remaining mines, all are still in care and maintenance, and many have very high annual maintenance costs.

These higher financial costs are attributable to many factors including overly optimistic estimates and timelines, design and operating decisions (or lack thereof early enough in the life of mine planning process), and unrealistic commitments for land rehabilitation made in pursuit of permits to start operations. The analogy of an iceberg is symbolic as many “not so hidden” costs emerge once the economic mine life approaches its end, and closure planning advances toward final execution.

Investors, regulators and other stakeholders are progressively seeking assurance that eventual mine closure has been fully considered throughout the life of mine, and demanding that adequate financial provisions have been allocated. In response, mining companies are seeking to better integrate closure into their mine plans. During the initial stages of planning, closure is being considered in the design of facilities to reduce post-mining liabilities. During operations, companies are increasingly finding ways to undertake progressive reclamation and embrace risk and uncertainty in mine plans and closure cost estimates. The International Council on Mining & Metals (ICMM) recently published a guidance document specifically to address the need for an integrated closure approach and offers tools to support good closure practices.

While the mining industry is working to address the financial cost of closure of their assets through better planning and cost estimating, the impact extends beyond the financial burden created within the “fence-line.” It is no longer sufficient to merely leave behind a former mine site with safe and stable landforms. Mining companies are increasingly being asked to demonstrate value from their ventures that extend beyond the economic life of the mineral resource. This emerging expectation has the potential to redefine miners as land management companies instead of extraction companies; and redefine closure as a transition in land use and not a means to an end.

The miner-to-land manager transition necessitates more than developing a plan with the engineering and operations teams. Achieving this transition requires moving the conversation from mine closure alone to an acknowledgment that external stakeholders will ultimately judge the success of any post closure solution and must play an intimate role in the establishment and ownership of a shared solution. By looking for opportunities to create shared value within the region, mining companies can build trust and shared responsibility, rather than provide financial assurance and commitments aligned with a short term goal for the site. Ultimately, they can leave a legacy of land assets that have a sustainable future, present a positive outcome from a social and environmental perspective, help to build a reputation as a responsible corporate citizen and manage financial consequences.

Planning for mine closure throughout the mining life cycle provides a significant opportunity to prepare for hidden costs and create future value post mine productivity. Image courtesy of ERM.

The upside of successful closure planning, with a compelling and well-planned post-closure vision, is that social license is more readily secured, closure costs are reduced by a combination of better management during operation and value creation post closure and, where desirable, site relinquishment is more readily obtained.

The mining industry has a choice. If it remains status quo, it will be difficult to bridge the trust gap that exists between many stakeholders and mining companies in part due to a long legacy of poorly closed and abandoned mines. This leaves one to ask, “If you knew the true cost of closure, would you develop the mine?”

–Louise Pearce is global managing partner of the mining sector at ERM, a sustainability consulting firm. The article was written with the assistance of ERM partners Simon Tillotson and Derek Chubb.

ERM will take a more in-depth look at the true cost of closure in an upcoming insights piece, The True Cost of Closure. The publication will offer a new perspective on how to help manage closure costs, support relinquishment, and create long-lasting value.