Higher costs for reclamation bonds are
squeezing Nevada's mining companies,
and a state task force is looking for ways to
reduce the pain.
Some mining companies have seen
their costs for reclamation bonding
increase by five-fold in the past year, said
Dirk Van Zyl, director of the Mining
Life-Cycle Center at the University of
Nevada-Reno.
It's highly unlikely that a company
seeking to launch a new mine in Nevada
would be able to find a surety company
willing to write a reclamation bond at all,
said Russ Fields, president of the state
mining association.
Reclamation bonds ensure that mine
sites will be reclaimed. If the mining company
doesn't do the work, the proceeds of
the bond allow a government agency to
hire someone to finish the project.
No one describes the issues surrounding
reclamation bonds for mines as a crisis,
but there's no doubt mining companies'
profitability is squeezed both in
Nevada and across the United States.
A new economic overview of the
Nevada mining industry prepared by John
L. Dobra cites reclamation bonds as one
of two significant cost-related worries for
the state's miners. (The other big worry is
the price of electricity.)
"One bonding company serving the
industry has gone into bankruptcy protection
and others have indicated that they
will no longer provide the industry with
coverage," Dobra wrote in the report
commissioned by the Nevada Mining
Association.
Because reclamation bonds aren't easily
available, Fields said, the only option for
some companies is putting up cash.
Smaller companies that can't tie up capital
in that way simply can't proceed with mining
plans.
Causes of the squeeze range from the
Sept. 11, 2001, attacks on the United
States to the underwriting practices of
insurers during the 1990s.
In a hearing before a subcommittee of
the Congressional Committee on
Resources in July, a spokesman for the
National Mining Association acknowledged
that the industry benefited from
price-cutting during the 1990s from the
surety companies that write reclamation
bonds.
Prices began to rise, however, as the
result of insurance claims associated with
the Sept. 11 attacks. Big payouts by insurers
associated with the bankruptcy filings
of Enron, Kmart and other large corporations
worsened the problem.
Although the Sept. 11 claims weren't
paid by the surety companies that provide
bonds, many of those claims were paid by
the surety firms' parent companies.
Other industries encountered similar
problems with liability coverage in the past
year, but the mining industry presents
some problems of its own to insurers.
Lynn Schubert, president of the Surety
Association of America, told this summer's
congressional hearing that the higher
risks involved with mining reclamation
bonds include:
* The long life of many mines. Mines
often operate for 30 or 40 years, and a
bonding company needs to predict how a
mining company will behave far into the
future.
* The possibility that the responsibilities
covered by the bond will increase.
Recently, for instance, regulators required
that reclamation bonds cover possible
damage from acid mines.
A critic of mining companies, meanwhile,
suggested that the industry and regulators
historically have underestimated
the costs of mine cleanup.
"We are now facing the reality that
bonding companies are to a great degree
adjusting price and availability to a more
realistic assessment of risk," Jim Kuipers of
the Center for Science in Participation
told the congressional hearing.
Given the complexity of the issue, a task
force shaping solutions for Nevada's miners
has been working carefully.
"There are no silver bullets," said Fields.
"It's tough."
The task force, which includes government
and private-sector representatives,
hopes to find ways to clarify reclamation
regulations. That, Fields said,
would allow insurers to better calculate
the risks they face.
Another possibility, he said, is creation
of what he called "a bright line" separating
the risks involved with a reclamation
bond. One bond, for instance, might cover
the easily identifiable engineering work
such as earthwork involved with a reclamation
job. A separate bond would cover
long-term risks such as monitoring
groundwater pollution.
The task force expects to make recommendations
next month.
