MAC: Mines and Communities

Australia - Taxpayers may foot bill for mine rehabilitation

Published by MAC on 2015-09-24

We recently shared conerns for Canadian taxpayers on the legacy costs from mining (see: Consent & Waste - The beginning and end of Canadian mining problems).

It is now the turn of Australians to be concerned.

Industry insider warns taxpayers may foot bill for mine rehabilitation unless government, industry step up

By the National Reporting Team's Lisa Main and Dominique Schwartz

19 September 2015

Dr Peter Erskine from the University of Queensland's Sustainable Minerals Institute said although state governments hold financial securities for mine rehabilitation, they are nowhere near enough.

Across Australia there are more than 50,000 abandoned mines — a legacy of the early mining days when resource companies simply walked away when the profits dried up.

To avoid repeating its past, Dr Erskine said Australia must ensure that operating mines are properly and progressively rehabilitated while they are turning a profit.

What is in the rehabilitation kitty?

Queensland holds $5.38 billion in rehabilitation securities, in the form of cash or bank guarantees, and New South Wales holds $1.8 billion.

But Dr Erskine said it will cost between three to 10 times that amount to ensure mines are rehabilitated so that:

He said when companies apply for a mine approval they agree to a range of rehabilitation targets, but the terms are vague and allow a lot of flexibility over the life of the mine.

"What I see happening is a steady downgrade of what the rehabilitation will look like throughout the life of a mine," Dr Erskine said.

"Returning the land to a productive use like cattle grazing is a very different proposition to creating a native ecosystem which is thought to be a lower risk proposition for the mining company.

"You don't have to worry about cattle or farmers walking on unstable land."

Dr Erskine is hired by mining companies to assess their rehabilitation and works on mines in Queensland and NSW.

"We're seeing less and less hectares rehabilitated," he said.

"And of that old rehabilitation, I don't see it meeting the objectives that the Government and the mining companies have stated. So that's safe, stable, non-polluting and sustainable."

State governments calculate the required rehabilitation bonds using a standard formula but Dr Erskine said the mining companies work off their own, and often very different numbers.

"The rehabilitation costs held independently by the mining companies are often much larger than the rehabilitation bonds paid to state governments," he said.

A 2014 Queensland Auditor General's report found the bonds were "insufficient to cover the costs of rehabilitation" and in the case of one particular mine the bonds held were only 1.5 per cent of the estimated rehabilitation cost.

The report also found the government department overseeing mine rehabilitation was reluctant to claim the bonds for the state.

Peabody close to bankruptcy, fears about security bonds

Peabody Energy, the world's largest private coal company, has been hit hard by the fall in global coal prices.

According to energy market analyst Tim Buckley, Peabody's share price has plummeted 96 per cent in five years.

"The company has gone from being capitalised at $US18 billion to about $400 million and is carrying about $6 billion of net debt," he said.

Peabody owns six mines in Queensland and three in NSW and has won numerous awards in the United States for its rehabilitation work.

However, concern over the company's financial predicament prompted questions about its rehabilitation bonds during a budget estimates hearing in the NSW Parliament.

A few weeks ago State Industry, Resources and Energy Minister Anthony Roberts revealed NSW held $158 million in financial securities for the rehabilitation of Peabody's three NSW mines.

The minister said the Government was confident the full $158 million would be made available should Peabody enter bankruptcy saying the bonds were "irrevocable".

But Mr Buckley said financial securities were not as reliable as cash bonds.

"I'd like to see the security held in the form of cash deposit, held in trust by the Government," he said.

"This would allow governments to earn interest on rehabilitation funds.

"Ultimately, rehabilitation takes decades so when a bank provides a guarantee it might only be a one year guarantee, that's why I'd argue governments should be forcing mining companies to fund their rehabilitation with capital up front."

But in a statement to the ABC the Minerals Council of Australia said: "A bank guarantee provides the same coverage as a full cash deposit. Such a requirement would seriously undermine the economics of an operation and pull resources away from actual rehabilitation activities."

As for the $158 million figure, Dr Erskine said it might be enough, but not to fill the final voids.

"If Peabody continues operating and can catch up, which is generally the intention, then $158 million might be enough, but not if they close tomorrow," he said.

Despite experiencing financial distress, Peabody has applied for a mine extension at its Wilpinjong operation in NSW's Upper Hunter Valley.

If approved, the extension would add a further seven years to the mine's life which would push the closure date out to 2034. The extension would also see two new pits open while only marginally increasing coal production.

Peabody Energy declined to be interviewed, but in a statement to the ABC the company said: "Peabody Energy takes it rehabilitation commitments very seriously. We take responsibility for restoring mined land for the benefit of our communities and for generations that follow."

NSW Greens MP Jeremy Buckingham said Peabody's mine extension application should be carefully assessed.

"Peabody is close to bankruptcy so we need to know if their security bond is actually going to be enough if they go bankrupt, we need to see this application properly scrutinised," he said.
How companies avoid rehabilitation costs

Despite lower prices and contracting export markets, NSW is currently considering four new coal mine applications and 13 mine extensions in the Hunter Valley.

It is not unusual for companies to seek to boost coal volumes during a downturn to compensate for lower prices.

But Mr Buckingham said he was concerned mining companies were seeking extensions or placing mines in care and maintenance as a deliberate strategy to delay expensive rehabilitation costs.

"Once you actually factor in the cost of rehabilitation in to the bottom line of some of these mines they're unviable," he said.

Dr Erskine also saw the trend.

"In Queensland there hasn't been a mine closed for the past 33 years, the Government doesn't want to take on the risk of a closed mine and the industry is reluctant to spend the money required to safely close the mine," he said.

"Instead, what we see are mines placed into care and maintenance where the mining companies can avoid paying out rehabilitation bonds because the mine isn't officially closed."

As of 2013 there were 96 mines in care and maintenance, and the Queensland 2014 Auditor Generals' report discovered a further eight which were unreported.

Dr Erskine said over the past decade only between one and 10 per cent of mining land put into care and maintenance has been rehabilitated.

"It is so poor, you wouldn't run cattle on it. You certainly wouldn't let your children cross it or even let farmers onto it," he said.

He said there was another common avoidance strategy.

"Unprofitable mines are being sold onto smaller, less viable companies, like we saw with Blair Athol where Rio Tinto sold it to Linc Energy for a dollar who subsequently sold it onto United Mining in the space of a few years," Dr Erskine said.

"I suspect that Rio still holds the rehabilitation liability as it's more cost effective than actually undertaking the rehabilitation."

Mr Buckingham would like to see mine rehabilitation bonds "enshrined in legislation" to an "acceptable standard" that is "independently assessed".

"We can't just leave a huge scar on the landscape and a red line though government budgets," he said.

Dr Erskine agreed that governments needed to set tighter and clearer laws.

"Industry has been trying to be proactive since the 90s, but still they are companies and companies need to be shown an excellent set of rules as well as incentives for good work," he said.

"We're leaving a legacy bigger than what we've had. We've moved bigger mountains then we ever have before.

"This is a critical time in Australian society looking carefully at how much we're willing to risk in the future. A lot of the landscape has been mined but at the moment there's no real functional use for that land after the mine is finished."

For more on this story watch Landline on ABC TV at midday on Sunday.

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