Miners struggle to find bonding for reclamation

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.