Hardrock Mining Will Require Hard Cash

On January 11, 2017, EPA published a proposed new rule that would require hardrock mining facilities to post security or prove their financial responsibility under Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).  Owners and operators of such facilities can already be held strictly liable under CERCLA for cleanup of hazardous substances.  Soon they may also be required to demonstrate their financial strength as a condition of operating.  The total financial obligations imposed by the new rule could exceed $7 billion.

The new rule will apply to over 200 mines and processing facilities that produce gold, silver, copper, lead, iron ore, molybdenum, uranium and other hardrock minerals in over 30 states.  Four types of operations will, however, be exempt:  (1) placer mining; (2) exploration; (3) “[m]ines with less than five disturbed acres that are not located within one mile of another area of mine disturbance that occurred in the prior ten-year period, and that do not employ hazardous substances in their processes”; and (4) “[p]rocessors with less than five disturbed acres of waste pile and surface impoundment.”

The new rule requires calculation every three years of the amount of security to be posted by looking at price deflators and the type of facility.    As an example, EPA proposes the following for a single heap leach operation: 

 

 

 

 

 

Where: 

????????? = the most recent available GDP Implicit Price Deflator for year y; and 

????????2014 = the GDP Implicit Price Deflator for 2014 

i = the ith response category (e.g., water treatment costs); 

n = the total number of relevant response categories; 

r = EPA region r (e.g., EPA Region 3); and 

s = state s (e.g., Montana).

The formula will require some effort to figure out and must be certified by an independent qualified professional engineer.

The types of financial security that companies can use, depending on the situation and their financial strength, include letters of credit, surety bonds, insurance, financial tests, corporate guarantees, trust funds, and other financial instruments, some of which may be mixed and matched to add up to the required amount.  Owners or operators of multiple facilities will also be allowed to post one bond or other financial instrument to cover all of their facilities.  The total amount of security will not be reduced by doing so, but it may make administering the security easier.

  The full rule will be phased in over four years.  Demonstration of financial responsibility for health assessment costs will be required within two years of publication of the final rule.  Demonstration of financial responsibility for 50 percent of the response and natural resources damages amount will be required within three years, and for 100 percent within four years. 

Although EPA states that the new rule is not meant to preempt, duplicate or disrupt existing state reclamation bonding programs, it seems inevitable that there will be some overlap.  “EPA expects CERCLA § 108(b) to effectively complement” state programs, but mining companies will undoubtedly complain about having to post duplicative financial security for the same reclamation work.

The mining industry has long argued that EPA’s proposed financial assurance requirement would duplicate reclamation and closure bonding requirements already mandated by federal and state law. One might expect that the proposed regulation would be a target for the Trump administration’s promised effort to rein in costly EPA regulations, but this new regulation will not go away altogether because it is required by court order in a mandamus petition filed by the Idaho Conservation League and other environmental groups in the D.C. Circuit Court of Appeals.  In Re: Idaho Conservation League, No. 14-1149 (D.C. Cir. January 29, 2016). The court ordered EPA to develop draft CERCLA 108(b) regulations for hardrock mining by December 1, 2016, and final regulations by December 1, 2017. 

A copy of the proposed rule may be found at 82 Fed. Reg. 3388.  Comments should be submitted by March 13, 2017.