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: 







????????? = 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.


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Gold King Mine Spill Exposes the Legal Hurdles to Cleaning up Mines

This blog post was written by Katherine "Kate" Sanford who worked with WSMT as a summer intern from June 1 through August 10, 2016.

On August 5, 2015, Environmental Protection Agency (“EPA”) contractors inadvertently broke through a retaining wall at the closed Gold King Mine, causing over 3 million gallons of acidic, metal-laden water to flow into the Upper Animas Watershed in Southwest Colorado. The garish orange plume, which was estimated to contain around 900,000 pounds of heavy metals, made its way from Colorado, through New Mexico, and into Utah’s Lake Powell. Along the way, arsenic, lead, cadmium, copper, mercury, and zinc settled along the riverbeds of the San Juan and Animas Rivers. See Gold King Mine Accident Highlights Risks Posed by Abandoned Mines.

In the weeks and months that followed, downstream communities suffered from the spill: Durango rafting companies lost hundreds of thousands of dollars, and the Navajo Nation shut off two of its major irrigation systems, severing a lifeline for many farmers in the area. Meanwhile, the EPA took full responsibility for the disaster and worked quickly to build a $1.5 million dollar water treatment plant at the mine. Today, the water downstream is clear, but the cleanup is not over. The EPA has already spent $29 million in disaster response and may spend as much as $50 million before the task is complete.

Throughout the past year, the Gold King Mine spill has not only exposed the existence of abandoned mines that are leaking toxic water, but also the legal impediments to cleaning them up. There are an estimated 23,000 inactive mines in Colorado and 500,000 around the West. Federal investigators from the Department of Interior’s Bureau of Reclamation have found that tens of thousands of these abandoned mines are contributing to continuing pollution. But most of the companies that built the mines over the past 150 years have been out of business for so long that no one is around to take responsibility. To make matters worse, environmental statutes are hindering ”Good Samaritans” from mine clean-ups by burdening them with crippling legal liability. Consequently, the EPA is left with the expensive and arduous task of cleaning up almost all of them.

The Clean Water Act (“CWA”) is one example of a well-intentioned environmental law that poses a major hurdle to cleaning up abandoned mines. It affixes liability and responsibility to anyone who attempts to address a leaking mine, even if the owner had no role in creating the pollution and is working to clean it up. Similarly, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) imposes retroactive strict liability, meaning that current owners are liable even if the pollution was not their fault and even if the site was polluted before CERCLA was enacted. As a result, people are reluctant to try to clean up abandoned mining sites.

In the last year, several bills were introduced in Congress in response to the Gold King Mine spill to address these legal deterrents. Several of the bills are new versions of Good Samaritan legislation, which seek to reduce the liability of those who work to clean up abandoned mines. For example, senators from four different states introduced the Hardrock Mining Reform and Reclamation Act, which would reduce liability by amending the CWA so that Good Samaritans can obtain special permits. The Act would require mining companies to pay a 2% to 5% royalty for extracting mineral resources from public lands – a probable deal killer for an industry that pays no royalty. The Act would also create a reclamation fund to help pay for cleaning up abandoned mines. Similarly, the proposed Abandoned Mine Reclamation Safety Act would direct the Secretary of the Interior to create new regulations to facilitate the safe and environmentally responsible cleanup of abandoned mines.

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