Posting bonds gets even harder for mine operators

Posted: Tuesday, April 05, 2005

Posting financial assurances, or bonds, is becoming ever more costly for mine operators these days said Ed Fogel, mining coordinator for the state of Alaska.

The financial failure of corporations like Enron has driven up the cost of surety bonds, a common bond vehicle used in the mining industry, to where many mining companies can't afford them, Fogel said.

Some mines now seek letters of credit with banks that, for instance, could be tapped by state agencies should cleanup ever become the purview of those agencies. It amounts to a kind of insurance in which the premiums paid the bank by the mining firm are typically a percentage of the letter of credit. However, they are spendy, Fogel said.

Recent state legislation has allowed acceptance of corporate guarantees — essentially handshake agreements, Fogel said — but they require qualifying companies to pass a rigorous financial test. The state currently is working on policy provisions for such financial tests, Fogel said.

"We would rather not use corporate guarantees. We propose using a reclamation trust fund," he said.

A kind of bank account, the trust fund would be built up over time by mining company contributions. Under certain circumstances, those donations might be recouped as tax deductions, Fogel said.

Another idea is a trust pool that all mines would contribute to, but which would serve as a source of funding for environmental problems at any mine in the pool. This idea currently is employed for small mines, essentially creating enough insurance coverage to allow "mom and pop" mines that might not otherwise be able to afford bonding to operate.

Fogel said such a mutual pool idea doesn't appear to "pencil out" for large mining operations, however.

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