1
25-090
The Party’s Over, Now What?
Peter Werner
USDA, Bozeman, MT
INTRODUCTION
Technological advances in mine equipment and milling
processes have enabled mining companies to exploit ever
lower grades of ore. The result has been larger disturbances,
greater volumes of waste, a complex web of infrastructure,
and an overall trend towards mega-projects that can extend
over several square kilometers. This explosive growth in a
mining operation’s disturbance footprint provokes an obvi-
ous question: What’s it going to cost to reclaim all of this?
At face value, this can be an enormous financial liability
for a company, but since the timing of reclamation may
be years in the future for many operations, these costs can
be heavily discounted thereby limiting the burden on the
corporate balance sheet. Nonetheless, mining companies
are eager to remove these liabilities as quickly as possible,
conversely, regulators want assurance reclamation will, in
fact, occur. How might one bridge these competing inter-
ests? Navigating the practical and financial requirements of
a post-closure landscape requires foresight, judgement and
assumptions, however, companies who do not adequately
plan for these future expenditures when there is no off-
setting income stream will likely face some difficult deci-
sions. Simple risk analysis tools and utilizing the time value
of money can help bring some clarity to this end-of-mine
life phase.
ASSET RETIREMENT OBLIGATIONS
Moody’s Ratings recently published a review of asset retire-
ment obligations, or AROs (aka reclamation), for 24 of the
largest listings in its metals and mining sector.* Some of the
results should be reason for alarm. One of the more remark-
able findings was the increase in ARO obligations compared
to long-term debt. The total outstanding reclamation obli-
gations for the companies surveyed are the equivalent of
42% of their combined long-term debt. Moody’s estimated
*Reclamation obligations at $78 billion and rising, posing
credit risk for miners, 23 September 2024, Moody’s Ratings.
compounded annual growth in AROs since 2018 at 9.7%
and rising, and if current trends continue, AROs could
eclipse long-term debt within 10 years. For one company,
its combined outstanding AROs represented over 50% of
its most recent annual revenue. The growing significance
of a company’s AROs in combination with servicing long-
term debt, ties up capital that otherwise could be used for
exploration and development of new properties, putting a
company at risk from non-income producing assets.
Some companies are taking steps to reduce this liabil-
ity by reclaiming parts of their operations during active
mine life, but the contribution to the bottom line is often
minimal, especially for operations with an open pit or mul-
tiple active waste rock dumps or a tailings impoundment,
all of which may be needed right to the end of mine life.
Alternatively, through discounting these future obliga-
tions and off-loading expiring properties, companies are
able to avoid a balance sheet awash in red ink and main-
tain a favorable credit rating. Despite these maneuvers,
ever-increasing AROs point to a future day of reckoning
for somebody, whether it’s a company that cannot meet its
ARO obligations or the regulator who inherits an environ-
mental liability.
HOW LONG IS LONG-TERM?
It is not uncommon for a mine plan to include language
that states post-closure monitoring and maintenance will
continue for some finite length of time, say 30 years, after
which the company may apply for bond release. This
approach begs the question, what is so different about Year
31 and beyond that makes monitoring and maintenance
unnecessary? Assigning an arbitrary benchmark for when
a mining company has fulfilled its reclamation obligations
suggests, 1) a site will achieve a state of perpetual environ-
mental equilibrium, and 2) one can predict when this will
occur. We know neither of these to be true, moreover, we
fail to fully appreciate reclaimed mine features are simply
25-090
The Party’s Over, Now What?
Peter Werner
USDA, Bozeman, MT
INTRODUCTION
Technological advances in mine equipment and milling
processes have enabled mining companies to exploit ever
lower grades of ore. The result has been larger disturbances,
greater volumes of waste, a complex web of infrastructure,
and an overall trend towards mega-projects that can extend
over several square kilometers. This explosive growth in a
mining operation’s disturbance footprint provokes an obvi-
ous question: What’s it going to cost to reclaim all of this?
At face value, this can be an enormous financial liability
for a company, but since the timing of reclamation may
be years in the future for many operations, these costs can
be heavily discounted thereby limiting the burden on the
corporate balance sheet. Nonetheless, mining companies
are eager to remove these liabilities as quickly as possible,
conversely, regulators want assurance reclamation will, in
fact, occur. How might one bridge these competing inter-
ests? Navigating the practical and financial requirements of
a post-closure landscape requires foresight, judgement and
assumptions, however, companies who do not adequately
plan for these future expenditures when there is no off-
setting income stream will likely face some difficult deci-
sions. Simple risk analysis tools and utilizing the time value
of money can help bring some clarity to this end-of-mine
life phase.
ASSET RETIREMENT OBLIGATIONS
Moody’s Ratings recently published a review of asset retire-
ment obligations, or AROs (aka reclamation), for 24 of the
largest listings in its metals and mining sector.* Some of the
results should be reason for alarm. One of the more remark-
able findings was the increase in ARO obligations compared
to long-term debt. The total outstanding reclamation obli-
gations for the companies surveyed are the equivalent of
42% of their combined long-term debt. Moody’s estimated
*Reclamation obligations at $78 billion and rising, posing
credit risk for miners, 23 September 2024, Moody’s Ratings.
compounded annual growth in AROs since 2018 at 9.7%
and rising, and if current trends continue, AROs could
eclipse long-term debt within 10 years. For one company,
its combined outstanding AROs represented over 50% of
its most recent annual revenue. The growing significance
of a company’s AROs in combination with servicing long-
term debt, ties up capital that otherwise could be used for
exploration and development of new properties, putting a
company at risk from non-income producing assets.
Some companies are taking steps to reduce this liabil-
ity by reclaiming parts of their operations during active
mine life, but the contribution to the bottom line is often
minimal, especially for operations with an open pit or mul-
tiple active waste rock dumps or a tailings impoundment,
all of which may be needed right to the end of mine life.
Alternatively, through discounting these future obliga-
tions and off-loading expiring properties, companies are
able to avoid a balance sheet awash in red ink and main-
tain a favorable credit rating. Despite these maneuvers,
ever-increasing AROs point to a future day of reckoning
for somebody, whether it’s a company that cannot meet its
ARO obligations or the regulator who inherits an environ-
mental liability.
HOW LONG IS LONG-TERM?
It is not uncommon for a mine plan to include language
that states post-closure monitoring and maintenance will
continue for some finite length of time, say 30 years, after
which the company may apply for bond release. This
approach begs the question, what is so different about Year
31 and beyond that makes monitoring and maintenance
unnecessary? Assigning an arbitrary benchmark for when
a mining company has fulfilled its reclamation obligations
suggests, 1) a site will achieve a state of perpetual environ-
mental equilibrium, and 2) one can predict when this will
occur. We know neither of these to be true, moreover, we
fail to fully appreciate reclaimed mine features are simply