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Know the West

Will a mining-reform victory hold water in Nevada?

Long-term cleanup trust fund may get shortchanged


One of the few Clinton-era mining reforms to survive reversals by the Bush administration is about to get its first test. Under the rule, a Denver-based mining company must set up a trust fund to cover the long-term costs of treating pollution from a new gold mine near Battle Mountain, Nev. Federal agencies, however, disagree sharply on the amount needed.

The "perpetual treatment" fund requirement came in the final days of the Clinton presidency, when Interior Secretary Bruce Babbitt signed a package of hardrock mining laws intended to reform some of the most harmful and dated provisions of the 1872 General Mining Act (HCN, 2/12/01: New mining regs slip into rulebooks). As with many of Clinton’s policies, though, the Bush administration swiftly rewrote the new rules. The trust fund, which requires mining companies to guarantee that they will cover their own long-term cleanup expenses, was one of the few to survive intact.

The Phoenix project will mine gold, silver and copper on a site covering nearly 6,500 acres, a little less than half of which is already contaminated from previous mining operations. Battle Mountain Gold Company, a subsidiary of Newmont Mining Corp., estimates the long-term cleanup costs for the mine at $237 million. The Environmental Protection Agency’s regional office, which has cleaned up abandoned gold mines in Nevada for 20 years, believes the final cost will be closer to $325 million.

The biggest concern at the Phoenix mine is "acid drainage." When sulfur-containing ore is brought to the surface, it reacts with water from rain and snowmelt to form sulfuric acid, which leaches toxins like arsenic, mercury and zinc out of the mine tailings and pollutes the groundwater. Newmont’s own model predicts that the mine could contaminate groundwater for more than 10,000 years. Mine officials claim that such long-lasting pollution is unlikely, though, because mine workers will "treat as they go." By the time mining is completed in about 30 years, they will have capped almost a billion tons of tailings and waste rock with several feet of clean soil and rock, and then revegetated the soil. The mine will also have to pump and treat billions of gallons of contaminated water — a process that is supposed to continue "forever."

But if Battle Mountain Gold goes bankrupt and the trust fund isn’t enough, the cost of such treatment will fall to the federal government — and to taxpayers. That has raised concerns for the Nevada environmental group Great Basin Mine Watch.

"We aren’t arguing against the mine," says Tom Myers, the group’s former executive director. "The site is already a mess, and if you can’t mine here, then where can you mine? But we also think the public treasury and the public water supply should be protected."

Behind from the start?

According to John Mudge, spokesman for Newmont Mining, "The EPA calculated pumping and treatment costs based on their Superfund experience, and we calculated it based on our operating experience in Nevada."

But the biggest disagreement centers on how each party calculated the amount of money needed to "seed" the trust fund.

The Bureau of Land Management, which issued the permit for the mine, accepted Newmont’s proposal to invest $408,000 into a trust fund and create a $1 million supplemental bond to augment the trust fund.

Newmont plans to invest 70 percent of the trust fund in the stock market and 30 percent of it in bonds for the next 60 years. The $1 million supplemental bond will also earn interest during that time.

But the mining company is relying on optimistic assumptions for the trust fund, such as a 1.5 percent annual inflation rate and an 8 percent annual growth rate. However, annual inflation has averaged around 4 percent for the last 30 years. And the EPA argues that stocks are too risky for funding a government project and that the fund should be invested in safer but less lucrative bonds, which normally have a growth rate of around 5.6 percent. That whittles the rate of return down to about 1.5 percent a year, a far cry from Newmont’s projected 6.5 percent rate.

When the EPA factored in those more conservative assumptions and accounted for other expenses that Newmont had overlooked (ranging from taxes to overhead for contractors), the agency argued that to adequately cover the final costs, the trust fund needs to start out with 80 times as much money — $33.5 million.

"We believe BLM’s approach in this regard remains flawed," wrote Wayne Nastri, the EPA’s regional administrator, in a letter to the Nevada BLM office last November. "The environmental acceptability of this project hinges on an adequately funded long-term mitigation program."

Great Basin Mine Watch and the Western Shoshone Defense Project filed an appeal with state BLM director Robert Abbey in March, asking the agency to overturn its approval of the project and recalculate the trust fund. "We’re hoping the state director can get above the fray and take a hard look at the numbers," says Myers.

Abbey agreed to review the appeal, and plans to make a decision by the end of August. Depending on the response, the dispute may move on to federal court.

Those numbers will set a strong precedent for determining the size of future cleanup trust funds at other big mining operations in the West. "We hope that on a national basis we can come together with the BLM and other federal agencies and agree on how to derive the value of these trust funds," says Enrique Manzanilla, EPA regional media director. "This effort is going to be very critical."

The author writes from Fort Collins, Colorado.

This story is supported by the True North Foundation.

Great Basin Mine Watch www.greatbasinminewatch.org, 775-348-1986

The Western Mining Action Project 303-473-9618

Nevada State BLM office www.nv.blm.gov, 775-861-6400