Hardrock Mining: BLM Needs to Better Manage Financial Assurances
to Guarantee Coverage of Reclamation Costs (20-JUN-05,
GAO-05-377).
Since the General Mining Act of 1872, billions of dollars in
hardrock minerals, such as gold, have been extracted from federal
land now managed by the Department of the Interior's Bureau of
Land Management (BLM). For years, some mining operators did not
reclaim land, creating environmental, health, and safety risks.
Beginning in 1981, federal regulations required all operators to
reclaim BLM land disturbed by these operations. In 2001, federal
regulations began requiring operators to provide financial
assurances before they began exploration or mining operations.
GAO was asked to determine the (1) types, amount, and coverage of
financial assurances operators currently use; (2) extent to which
financial assurance providers and others have paid to reclaim
land not reclaimed by the operator since BLM began requiring
financial assurances; and (3) reliability and sufficiency of
BLM's automated information system (LR2000) for managing
financial assurances for hardrock operations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-377
ACCNO: A27217
TITLE: Hardrock Mining: BLM Needs to Better Manage Financial
Assurances to Guarantee Coverage of Reclamation Costs
DATE: 06/20/2005
SUBJECT: Data integrity
Federal regulations
Financial analysis
Financial management
Information systems
Land management
Land reclamation
Mine safety
Mining
Mining legislation
Systems evaluation
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GAO-05-377
United States Government Accountability Office
GAO Report to the Ranking Minority Member, Committee on Homeland Security and
Governmental Affairs, U.S. Senate
June 2005
HARDROCK MINING
BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of
Reclamation Costs
a
GAO-05-377
[IMG]
June 2005
HARDROCK MINING
BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of
Reclamation Costs
What GAO Found
According to GAO's survey of BLM state offices, as of July 2004, hardrock
operators were using 11 types of financial assurances, valued at about
$837 million, to guarantee reclamation costs for existing hardrock
operations on BLM land. Surety bonds, letters of credit, and corporate
guarantees accounted for most of the assurances' value. However, these
financial assurances may not fully cover all future reclamation costs for
these existing hardrock operations if operators do not complete required
reclamation. BLM reported that, as of July 2004, some existing hardrock
operations do not have financial assurances and some have no or outdated
reclamation plans and/or cost estimates, on which financial assurances
should be based.
BLM identified 48 hardrock operations on BLM land that had ceased and not
been reclaimed by operators since it began requiring financial assurances.
BLM reported that the most recent cost estimates for 43 of these
operations totaled about $136 million, with no adjustment for inflation;
it did not report reclamation cost estimates for the other 5 operations.
However, as of July 2004, financial assurances had paid or guaranteed $69
million and federal agencies and others had provided $10.6 million to pay
for reclamation, leaving $56.4 million in reclamation costs unfunded.
Financial assurances were not adequate to pay all estimated costs for
required reclamation for 25 of the 48 operations because (1) some
operations did not have financial assurances, despite BLM efforts in some
cases to make the operators provide them; (2) some operations' financial
assurances were less than the most recent reclamation cost estimates; and
(3) some financial assurance providers went bankrupt. Also, cost estimates
may be understated for about half of the remaining 23 operations because
the estimates may not have been updated to reflect inflation or other
factors.
BLM's LR2000 is not reliable and sufficient for managing financial
assurances for hardrock operations because BLM staff do not always update
information and LR2000 is not currently designed to track certain critical
information. Specifically, staff have not entered information on each
operation, and for those operations that are included, the information is
not always current. Also, LR2000 does not track some critical information-
operations' basic status, some types of allowable assurances, and
state-and county-held financial assurances. Given these limitations, BLM's
reliance on LR2000 to manage financial assurances is mixed: headquarters
does not always rely on it and BLM state offices' reliance varies. To
compensate for LR2000's limitations, some BLM offices use informal
record-keeping systems to help manage hardrock operations and financial
assurances. BLM has taken some steps and identified others to improve
LR2000 for managing financial assurances for hardrock operations.
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
BLM Identified 11 Types of Financial Assurances Valued at
Approximately $837 Million, but These Financial Assurances May
Not Fully Cover Reclamation Costs
Financial Assurances Were Not Always Adequate to Pay All
Estimated Costs for Required Reclamation for Hardrock
Operations That Had Ceased and Not Been Reclaimed by
Operators
BLM's LR2000 Is Not Reliable and Sufficient for Managing Financial
Assurances for Hardrock Operations
Conclusions
Recommendations for Executive Action
Agency Comments and Our Evaluation
1 6 8
20
34
58 65 65 66
Appendixes
Appendix I: Objectives, Scope, and Methodology 69
Number of Notice- and Plan-Level Hardrock
Appendix II: Operations and
Value of Associated Financial Assurances 74
Detailed Information on 48 Hardrock Operations
Appendix III: That Had
Ceased and Not Been Reclaimed by Operators 76
Appendix IV: Comments from the Department of the Interior 93
GAO Comments 96
Appendix V: GAO Contact and Staff Acknowledgments 98
Tables Table 1: Table 2: Table 3:
Table 4:
Description of Types of Hardrock Operations under 1981
and 2001 BLM Regulations 14
Type and Amount of Financial Assurances for 12 States
with Existing Hardrock Operations, as of July 2004 24
Number of Notice-and Plan-Level Hardrock Operations
and the Percentage of These Operations BLM Reported
Had No Financial Assurances, by State, as of July 2004 31
Reported Percentage of Notice- and Plan-Level Hardrock
Operations without Reclamation Plans and Cost
Estimates, by State, as of July 2004 33
Contents
Table 5: Number and Selected Characteristics of 48 Hardrock Operations
Reported by BLM as Ceased and Not Reclaimed by Operators Since BLM Began
Requiring Financial Assurances, by State, as of July 2004 36
Table 6: Cost Estimates for Required Reclamation of 43 Hardrock Operations
with Cost Estimates Reported by BLM as Ceased and Not Reclaimed by
Operators Since BLM Began Requiring Financial Assurances, by State, as of
July 2004 37
Table 7: Type and Value of Financial Assurances Used by Operators to
Guarantee Reclamation Costs for 38 Operations with Financial Assurances
that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
Began Requiring Financial Assurances, as of July 2004 40
Table 8: Reasons Financial Assurances Were Not Adequate to Pay Estimated
Costs for Required Reclamation for 25 Hardrock Operations Identified by
BLM as Ceased and Not Reclaimed by Operators Since BLM Began Requiring
Financial Assurances, as of July 2004 41
Table 9: Comparison of Most Recent Cost Estimate as of July 2004 with the
Value of Financial Assurances for 13 Hardrock Operations with Cost
Estimates That Exceeded Financial Assurances 44
Table 10: Value of Cost Estimate Prepared before Hardrock Operations
Ceased and the Number of Months Elapsed between Estimate Date and July
2004 for 12 Hardrock Operations Where Financial Assurances Were Equal to
or Greater than Cost Estimate 50
Table 11: Reclamation Status and BLM Views on the Likelihood of Completing
Reclamation of 43 Hardrock Operations for Which Required Reclamation Had
Not Been Completed by Operators, as of July 2004 57
Table 12: States' Views on Reliability and Adequacy of LR2000 to Manage
Financial Assurances 63
Table 13: Number of Notice-and Plan-Level Hardrock Operations and
Associated Financial Assurances, by State, as of July 2004 74
Table 14: Basic Characteristics of 48 Hardrock Operations That Had Ceased
and Not Been Reclaimed by Operators 77 Table 15: Key Dates for 48 Hardrock
Operations That Had Ceased and Not Been Reclaimed by Operators 79
Contents
Table 16: BLM Steps to Compel Operators to Reclaim BLM Land Disturbed by
48 Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators
and the Reasons Operators Did Not Reclaim the Land 81
Table 17: Estimated Reclamation Costs for 48 Hardrock Operations That Had
Ceased and Not Been Reclaimed by Operators 84
Table 18: Types and Amount of Financial Assurances and the Amount of
Financial Assurances Relinquished and Spent on Reclamation of 48 Hardrock
Operations That Had Ceased and Not Been Reclaimed by Operators 87
Table 19: Sources of Other Funds and the Status of Reclamation of 48
Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators 90
Figures Figure 1: Figure 2:
Figure 3: Figure 4:
Figure 5:
Figure 6:
Figure 7:
BLM-Managed Land 9
Overview of a Hardrock Operation Using a
Heap-Leaching Process 11
The Boundaries of the 12 BLM State Offices 19
Types of Financial Assurances Used, Value, and
Percentage of Total Value 21
Sources and Amount of Funds Provided or Guaranteed to
Pay Estimated $136 Million in Costs for Required
Reclamation for Operations that BLM Identified as
Ceased and Not Reclaimed by Operators Since BLM
Began Requiring Financial Assurances, as of July 2004 38
Sources of $10.6 Million Provided by Others to Pay the
Cost of Required Reclamation for 11 Operations
Identified by BLM as Ceased and Not Reclaimed by
Operators, as of July 2004 51
Zortman and Landusky Mining Operations at or Near
Buildout in 1993 and Status of Reclamation in 2004 54
Contents
Abbreviations
ALIS Alaska Land Information System
BLM Bureau of Land Management
CERCLA Comprehensive Environmental Restoration, Compensation, and
Liability Act of 1980 LR2000 Legacy Rehost 2000 RAMS Restoration of
Abandoned Mine Sites
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A
United States Government Accountability Office Washington, D.C. 20548
June 20, 2005
The Honorable Joseph I. Lieberman
Ranking Minority Member
Committee on Homeland Security and Governmental Affairs
United States Senate
Dear Senator Lieberman:
The General Mining Act of 1872 encouraged development of the West by
allowing individuals1 to stake claims and obtain exclusive rights to gold,
silver, copper, and other valuable hardrock mineral deposits on land
belonging to the United States. Since then, thousands of operators2 have
extracted billions of dollars worth of hardrock minerals from land now
managed by the Department of the Interior's Bureau of Land Management
(BLM)-the agency that manages the largest amount of federal land.3
However, some operators did not reclaim BLM land disturbed by hardrock
operations related to exploration, mining, and mineral processing when
their operations ceased. These operators left BLM with many thousands of
acres of disturbed land, some of which posed environmental and health
and safety risks.
The Federal Land Policy and Management Act of 1976 states that the
Secretary of the Interior shall take any action required to prevent the
"unnecessary or undue degradation" of public land and its resources. BLM
has developed and revised regulations and issued policy under this
provision. Specifically, BLM issued regulations, effective in 1981, that
require all operators to reclaim BLM land disturbed by their hardrock
operations. For plan-level operations-those disturbing over 5 acres of
land or those in certain designated areas, such as the national wild and
scenic rivers system-operators were to have a BLM-approved plan that
1Individuals include citizens and people declaring an intention to become
citizens.
2For simplicity in this report, we refer to claimants and operators as
operators. An operator is the person who conducts operations in connection
with exploration, mining, and processing hardrock minerals on BLM land.
Both the claimant and operator are responsible for reclamation.
3BLM manages about 261 million acres, most of which are located in 12
western states, including Alaska. Other federal agencies, such as the
Department of Agriculture's Forest Service, also manage federal land
available for hardrock operations. For simplicity in this report, we refer
to BLM-managed land as BLM land.
documented all the anticipated hardrock activities and all required
reclamation. For notice-level operations-those causing a surface
disturbance of 5 acres or less-operators were to submit notices that
informed BLM of the operators' intentions, but these notices did not
require BLM's approval. Plans have to be approved and notices received by
BLM before the operators begin exploration or mining operations. Also, to
guarantee that reclamation costs are paid, these regulations stated that
BLM could require plan-level operators to provide bonds or other financial
assurances in an amount specified by BLM, taking into consideration the
estimated cost of reasonable stabilization and reclamation of the
disturbed land.4 BLM also could require notice-level operators with a
history of noncompliance with federal regulations to submit a plan of
operation and thus notice-level operators could be required to provide
financial assurances. Through a formal agreement, BLM can designate a
state agency as responsible for managing some or all hardrock
requirements, including financial assurances.5 Operators have used a
variety of types of financial assurances, ranging from funded assurances,
such as cash and negotiable U.S. securities, to corporate guarantees,
which are promises to complete reclamation that are backed only by the
financial strength of the operator. Despite having the regulatory
authority to do so, BLM rarely required operators to provide financial
assurances throughout the 1980s.6
In August 1990, BLM issued a policy instructing BLM officials to require
operators to provide financial assurances for all plan-level operations
and for notice-level operations if the operators had a record of
noncompliance with federal regulations.7 BLM generally limited financial
assurances to
4The regulations stated that in lieu of a bond, the operator (1) could
deposit in a federal depository account of the United States, directed by
BLM, cash or negotiable U.S. securities or (2) show evidence of an
existing bond provided for the operation pursuant to state law or
regulations.
5Financial assurances could have been payable to either BLM or the
designated state agency, depending on the terms of the agreement between
BLM and the state, which are to coordinate efforts and avoid duplication
of financial assurances and other requirements. These agreements may
establish joint federal-state program management and enforcement of
hardrock operations on BLM land or assign primary responsibility for
management to either BLM or the state.
6GAO, Importance of Financial Guarantees for Ensuring Reclamation of
Federal Lands, GAO/T-RCED-89-13 (Washington, D.C.: Mar. 7, 1989).
7BLM Instruction Memorandum No. 90-582, Modification of Bonding Policy for
Plans of Operation Authorized by 43 CFR 3809 (Aug. 14, 1990).
$1,000 per acre for exploration and $2,000 per acre for mining operations.
However, BLM required operators using leaching chemicals, such as cyanide
and sulfuric acid, to extract minerals from ore and required operators
with a record of noncompliance to provide financial assurances to cover
all estimated reclamation costs for hardrock operations. For these
operations, BLM was to estimate the cost of reclamation and add to it the
reasonable administrative costs that would be incurred if reclamation were
done under contract. However, BLM did not further specify the types of
financial assurances that could or could not be used.
Concerns about the types of financial assurance and the lack of financial
assurances requirements for all notice-level operations, among other
things, prompted BLM to establish new regulations in 2001. The new
regulations require operators to include reclamation plans and cost
estimates in the notices and plans of operation that they submit to BLM
for acceptance or approval. The new regulations require that before
exploration or mining operations begin, operators must provide financial
assurances to cover all estimated reclamation costs for both notice-and
plan-level hardrock operations. In addition, BLM must periodically review
the estimated cost of reclamation to determine if the cost estimates
should be updated. The regulations also specify the types of acceptable
financial assurances and prohibit new corporate guarantees and increases
or transfers in the corporate guarantees used under BLM's previous policy.
The financial assurance provisions of the new regulations applied
immediately-on January 20, 2001, for new notice-and plan-level operations
and on January 20, 2003, for extended notice-level operations, unless the
notice was modified.8 Plans of operations that were approved before
January 20, 2001, were required to have financial assurances in place no
later than November 20, 2001.
Under federal regulations, if an operator fails to complete required
reclamation, BLM or the designated state agency may take steps to obtain
funds from the financial assurance providers. Providers then have the
option of (1) relinquishing the amount guaranteed by the financial
assurance to BLM or the designated state agency, which would then use the
funds for reclamation, or (2) completing the reclamation themselves. The
regulations also give BLM the authority to take steps, such as issuing
8Before the 2001 regulations, notice-level operations did not have an
expiration date. The 2001 regulations stated that all notices filed on or
after January 20, 2001, would be extended only for 2 years, after which
they would have to be renewed or would expire.
noncompliance and suspension orders, and revoking plans of operation, if
operators do not comply with the financial assurance or other regulatory
requirements.
BLM established an automated information system-the Legacy Rehost 2000
(LR2000)-in 1999 that combined into one system several existing systems
that collect and store information on the programs and land BLM manages.
LR2000 is composed of a number of subsystems, some of which contain
information on hardrock operations and financial assurances.
You asked us to determine the (1) types, amount, and coverage of financial
assurances operators currently use to guarantee reclamation costs, (2)
amount that financial assurance providers and others have paid to reclaim
operations that had ceased and not been reclaimed since BLM began
requiring financial assurances and the estimated costs of completing
reclamation for such operations, and (3) reliability and sufficiency of
BLM's LR2000 for managing financial assurances for hardrock operations.
We did not rely on LR2000 information to address these objectives, but
instead designed two surveys to obtain information from BLM's state and
field offices because they maintain the case files and other specific
information on hardrock operations. We asked the 12 BLM state offices that
manage BLM programs across the United States to complete surveys for each
state in their jurisdiction with hardrock operations.9 We verified the
information in the surveys through discussions with BLM officials in two
state and four field offices and by reviewing case files and other
documents. In the first survey, which focused on states' experiences with
hardrock operations, we asked these 12 offices to provide information on
(1) the number of existing hardrock operations for each state within their
jurisdiction,10 (2) the types and the amounts of financial assurances
provided for existing hardrock operations in each state, (3) their views
on
9Some of the 12 BLM state offices manage BLM programs in more than one
state. For example, the BLM Montana state office manages BLM programs in
Montana, North Dakota, and South Dakota, and the BLM Oregon state office
manages BLM programs in Oregon and Washington.
10In our survey instructions, we defined existing operations to include
those hardrock operations that (1) are pending BLM acceptance, (2) have
been accepted but operations have not begun, (3) are ongoing, and (4) are
temporarily inactive. While federal regulations require reclamation plans
and cost estimates for all of these operations, they do not require
financial assurances for those pending BLM acceptance or those that have
been accepted but have not begun exploration or mining operations.
the effectiveness of the various types of financial assurances, (4) their
views on the reliability and sufficiency of hardrock operation data
contained in LR2000, and (5) their use of LR2000 for managing hardrock
operations and financial assurances in their states. In the second survey,
which focused on selected hardrock operations, we asked these 12 offices
to provide detailed information on hardrock operations within their
jurisdiction that met both of the following criteria: the operator (1)
ceased operations after the requirement for financial assurances went into
effect- August 1990 for plan-level operations, January 2001 for new
notice-level operations, and January 2003 for existing notice-level
operations and (2) failed to complete the required reclamation. We used
information in this survey to determine the estimated reclamation costs
and the adequacy of financial assurances for reclaiming each hardrock
operation that BLM identified as meeting these criteria. We took steps to
determine whether BLM officials identified all hardrock operations that
met these criteria, such as comparing BLM's list of operations with
operations identified by others. To the extent that BLM did not identify
all hardrock operations that had ceased and not been reclaimed by the
operator, the information it reported to us would be understated. In
addition, we did not collect information on the thousands of ceased
hardrock operations since 1872 that did not require financial assurances
and therefore fell outside the scope of this review.
We also took steps to understand BLM's management and oversight of
hardrock operations and the use of financial assurances to ensure
reclamation. We reviewed BLM regulations, documents, and independent
studies relevant to hardrock operations and financial assurances. We also
discussed these issues with BLM officials at headquarters and in selected
state and field offices. To understand the relationship between BLM and
state agencies responsible for overseeing hardrock operations, we met with
BLM state office and state agency officials in several states, and
reviewed relevant memorandums of understanding and other agreements. To
understand the reliability and sufficiency of LR2000, we spoke with BLM
officials responsible for administering the system and staff in selected
BLM state and field offices who enter information into the system and who
use the system to manage hardrock operations and financial assurances. We
also discussed relevant hardrock operation and financial assurance issues
with experts and representatives from the mining industry, academia, and
environmental groups. Finally, to better understand hardrock operations
and reclamation requirements, we visited five mining operations in Nevada
and Montana. Appendix I provides detailed information on our scope and
methodology.
We conducted our review from October 2003 through May 2005 in accordance
with generally accepted government auditing standards, which included an
assessment of data reliability.
Results in Brief As of July 2004, hardrock operators were using 11
different types of financial assurances, valued at approximately $837
million, to guarantee reclamation costs associated with approximately
2,500 existing hardrock operations on BLM land in 12 western states,
according to our analysis of survey results. Surety bonds ($384 million),
letters of credit ($238 million), and corporate guarantees ($204 million)
accounted for almost all of the $837 million in financial assurances.
However, these financial assurances may not fully cover all future
reclamation costs for these existing hardrock operations if operators do
not complete required reclamation. BLM reported that, as of July 2004,
some existing hardrock operations do not have financial assurances, and
some have no or outdated reclamation plans and/or cost estimates on which
financial assurances should be based.
BLM identified 48 hardrock operations on its land that had ceased and not
been reclaimed by operators since it began requiring financial assurances.
BLM reported that the most recent cost estimates for reclamation required
by applicable reclamation plans and federal regulations for 43 of the 48
operations totaled about $136 million, with no adjustment for inflation;
it did not report reclamation cost estimates for the other 5 operations.
However, as of July 2004, the BLM-required financial assurances had
provided or were guaranteeing $69 million, and federal agencies and others
had provided $10.6 million to pay the estimated costs for required
reclamation for the 48 operations, leaving $56.4 million in unfunded
reclamation costs. Financial assurances were not adequate to pay all
estimated costs for required reclamation for 25 of the 48 ceased
operations for several reasons. First, operators did not provide required
financial assurances for 10 operations, despite BLM's efforts in some
cases to make the operators provide them. Second, financial assurances
that were provided were less than the most recent reclamation cost
estimates for 13 operations. Third, financial assurance providers went
bankrupt and did not have the funds to pay all reclamation costs for two
other operations. In addition, cost estimates may be understated for about
half of the remaining 23 operations because the cost estimates may not
have been updated to reflect inflation or other factors that could
increase reclamation costs. Furthermore, the $136 million cost estimate is
understated to the extent that BLM did not identify or report information
in response to our survey on all hardrock operations that had ceased and
not been reclaimed by
operators, as required. For example, Oregon's BLM state office estimated
that 20 notice-level operations in Washington state had ceased and not
been reclaimed, but neither the Oregon BLM state office nor its field
offices completed our surveys for these operations. Clearly, the $136
million estimate would be higher if BLM's state or field offices had
reported this information. Finally, according to BLM officials, required
reclamation had been completed for only 5 of the 48 operations as of July
2004, but they believe it is likely that required reclamation will be
completed on an additional 28 operations sometime in the future.
BLM's LR2000 is not reliable and sufficient for managing financial
assurances that guarantee coverage of reclamation costs for BLM land
disturbed by hardrock operations because staff do not always update
information, and LR2000 is not currently designed to track certain
critical information. Specifically, staff have not entered information on
each hardrock operation and, for those hardrock operations included in
LR2000, the information is not always current. Moreover, LR2000 does not
track some information on hardrock operations and their associated
financial assurances that we believe is critical for effectively managing
financial assurances. This information includes the basic status of
operations, such as whether they are ongoing or have ceased and should be
reclaimed; some types of allowable financial assurances; and state-and
county-held financial assurances. Given these limitations, it is not
surprising that BLM's reliance on LR2000 to manage financial assurances is
mixed. Specifically, BLM headquarters does not always rely on the system,
and BLM state offices' reliance varies-in four states with hardrock
operations, the state and field offices relied on the system to little or
no extent; in eight states, to a moderate or some extent; and in one
state, to a very great extent. In part to compensate for LR2000's
limitations, some BLM state and field offices use informal record-keeping
systems to help manage hardrock operations and financial assurances. BLM
has taken some steps and identified others to improve LR2000 for managing
financial assurances for hardrock operations.
To ensure that hardrock operators on BLM land have adequate financial
assurances, we are making recommendations to the Secretary of the Interior
to strengthen BLM's management of financial assurances for hardrock
operations on its land by directing the Director of BLM to (1) require
state office directors to develop an action plan for ensuring that
operators have adequate financial assurances and (2) improve the
reliability and sufficiency of BLM's automated information system.
In responding to a draft of this report, Interior stated that it
appreciated the advice and critical assessment we provided on BLM's
management of financial assurances required for hardrock operations.
However, without acknowledging or addressing specific deficiencies
identified in our report, Interior disagreed with our recommendations,
stating that guidance already issued ensured that proper management
attention was being provided. In the face of considerable evidence in this
report to the contrary, Interior's assertions that all is well and that
recently issued policy and guidance ensure that adequate financial
assurances are in place seems hard to comprehend. Accordingly, we continue
to believe that our recommendations are warranted to ensure that adequate
financial assurances are in place. Interior's letter and our comments are
included in appendix IV.
Background BLM is responsible for managing approximately 261 million acres
of public land, over 99 percent of which is located in 12 western states,
including Alaska. Approximately 90 percent of this land is open to the
public for hardrock mineral exploration and mining. Less than one-tenth of
1 percent of BLM land is affected by existing hardrock operations. Figure
1 shows the BLM land available for hardrock operations.
minerals within an area. The mining phase includes developing the mining
infrastructure (water, power, buildings, and roads) and extracting the
minerals. Mineral extraction generally entails drilling, blasting, and
hauling ore from pit areas to processing areas. To process minerals,
operators prepare the ore by crushing or grinding it to extract minerals.
The material left after the minerals are extracted-tailings (a combination
of fluid and rock particles)-is then disposed of, often in a nearby pile.
In addition, some operators use a leaching process to recover microscopic
hardrock minerals from heaps of crushed ore by percolating solvent (such
as cyanide for gold and sulfuric acid for copper) through the heap of ore.
Through this heap-leaching process, the minerals adhere to the solvent as
it runs through the leach heap and into a collection pond. The
mineral-laced solution is then taken from the collection pond to the
processing facility, where the valuable minerals are separated from the
solution for further refinement. Figure 2 provides an overview of the
three stages of a hardrock operation using a heap-leaching process.
Figure 2: Overview of a Hardrock Operation Using a Heap-Leaching Process
Source: GAO analysis of information provided by BLM, the National Research
Council, and others.
At the earliest feasible time, operators are required to reclaim BLM land
that will not be further disturbed to prevent or control on-site or
off-site damage. Reclamation practices vary by type of operation and by
applicable federal, state, and local requirements. However, reclamation
generally involves resloping pit walls to minimize erosion, removing or
stabilizing buildings and other structures to reduce safety risks,
removing mining roads to prevent damage from future traffic, and capping
and revegetating leach heaps, tailings, and waste rock piles to control
erosion and minimize the potential for contamination of groundwater from
acid rock drainage
and other potential water pollution problems.11 Addressing potential water
pollution problems may involve long-term monitoring and treatment.
Reclamation costs for hardrock mining operations vary by type and size of
operation. For example, the costs of plugging holes at an exploration site
are usually minimal. Conversely, reclamation costs for large mining
operations using leaching practices can be in the tens of millions of
dollars.
Laws and Regulations for Hardrock Operations
Hardrock operations on BLM land are regulated by federal and state laws.
Under the General Mining Act of 1872 (Mining Act),12 an individual or
corporation can establish a claim to any hardrock mineral on public
land.13 Upon recording a mining claim with BLM, the claimant must pay an
initial $25 location fee and a $100 maintenance fee annually per claim;14
the claimant is not required to pay royalties on any hardrock minerals
extracted. The Mining Act was designed to encourage the settlement and
development of the West; it was not designed to regulate the associated
environmental effects of mining. The number of hardrock operations left
abandoned throughout the West after operations ceased is not known but is
estimated to be in the hundreds of thousands, many of which pose
environmental, health, and safety risks. Until Congress passed the Federal
Land Policy and Management Act of 1976 (FLPMA),15 development of hardrock
minerals on public land remained largely unregulated. FLPMA
11Acid drainage occurs when water and oxygen contact rock with sulfides
and sulfates and form acids that can be released into the environment.
1230 U.S.C. S: 22.
13Under U.S. mining laws, minerals are classified as locatable, leasable,
or saleable. Locatable minerals-often referred to as hardrock
minerals-include, for example, copper, lead, zinc, magnesium, gold,
silver, and uranium. Only hardrock minerals continue to be "claimed" under
the Mining Act. Leasable minerals include, for example, oil, gas, and
coal. The Mineral Leasing Act of 1920, 41 Stat. 437 (codified at 30 U.S.C.
S: 181) created a leasing system for coal, gas, oil and other fuels, and
chemical minerals. Saleable minerals include, for example, common sand,
stone, and gravel. In 1955, the Multiple Use Mining Act of 1955, 69 Stat.
367 (codified at 30 U.S.C. S: 601) removed common varieties of sand,
stone, and gravel from development under the Mining Act.
14 The location and maintenance fees were reduced from $30 and $125,
respectively, by the Consolidated Appropriations Act, 2005, and will not
be reinstated until, among other things, BLM establishes a nationwide
system to track the length of time between submission and approval of a
hardrock plan of operation.
15Pub. L. No. 94-579 (1976) (codified at 43 U.S.C. S: 1701).
states that the Secretary of the Interior shall take any action necessary
to prevent "unnecessary or undue degradation" of public land.16
Under FLPMA, BLM has developed and revised regulations and issued policies
to prevent unnecessary or undue degradation of BLM land from hardrock
operations. BLM issued regulations that took effect in 1981 on how these
operations were to be conducted.17 Named for their location in the Code of
Federal Regulations, the "3809" regulations classify surface disturbance
generated by hardrock operations into three categories: casual use,
notice-level operations, and plan-level operations. For all three
operation levels, the operator must prevent unnecessary and undue
degradation and complete reclamation at the earliest feasible time. BLM
issued the revised 3809 regulations, effective in part in January 2001
that, among other things, changed the definition of the types of
operations, modified the reclamation requirements, and strengthened the
financial assurance requirements. Table 1 describes each type of operation
under both the old and new regulations.
16In addition, hardrock mining operations on BLM land may be subject to a
variety of federal environmental laws, such as the National Environmental
Policy Act, the Endangered Species Act, and the Clean Water Act. States
can also pass their own laws for regulating hardrock operations in their
state, including operations on BLM land.
17BLM's Surface Management Program for hardrock operations began in 1981
with the issuance of these regulations (43 C.F.R. 3809), which apply only
to hardrock operations.
Table 1: Description of Types of Hardrock Operations under 1981 and 2001
BLM Regulations
Type of operation Description under 1981 regulations Description under
2001 regulations
Casual use o Activities ordinarily resulting in only negligible o
Activities ordinarily resulting in no or negligible disturbance of
disturbance of public land and resources public land or resources
o Does not require the operator to notify BLM o Does not require the
operator to notify BLM
Notice-level o Any operation that causes a surface disturbance o
Exploration operations that disturb 5 acres or less of public operation of
5 acres or less land
o Operator must notify BLM 15 calendar days o Operator must notify BLM
15 calendar days in advance of before commencing operations, but BLM does
causing surface disturbance, but BLM does not approve the not approve the
notice notice
Plan-level o Any operation that disturbs more than 5 acres or o Any
operation greater than casual use, except for notice-level
operation any operation, other than casual use, in BLM operations, and
operations causing surface disturbance special status areas, such as the
national wild greater than casual use in special status areas, such as and
scenic river system designated wilderness areas and national monuments
o Plans of operations must be approved by BLM o Plans of operations
must be approved by BLMa
Source: 1981 and 2001 federal regulations.
aOther plan-level operations include bulk sampling operations, in which
1,000 tons or more of presumed ore for testing will be removed.
While the performance standards for reclamation under the 1981 and 2001
regulations remain the same, the 2001 regulations specifically identified
the components involved in reclamation. For standards under both
regulations, the operator of a notice-or plan-level operation must reclaim
the disturbed land at the earliest time that is economically and
technically feasible, except to the extent necessary to preserve evidence
of the presence of minerals, by taking reasonable measures to prevent or
control on-site and off-site damage to federal land. Reclamation must
include the following actions:
o saving topsoil to be applied after reshaping disturbed areas;
o taking measures to control erosion, landslides, and water runoff;
o taking measures to isolate, remove, or control toxic materials;
o reshaping the area disturbed, applying the topsoil, and revegetating
disturbed areas, where reasonably practicable; and
o rehabilitating fisheries and wildlife habitat.
The 2001 regulations specified that, as applicable, reclamation components
include:
o isolating, controlling, or removing acid-forming and deleterious
substances;
o regrading and reshaping the disturbed land to conform with adjacent
landforms, facilitating revegetation, controlling drainage, and minimizing
erosion;
o placing growth medium and establishing self-sustaining vegetation;
o removing or stabilizing buildings, structures, or other support
facilities;
o plugging drill holes and closing underground workings; and
o providing for post-mining monitoring, maintenance, or treatment.
The 2001 regulations also significantly strengthened the financial
assurance requirements for hardrock mining operations. Under the 1981
regulations, BLM had the option of requiring an operator to obtain a bond
or other financial assurances for plan-level hardrock operations and for
notice-level operations where the operator had a record of
noncompliance.18 However, BLM rarely exercised this option.19 In 1990, BLM
instructed its officials to require operators of plan-level operations to
provide (1) financial assurances of $1,000 per acre for exploration and
$2,000 per acre for mining and (2) financial assurances for all estimated
reclamation costs for operations that used leaching chemicals and for
operators with a record of noncompliance. Under the 2001 regulations, BLM
requires all notice-and plan-level hardrock operators to provide financial
assurances that cover all estimated reclamation costs for all plan-and
notice-level operations before exploration or mining operations begin.
Casual-use operations do not have to provide financial assurances.
The 2001 regulations amended the types of financial assurances that can be
used. The 1981 regulations identified three types of acceptable financial
assurances-bonds, cash, and negotiable U.S. securities. BLM could also
accept evidence of an existing bond pursuant to state law or regulations
if BLM determined that the coverage would be equivalent to the amount that
18For notice-level operations with a history of noncompliance, BLM had to
first require the operator to file a plan of operation.
19GAO/T-RCED-89-13.
would be required by BLM. Some operations used corporate guarantees, which
were allowable under state laws and regulations. In contrast, the 2001
regulations prohibit the use of corporate guarantees for new operations
and state that corporate guarantees currently in use under an approved BLM
and state agreement cannot be increased or transferred. The 2001
regulations specify the following types of financial assurances as
acceptable:
o surety bonds that meet the requirements of U.S. Treasury Circular
570;20
o cash in an amount equal to the required dollar amount of the financial
assurance and maintained in a federal depository account of the U.S.
Treasury by BLM;
o irrevocable letters of credit from a bank or other financial
institution organized or authorized to transact business in the United
States;
o certificates of deposit or savings accounts not in excess of the
Federal Deposit Insurance Corporation's maximum insurable amount;
o negotiable U.S., state, and municipal securities or bonds with a market
value of at least the required dollar amount of the financial assurance
maintained in a Securities Investors Protection Corporation insured trust
account by a licensed securities brokerage firm for the benefit of the
Secretary of the Interior; 21
o investment-grade securities that (1) have a Standard and Poor's rating
of AAA or AA, or an equivalent rating from another nationally recognized
securities rating service, (2) have a market value of at least the
required dollar amount of the financial assurance, and (3) are maintained
in a Securities Investors Protection Corporation insured trust account by
a licensed securities brokerage firm for the benefit of the Secretary of
the Interior;
20The Department of the Treasury reviews insurance companies to determine
whether they qualify to underwrite insurance and annually publishes the
list of qualified companies in Treasury Circular 570.
21The Securities Investors Protection Corporation is a nonprofit
corporation created by Congress and funded by its member securities
brokers and dealers to protect investors by returning cash, stock, and
other securities if the brokerage firm goes bankrupt.
o certain types of insurance underwritten by a company having an A.M.
Best rating of "superior" or an equivalent rating from another nationally
recognized insurance rating service;
o evidence of an existing financial assurance under state law or
regulations, as long as the financial assurance is held or approved by the
state agency for the same operations covered by the notice or plan of
operation, has a value equal to the required amount, and is redeemable by
BLM. These financial assurances can include any of the above instruments.
In addition, they can include state bond pools,22 as well as corporate
guarantees that existed on January 20, 2001, under an approved BLM and
state agreement; or
o trust funds or other funding mechanisms available to BLM. The 2001
regulations require operators, when BLM identifies a need for it, to
establish a trust fund or other funding mechanism to ensure continuation
of long-term treatment to achieve water quality standards and for other
long-term, post-mining maintenance requirements.
Finally, under the 2001 regulations, all notice-and plan-level operators
must submit a reclamation plan and an associated cost estimate with its
notice or plan of operation and any modifications or renewals. The
financial assurance amount is based on the cost estimate. Furthermore, the
associated cost estimate must reflect the cost to BLM as if the agency had
to contract with a third party to complete reclamation. In addition, BLM
issued guidance in February 2003, which was revised in March 2004, setting
forth factors that should be considered in developing cost estimates. For
example, estimates should include administrative and other indirect costs.
The regulations require BLM to periodically review the estimates to
determine if the estimate should be updated to reflect any necessary
changes in the cost of reclaiming the operation.
BLM's Management and Oversight of Financial Assurances
BLM headquarters manages and oversees hardrock operations as well as its
other programs, primarily through its headquarters, 12 state offices, and
157 field offices. Within headquarters, the Minerals, Realty, and Resource
22The state must agree that, upon BLM's request, it will use part of the
bond pool to meet reclamation obligations on public land. In addition, the
BLM state office director must determine that the bond pool provides the
equivalent level of protection as otherwise required.
Protection group is responsible for administering the mining laws and
establishing hardrock operations policies. This office is also responsible
for evaluating the effectiveness of policy implementation at the state-and
field-office levels. For example, in 2004, BLM conducted a survey of 18 of
its 157 field offices to determine, among other things, whether operators
had obtained financial assurances as required.
Each state office is headed by a state director who reports to the
Director of BLM in headquarters. BLM state office delegations of
responsibilities for financial assurances vary from state to state. For
example, some state offices verify the authenticity of the financial
assurance and confirm that financial assurances are payable to BLM. The
state offices manage BLM programs and land in the geographic areas that
generally conform to the boundary of one or more states. The state offices
are Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New
Mexico, Oregon, Utah, Wyoming, and Eastern States. BLM has little land in
the east and the Eastern state office is responsible for all of the states
in the east. Figure 3 shows the boundaries of the 12 BLM state offices.
The 157 BLM field offices, which are headed by field managers who report
to the state directors, are responsible for implementing several BLM
programs and policies, including many aspects of the hardrock mining
program. The field offices maintain case files on each hardrock operation
in their jurisdiction. Field office staffs are generally responsible for,
among other things, (1) reviewing notices and plans of operations, along
with associated reclamation plans and cost estimates; (2) determining the
amount of financial assurances needed to pay reclamation costs; and (3)
inspecting hardrock operations for compliance with regulations.
In addition, BLM has specialized centers, which are organizationally
affiliated with headquarters, to carry out a variety of activities. One of
these centers, near Denver, Colorado, administers BLM's LR2000, which is
an automated information system used to collect and store information on
BLM land and programs, including hardrock operations. LR2000 includes
several subsystems that contain information on hardrock operations and the
financial assurances provided by operators. Specifically, the Case
Recordation System contains information on hardrock operations, such as
the name and address of the operator; the location, type, and size of the
operation; and inspection information. The other subsystem-the Bonding and
Surety System-contains information on financial assurances, such as the
types and amounts of financial assurances and the names of the providers.
BLM state and field offices both enter data into LR2000 and thus are
primarily responsible for the data's accuracy and completeness. In most
instances, field offices are responsible for entering data about hardrock
operations into the Case Recordation System, while BLM state offices are
more often responsible for entering data about financial assurances into
the Bonding and Surety System.
BLM Identified 11 Types of Financial Assurances Valued at Approximately $837
Million, but These Financial Assurances May Not Fully Cover Reclamation Costs
BLM reported that, as of July 2004, hardrock operators were using 11 types
of financial assurances, valued at approximately $837 million, to cover
reclamation costs on BLM land in 12 western states. Surety bonds, letters
of credit, and corporate guarantees accounted for almost 99 percent of
this $837 million. However, these financial assurances may not fully cover
all future reclamation costs if operators fail to complete required
reclamation. BLM reported that it had approximately 2,500 existing
notice-and planlevel hardrock operations as of July 2004 and that some of
these operations do not have financial assurances, and some have no or
outdated reclamation plans and/or cost estimates on which financial
assurances should be based. While BLM state office explanations indicated
that financial assurances are not yet required for some operations, other
explanations indicated that some operations may not be complying with
BLM's requirements.
Surety Bonds, Letters of Credit, and Corporate Guarantees Are the Financial
Assurances Currently Used to Cover Most of the Estimated Reclamation Costs
As of July 2004, operators were using 11 different types of financial
assurances valued at approximately $837 million to guarantee reclamation
costs for BLM land disturbed by hardrock operations, according to our
analysis of survey results. Almost 99 percent of the $837 million in
financial assurances is in the form of surety bonds, letters of credit,
and corporate guarantees. Figure 4 shows the types of financial assurances
used, their value, and the percentage of the total value accounted for by
each type.
Figure 4: Types of Financial Assurances Used, Value, and Percentage of
Total Value
Certificate of deposit - $4,106,939
Cash account - $3,188,869
State bond pool - $2,187,015
Trust fund - $1,030,000
Property - $617,700
Negotiable U.S securities - $225,900
Negotiable U.S. bonds - $30,000
Savings account - $1,000
Source: GAO analysis of BLM survey responses.
BLM reported that all of the current notice-and plan-level hardrock
operations on BLM land-2,490 operations-are located in 12 western
states.23 Table 2 shows the states with existing hardrock operations and
the types and amounts of financial assurances operators are currently
using in each state.
23BLM reported a total of 1,704 notice-level operations and 786 plan-level
hardrock operations in these 12 states. The BLM Montana state office,
which also has jurisdiction over North Dakota and South Dakota, reported
that South Dakota has only two hardrock operations and that both have
ceased operating and are being reclaimed by the operators. For this
reason, South Dakota was not included as a state with existing hardrock
operations.
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Table 2: Type and Amount of Financial Assurances for 12 States with
Existing Hardrock Operations, as of July 2004
Number of Letters Corporate
State operations Surety bonds of credit guarantees
Alaska 240 $0 $0 $0
Arizona 185 3,802,763 571,907
California 303 3,986,000 737,000
Colorado 132 1,600,000 19,313
Idaho 55 242,340 305,050
Montana 180 103,831,894 3,996,803
New Mexico 35 3,307,406 921,293
Nevada 774 230,769,986 192,058,810 200,000,000
Oregon 175 34,000 0
Utah 216 1,719,343 365,699 122,000
Washington 139 a a a
Wyoming 56 34,213,132 39,318,254 3,410,920
Total 2,490 $383,506,864 $238,294,129 $203,532,920
Certificates Cash State bond Negotiable Negotiable Savings
U.S.
of deposit accounts pools Trust Property U.S. bonds accounts Total
funds securities
$0 $0 $1,000,000 $0 $0 $0 $0 $0 $1,000,000
113,085 239,343 0 0 0 45,900 0 0 4,772,998
184,000 27,800 0 0 0 0 0 1,000 4,935,800
116,000 1,600 0 0 0 0 0 0 1,736,913
140,969 77,173 0 0 0 0 30,000 0 795,532
708,081 153,452 0 0 617,700 0 0 0 109,307,930
61,009 9,281 0 0 0 0 0 0 4,308,289
1,931,761 2,526,893 1,187,015 1,030,000 0 180,000 0 0 629,684,465
16,000 2,000 0 0 0 0 0 0 52,000
393,034 128,109 0 0 0 0 0 0 2,728,185
a a a a a a a a a
443,000 23,218 0 0 0 0 0 0 77,408,524
$617,700
$4,106,939 $3,188,869 $2,187,015 $1,030,000 $225,900 $30,000 $1,000 $836,721,336
Source: GAO analysis of BLM survey responses.
aThe BLM Oregon office did not provide information on the amount of
financial assurances available to reclaim the existing hardrock operations
it identified in Washington state on BLM land. The office reported no
individual bonds are used for operations in Washington state, but that a
statewide bond is held by the Washington state Department of Ecology.
The information below describes the types of financial assurances
currently being used and BLM state offices' views of the effectiveness of
these assurances in minimizing losses to the federal government if the
operator does not complete reclamation.
Surety bonds. Surety bonds are a third party guarantee that an operator
purchases from an insurance company. As a third party with possible
financial responsibility for reclamation, the insurance company has a
strong incentive to monitor the operator's environmental safety record and
efforts to fulfill reclamation obligations. If the operator does not
complete required reclamation once operations cease, the insurance company
has the option of performing the reclamation work or paying the financial
assurance value to BLM or the designated state agency for reclamation.
According to industry representatives and experts, insurance companies are
amenable to issuing surety bonds for hardrock operations for predictable
reclamation activities that will occur in a defined time frame. As table 2
shows, operators in 10 of the 12 states with hardrock operations
are using surety bonds. In 7 of these 10 states, BLM state offices rated
surety bonds as "effective" or "very effective" for minimizing losses to
the federal government; in the other three states, BLM state offices
reported that they had no experience (that is, they had not taken steps to
obtain funds from the financial assurance provider) in using this type of
assurance in minimizing losses to the federal government.24
Letters of credit. Letters of credit, which hardrock operators typically
purchase from a bank or other financial institution, require the
institution to pay BLM or the designated state agency the value of the
letter of credit if the purchaser does not complete the required
reclamation. Depending on the financial condition of the operator, the
financial institution may require a deposit or collateral. Letters of
credit are used in nine states with hardrock operations. In seven of these
states, BLM state offices rated letters of credit as "moderately
effective" or "very effective" in minimizing losses to the federal
government; in the other two states, the BLM state offices reported that
they had no experience in using this type of assurance in minimizing
losses to the federal government.
Corporate guarantees. Corporate guarantees are promises by operators,
sometimes accompanied by a test of financial stability, to pay reclamation
costs, but do not require that funds be set aside to pay such costs.
Although BLM prohibits new corporate guarantees in its 2001 regulations, 3
of the 12 states had existing corporate guarantees that were to cover
almost one fourth of the total estimated reclamation costs, as of July
2004. Most of these corporate guarantees-$200 million of the approximately
$204 million-are for operations in Nevada. The Nevada BLM state office
rated corporate guarantees as "not effective" for minimizing losses to the
federal government. Operators in Utah and Wyoming are also using corporate
guarantees, although in relatively smaller amounts of $122,000 and $3.4
million, respectively. The Utah BLM state office reported that it has no
experience in using this type of financial assurance to minimize losses to
the federal government and therefore did not rate the effectiveness of
this type of assurance. The Wyoming BLM state office rated corporate
guarantees as a "very effective" financial assurance, although the office
24We asked each of the 12 BLM state offices, for each state within their
jurisdiction with hardrock operations, to rate the effectiveness of each
type of financial assurance in minimizing losses to the federal government
based on their experience. The rating categories were very effective,
effective, moderately effective, somewhat effective, and not effective.
reported it had no experience with an operation that had this type of
financial assurance and failed to reclaim the land.
State bond pools. Operators in two states-Alaska and Nevada-use state bond
pools to cover reclamation costs. According to Alaska BLM state office
officials, all hardrock operators on BLM land in Alaska participate in the
state bond pool.25 Operators in the Alaska bond pool do not develop
individual cost estimates for reclaiming the land disturbed by their
operations. The bond pool, administered by the Alaska Department of
Natural Resources, had $1 million in reclamation funds as of July 2004.26
According to Alaska BLM state office officials, if the bond pool funds are
not sufficient to cover reclamation costs, the state of Alaska has agreed
to cover any additional costs. The Alaska BLM state office rated the bond
pool as "effective" in minimizing financial losses to the federal
government. The office also reported that to date no requests or claims
have been initiated to use bond pool funds for reclamation because either
BLM has successfully negotiated with the operators to have the operations
reclaimed, or the operations are pending further action.
The Nevada reclamation bond pool-which had about $1.2 million as of July
2004-is open to operators on BLM or private lands. The state's Division of
Minerals administers this pool that was designed to help smaller
operations that may have difficulty securing other forms of financial
assurances. The Nevada bond pool does not establish the amount of the
assurance required for each operation; this is typically done by BLM for
operations on BLM land. The maximum bond amount for a participant is
25The cost to an operator to participate in the Alaska state bond pool is
calculated by multiplying the total number of acres to be disturbed by an
operator by $150.00. The $150.00 includes a refundable reclamation deposit
of $112.50 per acre and an annual nonrefundable administrative fee of
$37.50 per acre. The fees for entry into the Alaska state bond pool were
determined to be the average costs for reclamation per acre in the state
for placer operations-those that involve extracting gold or other minerals
from stream or beach sediment by gravity using water separation and
typically do not use leaching chemicals. Operations using cyanide or other
chemicals for leaching are not authorized to use the Alaska state bond
pool and must secure another form of financial assurance.
26The Alaska bond pool covers all hardrock operations on federal, state,
and private lands in the state.
$3 million.27 The Nevada BLM state office rated the state's bond pool as
"very effective" in minimizing financial losses but noted that the pool
had not been used as of our July 2004 survey. Subsequently, the office
told us that the bond pool was used for the first time in late 2004, when
BLM requested funds from the pool to reclaim a hardrock operation.
Certificates of deposit and savings accounts. Certificates of deposit and
savings accounts can be used to guarantee reclamation costs but must not
exceed the maximum amount insured by the Federal Deposit Insurance
Corporation. Operators use certificates of deposit in 10 of the 12 states
with hardrock operations. BLM state offices in 7 of these 10 states rated
these assurances as "effective" or "very effective" in minimizing losses
to the federal government. Another state office rated this type of
assurances as "moderately effective" and noted that care must be given to
ensure that BLM is the beneficiary of the certificate. In the other two
states, the BLM state offices reported that they had no experience with
this type of assurance in minimizing losses to the federal government.
Operators in one state are using savings accounts, and the BLM rated
savings accounts as "very effective" for minimizing losses to the federal
government.
Cash accounts. Operators provide cash to BLM to guarantee reclamation
costs, and BLM must deposit and maintain this cash in a federal depository
account of the U.S. Treasury. Operators in 10 of the 12 states with
hardrock operations use cash accounts. BLM state offices in 8 of these 10
states rated cash as "very effective" for minimizing losses to the federal
government. In the other two states, the offices reported that they had no
experience with using this type of assurance to minimize losses to the
federal government.
Trust funds. The 2001 regulations require operators, when BLM identifies a
need for it, to establish a trust fund or other funding mechanism to
ensure the continuation of long-term treatment to achieve water quality
standards and other long-term, post-mining requirements. Funds are placed
in an interest-bearing trust account by an operator with BLM as the
beneficiary.
27For bonds under $10,000, the deposit is 100 percent of the bond amount,
and the annual premium is 3 percent of the bond amount. For bonds of
$10,000 and greater, the deposit is 50 percent of the bond amount,
escalating linearly to 80 percent at the cap; and the annual premium is 10
percent of the bond amount, declining linearly to 5 percent at the cap.
Interest earned remains in the pool's account, and the deposit is returned
to the operator when the bond is released following successful
reclamation. Premiums are not returned to the operator.
The trust account should accrue sufficient funds to be sustained in
perpetuity. The Nevada BLM state office reported one trust fund with just
over $1 million and said it did not have sufficient experience to
determine the effectiveness of this type of assurance in minimizing losses
to the federal government.
Property. The Montana BLM state office reported that one operator has used
$617,000 in property-consisting of 17 mining claims on private land owned
by the operator-as a financial assurance. According to BLM state office
officials, the operator pledged these properties as collateral. The
Montana BLM state office reported that it had no experience using property
to minimize losses to the federal government. We note that the revised
federal regulations do not identify property as an acceptable type of
financial assurance.
Negotiable U.S. securities and bonds. Operators in two states-Arizona and
Nevada-use negotiable U.S. securities. The Arizona BLM state office
reported it had no experience in using this type of assurance to minimize
losses to the federal government. The Nevada BLM state office rated this
type of assurance as "effective." The Idaho BLM state office reported that
operators in the state use U.S. bonds to guarantee reclamation costs and
that the state has no experience using bonds to minimize losses to the
federal government.
Although the $837 million in financial assurances that BLM reported is the
most complete information available, we note that this total may not
include all financial assurances for hardrock operations on BLM land. Some
BLM state offices had difficulty determining the value of financial
assurances for hardrock operations in their jurisdictions when designated
state agencies hold these assurances. For example, the state offices
reported the following:
o Washington. The Oregon BLM office did not provide the value of
financial assurances for the 139 hardrock operations it identified in
Washington state.
o California. The information the California BLM office provided may not
be complete because some financial assurances may be held by California's
58 county agencies, and the state office did not contact each county
agency to complete our survey.
o Montana. The Montana BLM office does not track state-held financial
assurances for hardrock operations on BLM land. BLM obtained information
on these assurances for our survey from the state and reported that this
information was not all inclusive but appeared to be reasonably accurate.
See appendix II for the number of notice-and plan-level hardrock
operations and associated financial assurances for each state identified
by BLM state offices, as of July 2004.
Existing Financial Assurances May Not Fully Cover Future Reclamation Costs
Existing financial assurances for reclaiming BLM land disturbed by
hardrock operations may not fully cover future reclamation costs for the
approximately 2,500 hardrock operations that BLM reported if operators do
not complete required reclamation. The costs may not be fully covered
because BLM reported that some of these operations do not have financial
assurances, and some have no or outdated reclamation plans and/or cost
estimates. BLM's explanations for this lack of coverage indicate that some
operators may not be complying with BLM requirements.
As of July 2004, BLM state offices reported that some notice- or
plan-level operations in 9 of the 12 states with existing hardrock
operations did not have financial assurances. For example, BLM state
offices reported that in five states (Arizona, California, Idaho, New
Mexico, and Utah) more than 5 percent of both notice-and plan-level
operations did not have financial assurances. All of the operations in two
other states-Colorado and Wyoming-had financial assurances, and the Oregon
BLM state office reported that all plan-level operations in Washington
state had financial assurances, but the office did not know the percentage
of notice-level hardrock operations without financial assurances in
Washington state. Table 3 shows the number of notice-and plan-level
hardrock operations and the percentage of these operations without
financial assurances for each of the 12 states with existing hardrock
operations.
Table 3: Number of Notice- and Plan-Level Hardrock Operations and the
Percentage of These Operations BLM Reported Had No Financial Assurances,
by State, as of July 2004
Percentage of Percentage of
notice-level plan-level
Number of hardrock Number of hardrock
notice-level operations without plan-level operations
hardrock financial hardrock without
financial
State operations assurances operations assurances
Alaska 134 1-4 106
Arizona 130 50-74 55 25-49
California 205 5-14 98 15-24
Colorado 102 0 30
Idaho 32 5-14 23 5-14
Montana 150 1-4 30
Nevada 450 0 324
New Mexico 24 15-24 11 15-24
Oregon 165 1-4 10
Utah 167 50-74 49 15-24
Washington 127 Do not know 12
Wyoming 18 0 38
Source: GAO analysis of BLM survey responses.
Note: Based on our analysis of survey responses, we identified the range
of percentages of hardrock operations that did not have financial
assurances in each of the states with hardrock operations. Those
percentage ranges were 0, 1-4, 5-14, 15-24, 25-49, 50-74, 75-99, and 100
percent.
For the states in which BLM state offices indicated that less than 100
percent of their hardrock operations had financial assurances, we asked
them to provide an explanation. While some of the explanations indicated
that financial assurances are not yet required for some operations, such
as those that are pending BLM acceptance or have not yet begun exploration
or mining, others indicated that the operations may not be complying with
BLM's requirements. The following explanations provided by BLM state
offices for the lack of financial assurances suggest that some operators
may not be complying with applicable financial assurance requirements.
o Alaska. The operator failed to submit state bond pool fees on time.
o California. Some older operations may not have financial assurances.
o Idaho. The office could not find records of financial assurance for two
plan-level operations.
o Nevada. Some operations have been terminated by the state bond pool,
operators have gone bankrupt, or operations have been abandoned and the
operator cannot be found.
BLM state offices also reported that, as of July 2004, some hardrock
operations on BLM land have no or outdated reclamation plans and/or
reclamation cost estimates. Specifically, BLM state offices reported that
some existing hardrock operations in 9 of the 12 states did not have
reclamation plans and/or cost estimates. For example, BLM state offices
reported that in three states (Arizona, California, and Utah) both types
of operations (notice-and plan-level operations) were missing some
reclamation plans and cost estimates. In addition, according to BLM state
office officials, all hardrock operators on BLM land in Alaska currently
participate in the Alaska bond pool and do not develop cost estimates. All
of the operations in two other states-New Mexico and Wyoming-had both
reclamation plans and cost estimates, and the Oregon BLM office reported
that in Washington state all plan-level operations have reclamation plans
and cost estimates, but it did not know the percentage of notice-level
hardrock operations without plans and estimates. Table 4 shows the
percentage of BLM's notice- and plan-level hardrock operations without
reclamation plans and cost estimates, as of July 2004.
Table 4: Reported Percentage of Notice- and Plan-Level Hardrock Operations
without Reclamation Plans and Cost Estimates, by State, as of July 2004
Percent of operations without Percent of operations without reclamation
plans cost estimates
State Notice-level Plan-level Notice-level Plan-level
Alaska 1-4 0 100a 100a
Arizona 50-74 25-49 50-74 25-49
California 1-4 15-24 15-24
Colorado 5-14 0 0
Idaho 0 0 5-14
Montana 0 0 1-4
Nevada 0 0 0
New Mexico 0 0 0
Oregon 1-4 0 1-4
Utah 50-74 15-24 50-74 15-24
Washington Do not know 0 Do not know
Wyoming 0 0 0
Source: GAO analysis of BLM survey responses.
Note: Based on our analysis of survey responses, we identified the ranges
of the percentages of hardrock operations that did not have reclamation
plans and cost estimates in each of the states with hardrock operations.
Those ranges were 0, 1-4, 5-14, 15-24, 25-49, 50-74, 75-99, and 100
percent.
aAll of the Alaska operations are covered by the Alaska state bond pool
and do not develop cost estimates.
For the states in which BLM state offices reported that less than 100
percent of their operations had reclamation plans and/or cost estimates,
we asked BLM to provide an explanation. All notice-and plan-level
operations are required to have reclamation plans and cost estimates. The
following explanations provided by BLM state offices for the lack of
reclamation plans and/or cost estimates suggest that some operators may
not be complying with financial assurance requirements.
o Arizona. Some of the older plan-level operations may still have
financial assurances that were calculated on the basis of $2,000 per acre,
which was the policy under previous federal regulations, rather than all
of the estimated costs of reclamation as the 2001 regulations now require.
o Colorado. No reclamation plan was required when some of the notices
were submitted.
o Idaho. A record of a cost estimate for two plans could not be found.
o Oregon. Not all of the notice-level operations have a reclamation plan
because of a general backlog in updating reclamation plans, and
reclamation cost estimates are still being developed in a few cases.
In addition, three state offices reported that some reclamation plans and
cost estimates had not been updated. For example, the California BLM state
office reported that some of the older reclamation plans for operations in
that state have not been updated because of a workload backlog and staff
vacancies. Consequently, these plans and estimates may not provide a sound
basis for establishing financial assurances to cover all future
reclamation costs.
Like our survey results, the results of the 2004 BLM survey of 18 of its
157 field offices showed that some hardrock mining operations under the
jurisdiction of 7 field offices did not have financial assurances that met
BLM's requirements in fiscal year 2003. For example, one field office
reported that it did not have financial assurances that met BLM's
requirements because none of the reclamation cost estimates for plan-level
operations included indirect costs. Another field office had a backlog of
nearly 80 plan-level operations that had not had their reclamation cost
estimates updated because, among other things, the office did not have
sufficiently trained staff to review updates. In yet another field office,
higher priority work prevented timely updates of some reclamation cost
estimates.
Financial Assurances Were Not Always Adequate to Pay All Estimated Costs for
Required Reclamation for Hardrock Operations That Had Ceased and Not Been
Reclaimed by Operators
BLM identified 48 hardrock operations on BLM land that had ceased and not
been reclaimed by operators since it began requiring financial assurances.
BLM reported that the most recent cost estimates for reclamation required
by applicable plans and federal regulations for 43 of these operations
totaled about $136 million, with no adjustment for inflation; it did not
report reclamation cost estimates for the other 5
operations.28 However, as of July 2004, financial assurances had provided
or were guaranteeing $69 million, and federal agencies and others had
provided $10.6 million to pay estimated reclamation costs for the 48
operations, leaving $56.4 million of reclamation costs unfunded. In
particular, financial assurances were not adequate to pay all estimated
costs for required reclamation for 25 of the 48 operations because (1)
some operations had no assurances, (2) some operations' assurances were
less than the most recent reclamation cost estimates, and (3) some
financial assurance providers declared bankruptcy and could not pay. In
addition, for about half of the remaining 23 operations, cost estimates
may be understated because the cost estimates may not have been updated to
reflect inflation or other factors that could increase reclamation costs.
Furthermore, the $136 million cost estimate is understated to the extent
that BLM did not identify or report information on all hardrock operations
that had ceased and not been reclaimed by operators as required. Finally,
according to BLM officials, required reclamation had been completed for
only 5 of the 48 operations as of July 2004, but they believe it is likely
that required reclamation will be completed for 28 of the remaining 43
operations.
BLM Identified 48 Hardrock Operations That Had Ceased and Not Been Reclaimed
by Operators Since It Began Requiring Financial Assurances and About $136
Million in Estimated Costs for Required Reclamation
BLM identified 48 hardrock operations in seven states that had ceased and
not been reclaimed by operators, as required by applicable reclamation
plans and federal regulations, since it began requiring financial
assurances.29 The number of operations BLM identified in each of the seven
states, along with the primary minerals explored, mined, and/or processed,
and the operating authority for the 48 operations are shown in table 5.
Appendix III, table 14, contains additional information about these
operations.
28BLM reported estimates before and/or after operations ceased. (See app.
III, table 17 for details.) We used the most recent complete cost estimate
to determine total estimated costs. (See app. I for detailed methodology.)
29For the other six states with hardrock operations-Colorado, New Mexico,
Oregon, South Dakota, Utah, and Wyoming-BLM reported that no operations
had ceased and not been reclaimed by operators since it began requiring
financial assurances.
Table 5: Number and Selected Characteristics of 48 Hardrock Operations
Reported by BLM as Ceased and Not Reclaimed by Operators Since BLM Began
Requiring Financial Assurances, by State, as of July 2004
Primary hardrock minerals being explored, mined, or processed Authority
States Number of hardrock
operations reported by BLM as ceased and not reclaimed by operators Gold
Other minerals Unidentified
Planlevel
Noticelevel
Alaska 4 4 0 0 4
Arizona 6 6 0 0 5
California 2 2 0 0 2
Idaho 1 0 1a 0 1
Montana 3 3 0 0 2
Nevada 29 25 4b 0 26
Washington 3 1 0 2 3
Total 48 41 5 2 43
Source: GAO analysis of BLM survey responses.
aThe primary mineral explored and mined at this operation was limestone.
bThe primary mineral was different for each of these four operations: one
mined copper, another silver, and a third zinc; the fourth was a mill site
for platinum/gold.
According to BLM officials in each of the seven states, BLM had taken
steps to compel operators of most of the 48 operations to reclaim BLM
land. For example, it had sent notices of noncompliance (24 operations)
and taken administrative, legal, or other actions (19 other operations),
such as revoking plans of operations. BLM took no action to compel
reclamation of the remaining five operations. However, none of the
operators for these 48 operations completed reclamation, primarily because
of bankruptcy (30 operations). Appendix III, table 16, details the actions
BLM took to compel operators to complete reclamation and the reasons
reclamation was not completed.
BLM reported reclamation cost estimates for 43 of the 48 operations that
had ceased and not been reclaimed by the operators; it did not report
estimates for the other 5 operations-2 in Alaska, 2 in Nevada, and 1 in
Arizona. The most recent estimates as of July 2004 indicated that the
total
reclamation cost for the 43 operations was about $136 million.30 Almost 99
percent of this estimated cost was associated with operations in Montana
and Nevada-primarily for the Zortman and Landusky mining operation in
Montana ($85 million) and the Paradise Peak operation ($21.2 million) and
MacArthur Mine operation ($17 million) in Nevada. Clearly, the total cost
estimate would be higher if the costs for the 5 operations with no
estimates were included. The number of hardrock operations for which BLM
reported cost estimates and the value of the most recent cost estimates,
as of July 2004, for each of the seven states is shown in table 6.
Appendix III, table 17, provides the reported estimates for each of the 43
operations.
Table 6: Cost Estimates for Required Reclamation of 43 Hardrock Operations
with Cost Estimates Reported by BLM as Ceased and Not Reclaimed by
Operators Since BLM Began Requiring Financial Assurances, by State, as of
July 2004
Number of hardrock Most recent BLM-reported operations with cost
reclamation cost State estimates estimates
Alaska 2 $639,000
Arizona 5 944,439
California 2 17,431
Idaho 1 12,000
Montana 3 85,502,013
Nevada 27 48,840,972
Washington 3 33,825
Total 43 $135,989,680
Source: GAO analysis of BLM survey responses.
Financial Assurances and Funds Provided by Others Were Not Adequate to Pay
All of the Estimated $136 Million in Costs for Required Reclamation
Financial assurances and funds provided by others were not adequate to pay
all of the estimated $136 million needed to complete the required
reclamation of the 43 operations for which BLM reported cost estimates.
Surety bonds and other types of financial assurances had provided or were
guaranteeing $69 million of the estimated costs for required reclamation
that BLM reported for these operations, or about 51 percent. According to
our analysis of information BLM officials provided in response to our
survey, these funds were not adequate to pay all estimated costs for
30See appendix I for details on how the most recent cost estimates were
identified.
required reclamation for 25 of the 48 operations. Moreover, cost estimates
may be understated for 12 of the other 23 operations. In addition, funds
provided by federal agencies and others paid only a fraction of the
estimated reclamation costs. As a result, at least $56.4 million, or about
41 percent, of the estimated $136 million needed for required reclamation
was unfunded, as shown in figure 5. Finally, the $136 million cost
estimate for required reclamation is understated to the extent that BLM
did not identify or report information on all hardrock operations that had
ceased and not been reclaimed, as required.
Figure 5: Sources and Amount of Funds Provided or Guaranteed to Pay
Estimated $136 Million in Costs for Required Reclamation for Operations
that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
Began Requiring Financial Assurances, as of July 2004
Dollars in millions
Funds from others - $10.6
Unfunded - $56.4a
Financial assurances - $69.0
Source: GAO analysis of BLM survey responses.
aThe $56.4 million of unfunded costs includes $4,233,465 in corporate
guarantees that lost their value when the operator that guaranteed
reclamation costs went bankrupt and had no funds to pay reclamation costs
and $949,350 that was not relinquished by a financially-troubled surety
bond provider. When the $56.4 million in unfunded costs is added to the
$10.6 million from others, a total of $67 million, or about 49 percent of
the total estimated cost, was not guaranteed by financial assurances.
Types of Financial Assurances Varied but Were Not Adequate to Pay About
Half of the Estimated Costs Needed for Required Reclamation
Operators used a variety of types of financial assurances for 38
operations to pay or guarantee coverage of $74.2 million of the $136
million of estimated costs for required reclamation, as table 7 shows.
(The remaining 10 operations had no financial assurances.) Operators used
surety bonds, a trust fund, and corporate guarantees to guarantee almost
97 percent of these costs, with the rest guaranteed by state bond pools,
letters of credit, certificates of deposit, cash, and a construction bond
provided by an operator. However, as of July 2004, financial assurances
had provided or were guaranteeing only $69 million, or almost 51 percent,
of the reclamation costs. This amount decreased because $4.2 million in
corporate guarantees had lost all their value when the operator that
guaranteed the reclamation costs declared bankruptcy and had no funds to
pay such costs, and $949,350 was not available from a surety bond because
the financially-troubled financial assurance provider paid for reclamation
instead of relinquishing the bond. See appendix III, table 18, for the
types of financial assurances used for each hardrock operation.
Table 7: Type and Value of Financial Assurances Used by Operators to
Guarantee Reclamation Costs for 38 Operations with Financial Assurances
that BLM Identified as Ceased and Not Reclaimed by Operators Since BLM
Began Requiring Financial Assurances, as of July 2004
Number of operations
with financial Value of financial
Type of financial assurance assurancesa assurances
Surety bondsb 22 $55,294,010
Trust funds 1 12,300,000
Corporate guaranteesc 3 4,233,465
Operator's construction bond 1 2,000,000
State bond poolsd 8 340,573
Letters of credit 2 18,500
Certificates of deposit 3 17,431
Cash 3 7,076
Totale 38e $74,211,046
Less financial assurances
with
no value b,c ($5,182,815)
Total 38e $69,028,231
Source: GAO analysis of BLM survey responses.
aTen of the 48 operations had no financial assurances.
bAs of July 2004, one security provider had financial problems and
contracted for reclamation instead of relinquishing bond funds.
cAs of July 2004, these three corporate guarantees had lost all their
value because the operator that guaranteed the reclamation costs had gone
bankrupt and had no funds to pay reclamation costs. However, these
operations also had surety bonds that maintained their value.
dThis is the value for six of the eight hardrock operations; BLM did not
provide the value for the other two operations.
eDoes not add because some operations had more than one type of financial
assurance.
These 38 financial assurances provided or guaranteed funds for only about
half of the estimated costs for required reclamation for the 48 hardrock
operations. Specifically, these financial assurances were not adequate for
25 of the 48 operations because (1) operators did not provide financial
assurances for 10 hardrock operations, (2) the financial assurances that
were provided were less than the most recent cost estimates for 13
operations, and/or (3) the financial assurance providers declared
bankruptcy and did not have the funds to pay all reclamation costs for two
other operations. (Also, 2 of the 13 operations whose financial assurances
were less than the most recent cost estimates went bankrupt.) Table 8
shows the reasons financial assurances were not adequate and the
associated funding differential. Table 8 also shows that most of the
difference between the value of the estimated reclamation costs and the
value of the financial assurances occurred because the financial
assurances were less than the most recent cost estimate.
Table 8: Reasons Financial Assurances Were Not Adequate to Pay Estimated
Costs for Required Reclamation for 25 Hardrock Operations Identified by
BLM as Ceased and Not Reclaimed by Operators Since BLM Began Requiring
Financial Assurances, as of July 2004
Reason for inadequate Number of Value of Value of
financial affected estimated financial
assurances hardrock reclamation assurances Funding
operations costs differential
Operations had no
financial
assurances 10a $2,001,014 $0 ($2,001,014)
Financial assurances
less than most
recent cost estimates 13 128,187,236 64,445,305 (63,741,931)
Bankrupt financial
assurance
providers 4b 1,688,006 2,638,017 950,011
Subtotal 25c $131,876,256 $67,083,322 ($64,792,934)
Less financial
assurances with no
value d (5,182,815) (5,182,815)
Total 25 $131,876,256 $61,900,507 ($69,975,749)
Source: GAO analysis of BLM survey responses.
aIncludes one operation with no reported cost estimate.
bFour operations were affected by bankrupt financial assurances providers.
The $1.7 million and $2.6 million are the values for estimated reclamation
costs and associated financial assurances, respectively, for two of these
operations-County Line and Olinghouse. For the other two operations- the
MacArthur Mine and the Paradise Peak operations-the values for the
estimated reclamation costs ($38.2 million) and the associated financial
assurances ($4.8 million) are included with the 13 operations for which
financial assurances were less than the most recent cost estimates.
cDoes not add because two of these operations also had financial
assurances that were less than the most recent cost estimate.
dAs of July 2004, three of the four operations affected by bankruptcy used
corporate guarantees that had lost all their value because the operator
that guaranteed the reclamation costs was bankrupt and one surety bond
provider did not relinquish bond funds because the provider went bankrupt.
No Financial Assurances As table 8 shows, 10 hardrock operations had no
financial assurances. These operations were located in Washington (2),
Arizona (4), and Nevada (4). The most recent reclamation cost estimates
for 9 of these 10 operations indicated that slightly over $2 million in
reclamation costs was unfunded; BLM reported no cost estimate for the
other operation. BLM officials provided the following explanations for why
the 10 operations did not have the required financial assurances:
o Two operations in Washington. An official in Oregon's BLM state office,
which manages BLM programs in Oregon and Washington, said that two
operations in Washington did not have financial assurances, probably
because the responsible BLM field office did not have adequate staff to
enforce compliance with this requirement. The official also said that
financial assurance training had been a problem and that staff turnover in
one field office meant that financial assurances were overlooked for a
period of time.
o Four operations in Arizona. According to BLM state office officials,
the operators of two operations did not provide financial assurances, even
though BLM told them that financial assurances were required. According to
an official in the BLM state office, the heavy workloads associated with
other BLM programs dissuaded staff from taking enforcement actions that
could involve time-consuming activities, such as obtaining court orders.
Furthermore, the official said that case files indicated the third
operation had financial assurances sometime during the 1990s, but
information on the type and amount of financial assurances after it ceased
could not be found. No reason was given for the fourth operation.
o Four operations in Nevada. According to BLM state office officials,
operators of three operations did not provide financial assurances, even
though BLM notified the operators that financial assurances were required.
At one of these operations, for example, BLM's field office issued a
noncompliance order that, after the operator appealed it, was upheld by
the BLM state office. BLM is currently working with the state of Nevada to
reclaim this operation. BLM state office officials said that the operator
of another operation, who eventually went bankrupt, was never able to
provide a suitable financial assurance instrument. Regarding the fourth
operation-Relief Canyon-officials in BLM's responsible field office told
us that the operator refused to provide financial assurances despite the
field office's enforcement steps. The field office issued a noncompliance
order and took other enforcement actions, such as revoking the operator's
plan of operation.
The Relief Canyon gold mine is located in north-central Nevada on about
344 acres, including 295 acres of BLM land. According to BLM officials,
the mine was being reclaimed when a new operator purchased it in 1995 and,
at that time, the agency advised the new operator of the need for
financial assurances for all required reclamation-including past and
future disturbances. However, the operator never obtained the
financial assurances. According to BLM, the mine's plan of operation was
last updated in October 1996, and before the operation ceased, the
operator estimated reclamation costs at about $889,000. BLM reported that,
as of July 2004, 26 to 50 percent of the operation had been reclaimed. BLM
officials told us that they had revoked the mine's plan of operation,
operations had ceased, and the operator should complete reclamation, but
the operator has appealed this revocation to Interior's Board of Land
Appeals. The operator contends that he plans to either begin mining
operations when he gets the funds or sell the operation. When we visited
the operation in September 2004, we did not see any signs of ongoing
mining activity and observed that buildings, collection pond liners, the
security fence, and other structural facilities needed repair. As of June
2005, BLM was awaiting the board's decision.
Financial Assurances Were Less As table 8 also shows, 13 operations had
financial assurances that were less
Than Recent Cost Estimates than the most recent cost estimates. These
operations were located in Alaska (1), California (1), Montana (1), and
Nevada (10). The most recent cost estimate for these 13 operations was
$128.19 million, and the value of the associated financial assurances was
$64.45 million, leaving $63.74 million of the estimated reclamation costs
with no financial assurance coverage. Table 9 shows the most recent cost
estimates, compared with the value of financial assurances for each of the
13 operations. Three mining operations-Zortman and Landusky, MacArthur
Mine and Paradise Peak- accounted for about 95 percent of the amount that
the cost estimates exceeded the financial assurances.
Table 9: Comparison of Most Recent Cost Estimate as of July 2004 with the
Value of Financial Assurances for 13 Hardrock Operations with Cost
Estimates That Exceeded Financial Assurances
Amount cost
estimate
Most recent cost Value of exceeded
financial financial
Hardrock operation Location estimate assurances assurance
Gold Hill Mining Alaska $500,000 $15,000 $485,000
Nina California 15,000 5,000 10,000
Zortman and Landusky Montana 85,200,000 57,800,000 27,400,000
Mine
Wildhorse Canyon Nevada 53,000 12,000 41,000
South Hy/Isabella Nevada 169,700 22,000 147,700
Golden Butte Nevada 1,397,000 328,942 1,068,058
Easy Jr Nevada 668,936 365,917 303,019
Kinsley Nevada 1,400,000 911,763 488,237
Phoenix Metals USA II Nevada 100,000 45,904 54,096
Inc.
American Canyon KOF Nevada 21,600 5,314 16,286
16:1 Millsite Nevada 458,000 124,017 333,983
MacArthur Minea Nevada 17,047,000 184,300 16,862,700
Paradise Peaka Nevada 21,157,000 4,625,148 16,531,852
Total $128,187,236 $64,445,305 $63,741,931
Source: GAO analysis of BLM survey responses.
aPart of these financial assurances were corporate guarantees that lost
their value when the operator that guaranteed reclamation costs went
bankrupt.
For these 13 hardrock operations, we identified several reasons why
financial assurances were less than the most recent reclamation cost
estimate. In particular:
o Estimates at the time operations ceased for 6 of the 13 operations did
not consider all costs. BLM reported that some estimates excluded BLM
administrative or indirect costs, interim maintenance costs, long-term
maintenance and monitoring costs, costs for inflation, and/or other costs.
For example, estimates for five operations did not include sufficient
funds to cover BLM administrative or indirect costs, which can be high,
especially if BLM gets involved with bankruptcy procedures. In its
guidance on preparing cost estimates BLM states that estimates should
include (1) costs for contract administration, which should be between 6
and 10 percent of estimated operations and maintenance costs, depending on
the size of the operation, and (2)
indirect costs, which should be 21 percent of the contract administration
costs.
o One operator intentionally understated reclamation costs for an
operation to minimize the amount of financial assurances required,
according to BLM field office officials in Nevada. They said, for example,
that the operator calculated the estimate as if very large equipment were
going to be used, which would reduce costs; however, the operator did not
have such equipment available in the state. The field office officials
said that the BLM staff who reviewed the cost estimate were inexperienced
and did not detect the understatement.
o Reclamation plans and cost estimates sometimes were not updated to
reflect all reclamation costs when the scope of the plan of operations
changed and, as a result, the reclamation requirements changed. For
example, BLM reported that the amount of financial assurances for the
Zortman and Landusky mining operation in Montana was significantly less
than the cost estimate prepared after the operations ceased. The
difference in costs was due in part to the failure to update the
reclamation plan to address acid rock drainage found during an inspection
in the early 1990s, despite efforts by the operator to update the plan.
Specifically, the most recent cost estimate for water treatment is greater
than the estimate prepared before operations ceased. In addition, the cost
estimate increased because the revised reclamation plan required more
extensive work on the heap-leach pad than in the earlier plan. Approval of
the plan was delayed until 2002 by the review process and litigation over
the effects of the proposed changes, and by that time the operator had
declared bankruptcy.
According to the Montana Department of Environmental Quality, which
jointly manages the hardrock operation with BLM, the value of the
financial assurances increased during this period. However, the most
recent reclamation cost estimate was still greater than the associated
financial assurances. An estimate of $85.2 million for reclamation costs
was prepared after operations ceased and addressed water contamination and
other reclamation activities, such as backfilling, regrading, and
revegetating. This estimate included $36.3 million for earthworks, $22
million for water treatment through 2017, and $26.9 million for long-term
water monitoring and treatment, according to BLM field office officials.
This estimate was $27.4 million more than the $57.8 million in financial
assurances provided for the reclamation. The financial assurances
consisted of $29.6 million in surety bonds for
earthworks, a $2 million construction assurance bond for water treatment
facilities, $13.9 million in surety bonds for water treatment through
2017, and $12.3 million in a trust fund for long-term water treatment and
monitoring. Part of the funding shortfall-about $8.7 million-was covered
with funds from other sources.
Financial Assurance Providers For four operations in Nevada, as table 8
shows, financial assurances were
Declared Bankruptcy
not adequate because financial assurance providers went bankrupt and could
not pay all the reclamation costs they guaranteed. For three of these
operations-Paradise Peak, County Line, and MacArthur Mine-an operator used
corporate guarantees totaling $4.2 million to guarantee part of the
estimated reclamation costs. However, these corporate guarantees lost all
their value when the operator went bankrupt. Reclamation costs for the
fourth operation were guaranteed with a surety bond underwritten by a
company that went bankrupt and spent $850,650 for partial reclamation of
the operation instead of relinquishing the $1.8 million surety bond. In
particular:
o Paradise Peak, a mining operation in central Nevada, used heap leaching
to extract gold from ore. When the operation ceased, it covered almost
1,000 acres, about half of which was on BLM land. The plan of operation
was last updated in May 1996, and in November 1995, the operator estimated
that reclamation costs would be $5,462,000. The operator, Arimetco Inc.,
provided financial assurances totaling $4,625,000- $1,157,000 in a surety
bond and $3,468,000 in a corporate guarantee that lost all of its value
when Arimetco went bankrupt. As of July 2004, the surety bond company had
relinquished the $1,157,000, but none of the funds had been spent. BLM
reported that estimated reclamation costs were $21,157,000-$20 million
more than the funds the surety bond company relinquished. This estimated
cost is significantly more than the original estimate, according to BLM
state office officials, because the original estimate did not include all
costs that it should have, such as costs for reclaiming collection ponds,
and because the cost estimate was not updated to reflect changes in the
reclamation plan. BLM reported that no reclamation had been done as of
July 2004, but it was very likely that reclamation would be completed
because a portion of the needed funding was obtained through bankruptcy
procedures and BLM was working with the operator to perform reclamation.
o County Line Project, located on 130 acres of BLM land in western
Nevada, used heap leaching to extract gold from ore. The plan of operation
was last updated in January 1992, when the operator
estimated that reclamation costs would be about $837,000. BLM reported no
more recent reclamation cost estimates. Arimetco Inc., the operator,
provided $838,000 in financial assurances-$210,000 in surety bonds and
$628,000 in a corporate guarantee that lost all of its value after
Arimetco went bankrupt. As of July 2004, the surety bond company had
relinquished the $210,000, but none of the funds had been spent.31 BLM
reported that, as of July 2004, between 26 percent and 50 percent of the
operation had been reclaimed. BLM also reported that it was very unlikely
that reclamation would ever be completed because it was unlikely that the
operator would remain viable after bankruptcy.32
o The MacArthur Mine covers about 550 acres, over three-quarters of which
are on BLM land. The MacArthur Mine was purchased by Arimetco in 1988.
This copper mine consisted of a pit, waste dump, and roads used to haul
ore from the pit to three heap-leach pads that Arimetco constructed on the
nearby Yerington Mine, which was also on BLM land, to extract copper from
the MacArthur ore.33 BLM reported that Arimetco began operating the
MacArthur Mine in 1992 and ceased operations in 1997, after it filed for
bankruptcy. BLM also reported that the plan of operation was last updated
in 1995 and that Arimetco had no reclamation cost estimate before
operations ceased. Further, BLM provided documents that showed the
MacArthur reclamation plan covered not only the MacArthur land but also
the heap-leach pads at the Yerington Mine. Although Arimetco had no cost
estimate, it did have $184,300 in financial assurances-$47,000 in a surety
bond and $137,300 in a corporate guarantee that had lost all of its value
when Arimetco went bankrupt. BLM reported that, as of July 2004, the
$47,000 in surety bond funds had been relinquished but not spent. BLM also
reported that estimated reclamation costs would be $17,047,000-$17 million
more than the funds relinquished by the surety bond company. This
estimate, according to an official in a BLM Nevada field office, was
prepared by
31BLM officials told us in February 2005 that, as of December 2004, some
of the surety bond funds had been obligated to review and determine
reclamation designs and costs.
32BLM officials told us in February 2005 that, as of December 2004, about
75 percent of the reclamation had been completed and that the heap-leach
pad and process ponds were the remaining features to be reclaimed.
33The Yerington Mine, which is on BLM and private land, was mined by the
Anaconda Copper Company from 1953 to 1978 (before BLM required reclamation
or financial assurances) and was purchased by the Atlantic Richfield
Company in 1977 and sold to a private entrepreneur in 1978. The
entrepreneur sold the Yerington land to Arimetco in 1988.
the state of Nevada for bankruptcy procedures. BLM reported that, as of
July 2004, no reclamation of the MacArthur operation had been undertaken
or completed and that it was very unlikely reclamation of this operation
would occur. However, in March 2005, the BLM official told us that the
Yerington Mine, including the leach heaps built and used by Arimetco for
the MacArthur operation, would be cleaned up under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended (CERCLA).34 CERCLA governs cleanup of severely contaminated
hazardous waste sites.35
o The Olinghouse Mine operation, a exploration and mining operation in
northwest Nevada, used heap leaching to extract gold from ore on 502
acres, of which 447 acres were BLM land. The plan of operation was last
updated in September 2002, and the operator estimated that reclamation
costs would be about $851,000. BLM has not reported any more recent cost
estimates. Alta Gold Company, the operator of the Olinghouse operation and
eight other hardrock operations in Nevada, provided financial assurances
to guarantee reclamation of all nine operations through a statewide surety
bond underwritten by the Frontier Insurance Company (Frontier). In April
1999, Alta Gold Company filed for bankruptcy, and BLM gave Frontier the
option of paying or performing reclamation. Subsequently, the insurance
company filed for bankruptcy and was put into "rehabilitation"-a term for
bankruptcy with the intent of making the company solvent. In October 2001,
Frontier offered to reclaim the operation to a "satisfactory level."
According to BLM, its options were to (1) wait upon the bankruptcy court,
with no guarantee to obtain funds or (2) find an alternative solution to
reclaim most of the land. BLM entered into an agreement with Frontier for
it to perform reclamation using contractors, with BLM oversight. Frontier
completed the agreed-upon reclamation by February 2003, and in December
2003, BLM released the company from future financial obligations for this
operation. Frontier performed the reclamation for $850,650, which was
significantly less than the $1.8 million surety bond that it would have
3442 U.S.C. S:S: 9601-9675.
35BLM officials advised us that their most recent reclamation cost
estimates for the MacArthur Mine pit and waste piles was $350,000 and for
the haul road was $1.15 million. They also said that, assuming the
estimate for the bankruptcy court was correct, over $15.5 million of the
cleanup costs for the leach heaps on the Yerington Mine used to extract
copper from the MacArthur pit will be included in the CERCLA cleanup
costs. The officials said that the total reclamation costs for the
Yerington Mine had not yet been estimated.
relinquished if Frontier had not performed the reclamation. BLM state and
field office officials told us that this solution was satisfactory to all
parties, even though all reclamation required by the reclamation plan was
not completed. BLM reported that, as of July 2004, 86 to 95 percent of the
reclamation had been completed, but it was very unlikely that the
remaining reclamation would ever be completed. For example, BLM reported
that all exploration roads were not reclaimed.
Financial Assurances for 12 Financial assurances may not be adequate to
pay all costs for required
Hardrock Operations May Not reclamation for 12 of the other 23
operations-11 for operations where
Be Adequate to Pay All Costs for financial assurances were equal to the
associated cost estimates and 1
Required Reclamation where the financial assurance was greater than
associated cost estimate.36 The financial assurances may not be adequate
because the cost estimates on which they were based were prepared before
operations ceased-in some cases, as long as a decade ago-and likely do not
reflect inflation or other factors that would cause reclamation costs to
increase. Table 10 shows the value of the cost estimate prepared before
the operations ceased and the number of months elapsed between that time
and July 2004, when our surveys were completed.
36Of the remaining 11 operations, 3 had been reclaimed, 4 had no basis to
assess the adequacy of the cost estimates because BLM reported no
estimates, and the most recent cost estimates for 4 were prepared after
operations ceased.
Table 10: Value of Cost Estimate Prepared before Hardrock Operations
Ceased and the Number of Months Elapsed between Estimate Date and July
2004 for 12 Hardrock Operations Where Financial Assurances Were Equal to
or Greater than Cost Estimate
Value of cost Number of months
estimate elapsed
prepared before between cost
hardrock estimate and
Operation operations ceased Date of cost July 2004
estimate
Pan Project $5,670 Feb. 1993
Monte Exploration 7,395 April 1993
Ward Mine 141,500 Mar. 1993
Northern Crown Mines 3,897 Dec. 1991
Phil Claims Expl Proj 28,556 Oct. 1995
Diamond Peak Prospect 6,500 May 2001
Mtn
Eldorado Pediment 8,200 Oct. 2001
Elder Creek 256,062 Feb. 1996
Gold Bar Resource 303,300 Dec. 1994
Area
Gold Bar Mine 2,608,000 Oct. 1994
Atlas Explorationa 265,000a June 1994
Snowbound Placer $2,970 June 2003
Source: GAO analysis of BLM survey responses.
aThe value of the financial assurance for this operation was $2,000 more
than the value of the cost estimate.
Because reclamation costs can be influenced by many factors, we did not
attempt to project the amount that the cost estimates prepared before
operations ceased were likely to be less than the amount currently needed
to complete reclamation. However, BLM's past experience with reclamation
costs indicates that cost estimates prepared after operations ceased
likely will be higher than cost estimates prepared before operations
ceased. Specifically, BLM updated cost estimates for 16 of the 43
operations for which cost estimates had been prepared before operations
ceased, and those updated estimates were the same for 2, lower for 2, and
higher for 12 operations. The increases in BLM's 12 higher estimates
totaled about $35.5 million, or about a 47 percent increase over the
estimates before operations ceased, and ranged from $690 to $16.7 million
per hardrock operation, while the decreases in BLM's 2 lower estimates
totaled $10,497, or about a 33 percent decrease, and were $6,000 and
$4,497 for the two hardrock operations.
Federal Agencies and Others As of July 2004, BLM reported that federal
agencies and others had Provided Only a Fraction of the provided about
$10.6 million to help reclaim 11 operations. These funds Funds Needed to
Pay Estimated accounted for about 8 percent of the estimated $136 million
needed to pay Costs for Required Reclamation for required reclamation for
operations identified by BLM as ceased and
not reclaimed by operators. The sources and amounts of funds provided by
others are shown in figure 8. Appendix III, table 19, shows the other
sources of funds for the 48 operations.
Figure 6: Sources of $10.6 Million Provided by Others to Pay the Cost of
Required Reclamation for 11 Operations Identified by BLM as Ceased and Not
Reclaimed by Operators, as of July 2004
Dollars in millions
Montana Department of Environmental Quality - $1.7
3%
U.S. Environmental Protection Agency - $0.3
Operator - $1.1
U.S. Army Corps of Engineers - $0.8
BLM - $6.7
Source: GAO analysis of BLM survey responses.
BLM headquarters provided over $6.7 million to reclaim 10 operations.
Nearly all of this amount-$5,594,500-was for the Zortman and Landusky
mining operation in Montana.37 Officials in Montana's Lewistown field
office told us that most of these funds came from BLM's Abandoned Mine
Land Program and were used to remove leach pads and tailings, backfill
37Lewistown Montana BLM field office officials told us that BLM provided
additional funds after July 2004.
pits, and treat water.38 BLM headquarters officials told us that some of
the funds used to reclaim the 10 operations were special funds that became
available on a one-time basis as the result of a GAO report.39 In March
2001, we reported that BLM had improperly used Mining Law Administration
Program funds for purposes other than intended by that program and
recommended that BLM correct the improper charges. BLM made the
corrections and, according to BLM headquarters officials, used some of the
funds for reclamation.
The U.S. Army Corps of Engineers (the Corps) provided about $0.8 million
to reclaim two operations through its Restoration of Abandoned Mines Sites
(RAMS) program, according to BLM. The RAMS program, created in 1999,
allows the Secretary of the Army to provide assistance to federal and
nonfederal entities for projects to address water quality problems caused
by drainage and related activities from inactive and abandoned noncoal
mines, such as hardrock operations. Specifically, BLM reported that the
Corps provided $171,000 to reclaim the Easy Jr Mine located near Ely,
Nevada. These funds were used for a site characterization study and for
construction to close the operation, with the primary goal of recontouring
and reclaiming a heap-leach pad. In addition, the Corps provided $600,000
to reclaim the Golden Butte Mine, which is also located near Ely, Nevada.
This project included collecting and analyzing water data, characterizing
the leach pad, and developing a closure plan. The Corps also partnered
with BLM through the RAMS program on another operation that had ceased and
not been reclaimed by the operator-the Elder Creek operation located near
Battle Mountain, Nevada. BLM told us that, as of July 2004, the Corps had
provided all of the funds to develop the engineering closure design for
this project, but BLM did not identify the amount of funds provided.
Funds to reclaim the Zortman and Landusky mining operation also were
provided from other sources, according to BLM. Through a bankruptcy
procedure, the bankrupt operator provided $1,050,000 to help reclaim the
38The Abandoned Mine Land Reclamation Program is authorized by Title IV of
the Surface Mining Control and Reclamation Act of 1977 and provides funds
for reclamation and restoration of land mined and abandoned or left
inadequately restored before August 13, 1977, and for which there is no
continuous reclamation responsibility under state or other federal laws.
39GAO, Bureau of Land Management: Improper Charges Made to Mining Law
Administration Program, GAO-01-356 (Washington, D.C.: Mar. 8, 2001).
operation. The Environmental Protection Agency provided $340,000 in grant
funds, primarily to prepare a supplemental environmental impact statement.
Finally, the Montana Department of Environmental Quality provided
$1,697,000 for reclamation activities, such as studies, sampling, tailings
removal, water treatment, and monitoring.40 The status of reclamation in
1993 and 2004 for the Zortman and Landusky mining operations is shown
below.
Description of Zortman and Landusky Mine
The Zortman and Landusky Mine is located in north-central Montana on about
1,200 acres, half of which are on BLM land. The operation, originally
permitted in the 1970s, was the first large open-pit gold mine to use heap
leaching in the United States. BLM reported that the operation began under
a BLM-approved plan of operation in 1981 and ceased in 1999 after Pegasus
Gold, the parent company, went bankrupt. BLM reported that, as of July
2004, over 85 percent of the required reclamation had been done and that
complete reclamation is very likely.
Source: BLM and others.
40Most of this money came from Resource Indemnity Trust Grants, which are
derived from taxes on coal mining in the state.
Figure 7: Zortman and Landusky Mining Operations at or Near Buildout in 1993 and
Status of Reclamation in 2004
Source: BLM.
The $136 Million Estimate of Costs for Required Reclamation Is Understated
to the Extent That BLM Did Not Identify or Report on All Hardrock
Operations