February 2019

Minimising future water management liabilities in mining operations

  • By Terence Jeyaretnam Partner, Climate Change and Sustainability, EY

Terence Jeyaretnam discusses mine closures through mistakes he’s seen in the past and what can be done in the future for water management during operations and post-closure 

I have reviewed many mine closure and rehabilitation plans for operations in Australia and internationally in a wide range of environments across most commodities. Despite this, I continue to be surprised by how often significant deficiencies are noted in the planning and provisioning of closure and post-closure water management.

It is not uncommon to see poor definition and delineation of potential post-closure water management issues in the mine planning and operational stages, including potential for acid rock drainage (ARD), pit water management and routing and stability of surface water diversions, even at assets that are within a year or two of closure. Lack of adequate planning for closure and post-closure water management can lead to inadequate provisioning, contingent liability identification and significant detrimental cost impacts.

The magnitude of a mine’s closure costs is often reasonably proportionate to the scale of the mining operation, particularly for open-cut mines. This generally holds true for the key cost drivers such as bulk earthwork, rehabilitation works, demolition of infrastructure, as well as the closure of waste rock dumps (WRDs) and tailings storage facilities (TSFs) where the complexity of the closure is comparable. One area of closure cost that has the potential to materially and relatively increase a mine’s closure costs is the management of mine impacted water, including in the form of ARD. Yet, it is not uncommon to see mine sites coming towards the end of a mine life without an adequate understanding and assessment of the ARD risk and an accurate understanding of the long-term management requirements of ARD including the future costs associated with such management.

Mine closure and rehabilitation provisions are presented on a net present value (NPV) basis. As a result, costs borne during the post-closure period, particularly when there is reasonable remaining mine life, are often reduced significantly in NPV calculations by a long period, resulting in costs being discounted. In Australia, it is rare to see companies assessing water management as being costs into perpetuity. It is more common to see companies underestimate the post-closure management period prior to when they can reasonably expect handback where post-closure water management is required. On the other side of the spectrum, active water management is a common assumption for mines in the Americas and, as focus on the environmental impacts of mining continues to increase, it provides precedence for regulators to consider their position. The impact of perpetuity costs on an NPV calculation can be significant. Regardless of whether active water management into perpetuity becomes a common requirement for mines in Australia, generally environmental expectations of communities and regulators are trending to be more stringent. Miners need to be realistic about their post-closure management period and the associated costs, particularly when water management risks and/or obligations are present. This appreciation and thinking should prompt a commensurate level of focus in the planning and operational phases of mining on the closure and post-closure water management. This is because, at this stage, if the risks and impacts are properly identified and defined, there is significant opportunity to manage and influence water management in closure.

Whilst inadequately managed, ARD represents possibly the biggest water management risk; it is common to see a number of other water-related risks that are often not as well defined and/or managed.  Post-closure pit water quality and interaction with proximal groundwater systems is an aspect often ill-defined and addressed pre-closure. The potential complexity of the monitoring and modelling requirements, including hydrological, hydrogeological, geotechnical and geochemical considerations, and the associated cost to properly assess this aspect is inferred as a significant contributing factor for why this is rarely properly addressed. Whilst this is to some extent understandable, the potential cost consequences of not properly identifying and planning for management of the risks can be very much greater. The other water management issue that can sometimes be problematic is post-closure surface water management, particularly creek diversions that may be inappropriately routed, constructed, or rehabilitated.

Unsurprisingly, it is more common to see inadequate water management planning in smaller-scale operations than those that are larger. For smaller operations with sulfide ores, ARD management can represent a disproportionately large cost of closure, and therefore a greater proportional risk. Despite this, these are commonly the sites that know least about ARD generation capacity and risk. Mismanagement in the mining phase can lead to ongoing water treatment costs, as well as extended periods prior to relinquishment requiring payment of mining lease fees and property rates as well as other management, monitoring and overhead costs. This in turn can greatly reduce the value of smaller producers and lead to financial viability pressures. There are a number of examples throughout Australia of the State being left with the burden of managing mine impacted water following the bankruptcy or abandonment of operators.

Water management issues (in particular ARD) operate (and can dissipate) on a quasi-geological time frame, yet the assumption of many operators in Australia is that 15 years or fewer of water management will be sufficient to see off any issues and relinquish their sites. This has proven to be overly optimistic in many cases. If water management liabilities are reflected more accurately in mine valuations, then the case for early pre-closure identification and planning of water management can be seen more as a value-generating activity rather than an additional cost. With the completion of geochemical, geotechnical, hydrological and hydrogeological modelling studies early in the mine planning process, sites can reduce material rehandling costs that may be required in the future (but are rarely planned for and therefore not evaluated from a cost/value perspective), while optimising the use of the site’s materials to manage potential ARD and erosion issues. In addition to benefits from a water management perspective, building waste rock dumps to final landform designs that manage ARD, also provide a canvas to undertake rehabilitation trials early in the mine’s life. This enables sites to fine-tune rehabilitation processes, accelerating efforts to achieve its closure completion criteria and potentially bringing forward relinquishment of the site. Similar considerations apply pre-closure planning for post-closure surface and pit water management.

It is noteworthy, however, that the requirement for long-term water management may be a requirement in some cases and it need not be prohibitive. There is an opportunity within the Australian mining industry to innovate when it comes to the closure of mines that will require extended periods of active water management. There are examples in the Americas where sites are being repurposed, where companies are accepting the long-term liability and site management responsibility that they are faced with, acknowledging that they will not be relinquishing their tenements in the foreseeable future, and are looking to develop alternative revenue streams from their sites. Early planning for an innovative post-closure land use can provide a much broader set of options than one that is put together towards the end of the mine life. Establishing a well-understood post-closure alternative land use early in the mine’s operations can change the economics of options as retrofitting costs are removed, alternative revenue streams are brought forward, and pilot projects could be completed prior to full closure of the site, therefore aligning more closely with the operation’s cashflows.

What may see a paradigm shift in improvement in post-closure water management? Acceptance of continued tightening of environmental expectation, adequate and effective closure water management planning in the mine planning and operational phases, design and operation for closure, realistic estimates of post-closure water management time frames, and management teams that are willing to innovate in order to provide stakeholders with additional value.

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

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