MELBOURNE – Major miners are trying to avoid hundreds of millions of dollars in closure costs by selling off pits, as cash is tight due to a prolonged commodities price slump, but the crippling cost of environmental rehabilitation makes it tough to seal deals.
Where mine sales have gone ahead, production is being prolonged, adding to oversupply in depressed markets, like coal. Or in some cases, such as in nickel, producers are continuing to produce at a loss to avoid closure costs.
“As (rehabilitation) looms, the number gets bigger and bigger. It definitely is impacting the agenda of a lot of companies, even the big ones,” said Gavin Buckingham, a partner with consultants EY.
In a cautionary tale, China’s MMG Ltd (1208.HK) had to hike its estimate of closure provisions more than 60 percent to $378 million for Australia’s largest open-cut zinc mine, Century, just months before digging its final ton last year as the reality of what would be involved became clearer.
The work includes capping and compacting waste dumps, and rehabilitating an evaporation pond and a tailings dam, but doesn’t involve filling the open pit, which covers 3.5 square km (1.4 sq miles). MMG is trying to sell off part of the site or at least infrastructure to help cut or defray the rehabilitation costs.
The world’s biggest miner BHP Billiton (BHP.AX)(BLT.L) sliced about a quarter of its environmental obligations last year in one fell swoop, cutting its total to $6.7 billion when it cast off several mines into a new company, South32 (S32.AX).
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