Collapse

by Diamond, Jared

  U.S. taxpayers currently face a liability of up to $12 billion to clean up and restore hardrock mines. Why is our liability so large, when governments have supposedly been requiring financial assurance of cleanup costs? Parts of the difficulty are the just-mentioned ones of assurance costs being underestimated by the mining companies, and the two states with the biggest taxpayer liabilities (Arizona and Nevada) accepting company self-guarantees and not requiring insurance bonds. Even when an underfunded but real insurance company bond exists, taxpayers face further costs for reasons that will be familiar to any of us who have tried to collect from our insurance company for a large loss in a home fire. The insurance company regularly reduces the amount of the bond payoff by what are euphemistically termed “negotiations”: i.e., “If you don’t like our reduced offer, you may go to the expense of hiring lawyers and waiting five years for the courts to resolve the case.” (A friend of mine who suffered a house fire has just been going through a year of hell over such negotiations.) Then the insurance company pays out the bonded or negotiated amount only over the years as cleanup and restoration are carried out, but the bond contains no clause for inevitable cost escalations with time. Then, too, not only mining companies but sometimes also insurance companies faced with large liabilities file for bankruptcy. Of the mines posing the 10 biggest taxpayer liabilities in the U.S. (adding up to about half of the total of up to $12 billion), two are owned by a mining company on the verge of bankruptcy (ASARCO, accounting for about $1 billion), six others are owned by companies that have proved especially recalcitrant at meeting their obligations, only two are owned by less recalcitrant companies, and all 10 may be acid-generating and may require water treatment for a long time or forever.

  Not surprisingly, as a result of taxpayers’ being left to foot bills, there has been a backlash of anti-mining public sentiment in Montana and some other states. The future of hardrock mining in the U.S. is bleak, except for gold mines in underregulated Nevada and platinum/palladium mines in Montana (a special case about which I shall say more below). Only one-quarter as many American college undergraduates (a mere 578 students in the whole U.S.) are preparing for careers in mining as in 1938, despite the explosive growth of the total college population in the intervening years. Since 1995, public opposition in the U.S. has been increasingly successful in blocking mine proposals, and the mining industry can no longer count on lobbyists and friendly legislators to do its bidding. The hardrock mining industry is the prime example of a business whose short-term favoring of its own interests over those of the public proved in the long term self-defeating and have been driving the industry into extinction.

  This sad outcome is initially surprising. Like the oil industry, the hardrock mining industry too stands to benefit from clean environmental policies, through lower labor costs (less turnover and absenteeism) resulting from higher job satisfaction, lower health costs, cheaper bank loans and insurance policies, community acceptance, less risk of the public blocking projects, and the relative cheapness of installing state-of-the-art clean technology at a project’s outset as compared to having to retrofit old technology as environmental standards become more stringent. How could the hardrock mining industry have adopted such self-defeating behavior, especially when the oil industry and the coal mining industry facing apparently similar problems have not driven themselves towards extinction? The answer has to do with the three sets of factors that I mentioned earlier: economics, mining industry attitudes, and society’s attitudes.

  Economic factors that make environmental cleanup costs less bearable to the hardrock mining industry than to the oil industry (or even the coal industry) include lower profit margins, more unpredictable profits, higher cleanup costs, more insidious and long-lasting pollution problems, less ability to pass on those costs to consumers, less capital with which to absorb those costs, and a different labor force. To begin with, while some mining companies are more profitable than other mining companies, the industry as a whole operates at such low profit margins that its average rate of return over the last 25 years hasn’t even met the cost of its capital. That is, if a mining company CEO with $1,000 to spare had invested it in 1979, then by the year 2000 the investment would have grown to only $2,220 if invested in steel industry stock; to only $1,530 if invested in metal stocks other than iron and steel; to only $590, representing a net loss even without considering inflation, if invested in gold mine stock; but to $9,320 if invested in an average mutual fund. If you’re a miner, it doesn’t pay you to invest in your own industry!

  Even those mediocre profits are unpredictable, at the level both of the individual mine and of the industry as a whole. While an individual oil well within a proven oil field may turn out to be dry, the reserves and oil grade of a whole oil field are often relatively predictable in advance. But the grade (i.e., the metal content, and hence the profitability) of a metal ore often changes unpredictably as one digs one’s way through an ore deposit. Half of all mines that are developed prove unprofitable. The average profits of the whole mining industry are also unpredictable, because metals prices are notoriously volatile and fluctuate with world commodity prices to a much greater degree than do oil and coal prices. The reasons for that volatility are complex and include the lower bulk and smaller amounts consumed of metals than of oil or coal (making metals easier to stockpile); our perception that we always need oil and coal but that gold and silver are dispensable luxuries during a recession; and the fact that gold price fluctuations are driven by factors having nothing to do with the supply of gold and the industrial demand for gold—namely, speculators, investors buying gold when they grow nervous about the stock market, and governments selling off their gold reserves.

  Hardrock mines create far more wastes, requiring much more expensive cleanup costs, than do oil wells. The wastes that are pumped up from an oil well and that have to be disposed of are mostly just water, typically in a waste-to-oil ratio of only around one or not much higher. If it weren’t for the access roads and the occasional oil spill, oil and gas extraction would have little environmental impact. In contrast, metals constitute only a small fraction of a metal-bearing ore, which in turn constitutes only a small fraction of the dirt that has to be dug up to extract the ore. Hence the ratio of waste dirt to metal is typically 400 for a copper mine, and 5,000,000 for a gold mine. That’s a huge amount of dirt for mining companies to clean up.

  Pollution problems are more insidious and much more long-lasting for the mining industry than for the oil industry. Oil pollution problems arise mainly from quick and visible spills, many of which it has been possible to avoid by careful maintenance and inspections and by improved engineering design (such as double-hulled rather than single-hulled tankers), so that the oil spills that still occur today are mainly ones due to human error (such as the Exxon Valdez tanker accident), which can in turn be minimized by rigorous training procedures. Oil spills can generally be cleaned up within a few years or less, and oil degrades naturally. While mine pollution problems also occasionally appear as a quick visible pulse that suddenly kills lots of fish or birds (like the fish-killing cyanide overflow from the Summitville mine), more often they take the form of a chronic leak of toxic but invisible metals and acid that don’t degrade naturally, continue to leak for centuries, and leave slowly weakened people rather than a sudden pile of carcasses. Tailings dams and other engineered safeguards against mine spills continue to suffer from a high rate of failure.

  Like coal, oil is a bulk material that we see. The gas pump gauge tells us how many gallons we just bought. We know what it is used for, we consider it essential, we have experienced and been inconvenienced by oil shortages, we are frightened of their possible recurrence, we are grateful to be able to get gas for our cars at all, and we don’t balk too much at paying higher prices. Hence the oil and coal industries may have been able to pass on their costs of environmental cleanup to consumers. But metals other than iron (in the form of steel) are mostly used for invisible little par
ts inside our cars, phones, and other equipment. (Tell me quickly without looking up the answer in an encyclopedia: where are you using copper and palladium, and how many ounces of each were in the things that you bought last year?) If increased environmental costs of copper and palladium mining tend to increase the cost of your car, you don’t say to yourself, “Sure, I’m willing to pay another dollar per ounce for copper and palladium, just as long as I can still buy a car this year.” Instead, you shop around for a better deal on a car. The copper and palladium middlemen and car manufacturers know how you feel, and they pressure the mining companies into keeping their prices down. That makes it hard for a mining company to pass on its cleanup costs.

  Mining companies have much less capital to absorb their cleanup costs than do oil companies. Both the oil industry and the hardrock mining industry face so-called legacy problems, which mean the burden of costs from a century of environmentally damaging practices before the recent growth of environmental awareness. To pay those costs, as of the year 2001 the total capitalization of the entire mining industry was only $250 billion, and its three largest companies (Alcoa, BHP, and Rio Tinto) were capitalized with only $25 billion each. But the leading individual companies in other industries—Wal-Mart Stores, Microsoft, Cisco, Pfizer, Citigroup, ExxonMobil, and others—had capitalizations of $250 billion each, while General Electric alone had $470 billion (almost double the value of the entire mining industry). Hence those legacy problems are relatively a much heavier burden on the hardrock mining industry than on the oil industry. For example, Phelps-Dodge, the largest surviving U.S. mining company, faces U.S. mine reclamation and closure liabilities of about $2 billion, equal to its entire market capitalization. All of the company’s assets amount to only about $8 billion, and most of those assets are in Chile and cannot be used to pay North American costs. In contrast, the oil company ARCO, which inherited the responsibility of $1 billion or more for Butte copper mines when it bought Anaconda Copper Mining Company, had North American assets of over $20 billion. That cruel economic factor alone goes a long way towards explaining why Phelps-Dodge has been much more recalcitrant about mine cleanup than has ARCO.

  Thus, there are many economic reasons why it is more burdensome for mining companies than for oil companies to pay cleanup costs. In the short run, it’s cheaper for a mining company just to pay lobbyists to press for weak regulatory laws. Given society’s attitudes and existing laws and regulations, that strategy has worked—until recently.

  Those economic disincentives are exacerbated by the attitudes and corporate culture that have become traditional within the hardrock mining industry. In the history of the U.S., and analogously also in South Africa and Australia, the government promoted mining as a tool to encourage settlement of the West. Hence the mining industry evolved in the U.S. with an inflated sense of entitlement, a belief that it is above the rules, and a view of itself as the West’s salvation—thereby illustrating the problem of values that have outlived their usefulness, as discussed in the preceding chapter. Mine executives respond to environmental criticism with homilies on how civilization would be impossible without mining, and how more regulation would mean less mining and hence less civilization. Civilization as we know it would also be impossible without oil, farm food, wood, or books, but oil executives, farmers, loggers, and book publishers nevertheless don’t cling to that quasi-religious fundamentalism of mine executives: “God put those metals there for the benefit of mankind, to be mined.” The CEO and most officers of one of the major American mining companies are members of a church that teaches that God will soon arrive on Earth, hence if we can just postpone land reclamation for another 5 or 10 years it will then be irrelevant anyway. My friends within the mining industry have used many colorful phrases to characterize prevailing attitudes: “a rape-and-run attitude”; “robber-baron mentality”; “a rough-and-tumble heroic struggle of one man against nature”; “the most conservative businesspeople I’ve ever met”; and “a speculative attitude that a mine is there to let its executives roll the dice and get personally rich by striking the mother lode, rather than the oil company motto of increasing asset value for the shareholders.” To claims of toxic problems at mines, the mining industry routinely responds with denial. No one in the oil industry today would deny that spilled oil is harmful, but mine executives do deny the harm of spilled metals and acid.

  The third factor underlying mining industry environmental practices, besides economics and corporate attitudes, is the attitudes of our government and society, which permit the industry to continue with its own attitudes. The basic federal law governing mining in the U.S. is still the General Mining Act passed in 1872. It provides massive subsidies to mining companies, such as a billion dollars per year of royalty-free minerals from publicly owned lands, unlimited use of public lands for dumping mine wastes in some cases, and other subsidies costing taxpayers a quarter of a billion dollars per year. The detailed rules adopted by the federal government in 1980, termed the “3809 rules,” did not require mining companies to provide financial assurance of cleanup costs, and did not adequately define reclamation and closure. In the year 2000 the outgoing Clinton administration proposed mining regulations that achieved both of those goals while also eliminating corporate self-guarantees of financial assurance. But in October 2001 a proposal by the incoming Bush administration eliminated almost all of those proposals except for continuing to require financial assurance, a requirement that would in any case be meaningless without a definition of the reclamation and cleanup costs to be covered by financial assurance.

  It is rare that our society has effectively held the mining industry responsible for damages. Laws, regulatory policies, and the political will to chase mining scofflaws have been absent. For a long time the Montana state government was notorious for its deference to mining lobbyists, and the Arizona and Nevada state governments still are. For example, the state of New Mexico estimated reclamation costs for the Chino copper mine of Phelps-Dodge Corporation at $780 million, but then decreased that estimate to $391 million under political pressure from Phelps-Dodge. When our American public and governments demand so little of the mining industry, why should we be surprised that the industry itself volunteers little?

  My account of hardrock mining so far may have given the false impression that the industry is monolithically uniform in its attitudes. Of course, this is not true, and it’s instructive to examine the reasons why some hardrock miners or related industries have adopted or considered cleaner policies. I’ll briefly mention half a dozen such cases: coal mining, the current status of Anaconda Copper Company’s Montana properties, Montana platinum and palladium mines, the recent MMSD initiative, Rio Tinto, and DuPont.

  Coal mining is superficially even more similar to hardrock mining than is the oil industry, in that its operations inevitably create heavy environmental impacts. Coal mines tend to make even bigger messes than do hardrock mines, because the quantity of coal extracted per year is relatively enormous: more than triple the combined mass of all the metals extracted from hardrock mines. Thus, coal mines usually disturb more area, and in some cases they strip the soil down to bedrock and dump mountaintops into rivers. On the other hand, coal occurs in pure seams up to 10 feet thick stretching for miles, so that the ratio of dumped wastes to product extracted is only about one for a coal mine, far less than the already-mentioned figures of 400 for a copper mine and 5,000,000 for a gold mine.

  The lethal Buffalo Creek disaster at a U.S. coal mine in 1972 served as a wake-up call for the coal industry, much as the Exxon Valdez and North Sea oil rig disasters did for the oil industry. While the hardrock mining industry has had its share of disasters in the Third World, those have occurred too far from the eyes of the First World public to have served as a comparable wake-up call. Stimulated by Buffalo Creek, the U.S. federal government in the 1970s and 1980s instituted tighter regulation, and required stricter operating plans and financial assurance, for coal mining than for hardrock mining.r />
  The initial response of the coal industry to those government initiatives was to prophesy disaster for the industry, but 20 years later that has been forgotten, and the coal industry has learned to live with the new regulations. (Of course that doesn’t mean that the industry is consistently virtuous, just that it is more regulated than 20 years ago.) One reason is that many (but certainly not all) coal mines are not in beautiful Montana mountains but in flatland not highly valued for other reasons, so that restoration is economically feasible. Unlike the hardrock mining industry, the coal industry now often restores mined areas within a year or two of ceasing operations. Another reason may be that coal (like oil but unlike gold) is perceived as a necessity for our society, and we all know how we use coal and oil but few of us know how we use copper, so the coal industry may have been able to pass on its increased environmental costs to consumers.

  Still another factor behind the response of the coal industry is that it typically has short transparent supply chains, in which coal is shipped directly or else via just one intermediate supplier to the electric generating plants, steel plants, and other main consumers of coal. That makes it easy for the public to figure out whether any particular consumer of coal is obtaining it from a cleanly or dirtily operated coal mining company. Oil has a supply chain that is even shorter in number of business entities, even if sometimes long in geographic distances: big oil companies like ChevronTexaco, ExxonMobil, Shell, and BP sell their fuel to consumers at gas stations, thereby permitting consumers enraged by the Exxon Valdez disaster to boycott gas stations selling Exxon fuel. But gold passes from the mine to the consumer via a long supply chain that includes refiners, warehouses, jewelry manufacturers in India, and European wholesalers before arriving at a retail jewelry store. Take a look at your gold wedding ring: you don’t have the faintest idea where the gold came from, whether it was mined last year or stockpiled for the last 20 years, what company mined it, and what their environmental practices were. For copper the situation is even more obscure: there is an extra intermediate step of a smelter, and you don’t even realize that you are buying some copper when you buy a car or phone. That long supply chain prevents copper and gold mining companies from counting on consumer willingness to pay for cleaner mines.