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Adjusting to BC’s Increased Reclamation Bonding Requirements

The BC government is increasing its reclamation bonding requirements from mining operations. On April 8th, 2022, BC published a new interim Major Mines Reclamation Security Policy (the “interim policy”). Among other things, the interim policy seeks to reduce the difference between the mining sector’s reclamation liabilities and the reclamation security held by the Province.

Background to the Policy: Recommendations and Examinations in BC’s security Reclamation Practice

The interim policy was developed in response to recommendations following a 2016 audit of compliance and enforcement in the BC mining sector. The audit report found that the Ministry of Energy and Mines was not holding enough security ($0.9 billion at the time) to cover the estimated environmental liabilities at major mines ($2.1 billion at the time). The Auditor General recommended that the “…government safeguard taxpayers by ensuring the reclamation liability estimate is accurate and that the security held by government is sufficient to cover potential costs.”[1]

This recommendation – and subsequent examinations into BC’s reclamation security practices by independent engineering and accounting consultants – led to the development of the interim policy. In November 2020, the Minister of Energy, Mines and Low Carbon Innovation and the Minister of Environment and Climate Change Strategy were given a mandate to “ensure owners of large industrial projects are bonded moving forward so that they – not BC taxpayers – pay the full costs of environmental cleanup if their projects are abandoned.”[2]

 Key Provisions of the Interim Policy:  

(1)   any new mines must post reclamation security equal to 100% of the reclamation liability for the projected disturbance and any environmental liabilities created in the first five years of the mine’s life;

(2)   any mines that have fewer than five years of mineral reserves remaining must post reclamation security equal to 100% of the reclamation liability for the mine;

(3)   cost estimates for mines’ liabilities include “conventional reclamation," like landforming and revegetation, and post closure environmental stewardship costs, like water treatment and its associated costs (e.g., labour, reagents, shipping, parts, sampling/analysis); and

(4)   companies can post their required reclamation security through:

a.     cash,

b.     cash equivalents (certified cheques, money orders, bank drafts),

c.      surety bonds,

d.     qualified environmental trusts, and

e.     irrevocable standby letters of credit.

Overall, the interim policy creates a more detailed and formulaic framework for determining the amount and form of reclamation security.

Industry Response:

The Mining Association of British Columbia (“MABC”) has responded to the Province’s interim policy, noting it is one of the most stringent reclamation policies in the world. While generally supportive of the interim policy, the MABC notes that the reclamation security held by the Province has increased by more than $1 billion (up to $2.3 billion, currently) since 2016.

Mine operators are learning to cope with the financial burden of increased reclamation bonding requirements, with a degree of apprehension as to the ongoing implementation of the interim policy and the final legislative regime that is expected to follow in the coming years.

Strategies for Mining Companies

(1)   Engage with Ministry - Mine operators should understand the importance of collaborating with the Ministry, as there may be room to explore aspects of the Ministry’s valuation approach. 

(2)   Consult with Indigenous Communities - Mine operators need to be proactive in consulting, and developing strong relationships with, local indigenous communities who might be affected by mining operations. Affected indigenous communities have important voices in determining whether mining operations go ahead and how much security the government requires.

(3)   Use Cash Alternatives - As outlined above, the Ministry accepts a number of cash alternatives as reclamation security, such as letters of credit (which are typically cash-backed) and surety bonds (which may be issued based on non-cash security or even just a strong corporate balance sheet). Note that letter of credit and surety bonds are vulnerable to being unwound by the relevant issuer should market conditions, or the mine operator’s financial circumstances, change. 

(4)   Back-to-back Structures - The Province has specific form requirements for letters of credit and surety bonds. In some cases, a surety company may not accept the Province’s form or the proposed surety may be unacceptable to the Province.  In such cases, consider employing a back-to-back structure: posting a letter of credit in the Province’s required form that is backed by a surety bond on commercial terms favourable to the mine operator (e.g., with no cash collateral requirement).

[1] See interim policy at p. 1.

[2] Ibid.



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