The Application of Environmental Financial Assurance Regulations to Giant Mine

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Reeves, Spencer
Mining , Environmental Financial Assurance , Giant Mine
Historically, mining has had a large negative impact on the environment. In order to combat this legacy of damage, the Government of Canada has implemented regulations in order to ensure the “Polluter Pays’ principle is followed, that is the party responsible for damage will pay for its rehabilitation. Giant Mine, located in Yellowknife, NWT, is a case where this principle was not applied. It is one of the most damaged legacy mine sites in Canada and is currently undergoing rehabilitation by the Government of Canada after its owner became insolvent in the 1990’s. Rehabilitation is estimated to cost B$0.5 CAD and requires maintenance in perpetuity. This thesis examines the Canadian application of environmental financial assurance regulations which are intended ensure that mining companies provide sufficient funding to the government to reclaim a mine in the event of default by applying modern regulations to the case study of the Giant Mine. Four primary types of assurances (cash, letters of credit, trusts, and corporate promises) along with their variations are applied retroactively to determine their impact on financial models of Giant Mine as a critique of modern EFA regulations. This model shows that on a pre-tax, undiscounted basis, Giant Mine would have been able to fund the entirety of its reclamation but would be unable to do so on an after-tax basis. This indicates that the project is sensitive to the tax treatment of the reclamation cash flows, which is variable depending on the specific tax jurisdiction in question. When the time value of money is considered, the project becomes attractive except when the EFA fund is held as cash. All other EFA vehicles showed positive economic value over a range of discount rates applied by mining companies. As a result, this thesis concludes that had modern EFA regulations been in place at the time of Giant Mine’s discovery, the mine could have successfully internalized its environmental impact and still have been considered economic despite the significant environmental damage it caused but would not be an attractive investment to smaller, less financially stable mining firms.
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