Hardrock Mining: BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of Reclamation Costs
Published: 2005-06-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since the General Mining Act of 1872, billions of dollars in hardrock minerals, such as gold, have been extracted from federal land now managed by the Department of the Interior's Bureau of Land Management (BLM). For years, some mining operators did not reclaim land, creating environmental, health, and safety risks. Beginning in 1981, federal regulations required all operators to reclaim BLM land disturbed by these operations. In 2001, federal regulations began requiring operators to provide financial assurances before they began exploration or mining operations. GAO was asked to determine the (1) types, amount, and coverage of financial assurances operators currently use; (2) extent to which financial assurance providers and others have paid to reclaim land not reclaimed by the operator since BLM began requiring financial assurances; and (3) reliability and sufficiency of BLM's automated information system (LR2000) for managing financial assurances for hardrock operations.
section_title: What GAO Found
paragraphs: According to GAO's survey of BLM state offices, as of July 2004, hardrock operators were using 11 types of financial assurances, valued at about $837 million, to guarantee reclamation costs for existing hardrock operations on BLM land. Surety bonds, letters of credit, and corporate guarantees accounted for most of the assurances' value. However, these financial assurances may not fully cover all future reclamation costs for these existing hardrock operations if operators do not complete required reclamation. BLM reported that, as of July 2004, some existing hardrock operations do not have financial assurances and some have no or outdated reclamation plans and/or cost estimates, on which financial assurances should be based. BLM identified 48 hardrock operations on BLM land that had ceased and not been reclaimed by operators since it began requiring financial assurances. BLM reported that the most recent cost estimates for 43 of these operations totaled about $136 million, with no adjustment for inflation; it did not report reclamation cost estimates for the other 5 operations. However, as of July 2004, financial assurances had paid or guaranteed $69 million and federal agencies and others had provided $10.6 million to pay for reclamation, leaving $56.4 million in reclamation costs unfunded. Financial assurances were not adequate to pay all estimated costs for required reclamation for 25 of the 48 operations because (1) some operations did not have financial assurances, despite BLM efforts in some cases to make the operators provide them; (2) some operations' financial assurances were less than the most recent reclamation cost estimates; and (3) some financial assurance providers went bankrupt. Also, cost estimates may be understated for about half of the remaining 23 operations because the estimates may not have been updated to reflect inflation or other factors. BLM's LR2000 is not reliable and sufficient for managing financial assurances for hardrock operations because BLM staff do not always update information and LR2000 is not currently designed to track certain critical information. Specifically, staff have not entered information on each operation, and for those operations that are included, the information is not always current. Also, LR2000 does not track some critical information--operations' basic status, some types of allowable assurances, and state- and county-held financial assurances. Given these limitations, BLM's reliance on LR2000 to manage financial assurances is mixed: headquarters does not always rely on it and BLM state offices' reliance varies. To compensate for LR2000's limitations, some BLM offices use informal record-keeping systems to help manage hardrock operations and financial assurances. BLM has taken some steps and identified others to improve LR2000 for managing financial assurances for hardrock operations.

section_title: Letter
paragraphs: The General Mining Act of 1872 encouraged development of the West by  allowing individuals to stake claims and obtain exclusive rights to gold,  silver, copper, and other valuable hardrock mineral deposits on land  belonging to the United States. Since then, thousands of operators have  extracted billions of dollars worth of hardrock minerals from land now  managed by the Department of the Interior’s Bureau of Land Management  (BLM)—the agency that manages the largest amount of federal land.  However, some operators did not reclaim BLM land disturbed by hardrock  operations related to exploration, mining, and mineral processing when  their operations ceased. These operators left BLM with many thousands of  acres of disturbed land, some of which posed environmental and health  and safety risks.
The Federal Land Policy and Management Act of 1976 states that the  Secretary of the Interior shall take any action required to prevent the  “unnecessary or undue degradation” of public land and its resources. BLM  has developed and revised regulations and issued policy under this  provision. Specifically, BLM issued regulations, effective in 1981, that  require all operators to reclaim BLM land disturbed by their hardrock  operations. For plan-level operations—those disturbing over 5 acres of  land or those in certain designated areas, such as the national wild and  scenic rivers system—operators were to have a BLM-approved plan that  documented all the anticipated hardrock activities and all required  reclamation. For notice-level operations—those causing a surface  disturbance of 5 acres or less—operators were to submit notices that  informed BLM of the operators’ intentions, but these notices did not  require BLM’s approval. Plans have to be approved and notices received by  BLM before the operators begin exploration or mining operations. Also, to  guarantee that reclamation costs are paid, these regulations stated that  BLM could require plan-level operators to provide bonds or other financial  assurances in an amount specified by BLM, taking into consideration the  estimated cost of reasonable stabilization and reclamation of the disturbed  land.BLM also could require notice-level operators with a history of  noncompliance with federal regulations to submit a plan of operation and  thus notice-level operators could be required to provide financial  assurances. Through a formal agreement, BLM can designate a state agency  as responsible for managing some or all hardrock requirements, including  financial assurances. Operators have used a variety of types of financial  assurances, ranging from funded assurances, such as cash and negotiable  U.S. securities, to corporate guarantees, which are promises to complete  reclamation that are backed only by the financial strength of the operator.  Despite having the regulatory authority to do so, BLM rarely required  operators to provide financial assurances throughout the 1980s.
In August 1990, BLM issued a policy instructing BLM officials to require  operators to provide financial assurances for all plan-level operations and  for notice-level operations if the operators had a record of noncompliance  with federal regulations. BLM generally limited financial assurances to  $1,000 per acre for exploration and $2,000 per acre for mining operations.  However, BLM required operators using leaching chemicals, such as  cyanide and sulfuric acid, to extract minerals from ore and required  operators with a record of noncompliance to provide financial assurances  to cover all estimated reclamation costs for hardrock operations. For these  operations, BLM was to estimate the cost of reclamation and add to it the  reasonable administrative costs that would be incurred if reclamation were  done under contract. However, BLM did not further specify the types of  financial assurances that could or could not be used.
Concerns about the types of financial assurance and the lack of financial  assurances requirements for all notice-level operations, among other  things, prompted BLM to establish new regulations in 2001. The new  regulations require operators to include reclamation plans and cost  estimates in the notices and plans of operation that they submit to BLM for  acceptance or approval. The new regulations require that before  exploration or mining operations begin, operators must provide financial  assurances to cover all estimated reclamation costs for both notice- and  plan-level hardrock operations. In addition, BLM must periodically review  the estimated cost of reclamation to determine if the cost estimates should  be updated. The regulations also specify the types of acceptable financial  assurances and prohibit new corporate guarantees and increases or  transfers in the corporate guarantees used under BLM’s previous policy.  The financial assurance provisions of the new regulations applied  immediately—on January 20, 2001, for new notice- and plan-level  operations and on January 20, 2003, for extended notice-level operations,  unless the notice was modified. Plans of operations that were approved  before January 20, 2001, were required to have financial assurances in  place no later than November 20, 2001.
Under federal regulations, if an operator fails to complete required  reclamation, BLM or the designated state agency may take steps to obtain  funds from the financial assurance providers. Providers then have the  option of (1) relinquishing the amount guaranteed by the financial  assurance to BLM or the designated state agency, which would then use the  funds for reclamation, or (2) completing the reclamation themselves. The  regulations also give BLM the authority to take steps, such as issuing  noncompliance and suspension orders, and revoking plans of operation, if  operators do not comply with the financial assurance or other regulatory  requirements.
BLM established an automated information system—the Legacy Rehost  2000 (LR2000)—in 1999 that combined into one system several existing  systems that collect and store information on the programs and land BLM  manages. LR2000 is composed of a number of subsystems, some of which  contain information on hardrock operations and financial assurances.
You asked us to determine the (1) types, amount, and coverage of financial  assurances operators currently use to guarantee reclamation costs, (2)  amount that financial assurance providers and others have paid to reclaim  operations that had ceased and not been reclaimed since BLM began  requiring financial assurances and the estimated costs of completing  reclamation for such operations, and (3) reliability and sufficiency of BLM’s  LR2000 for managing financial assurances for hardrock operations.
We did not rely on LR2000 information to address these objectives, but  instead designed two surveys to obtain information from BLM’s state and  field offices because they maintain the case files and other specific  information on hardrock operations. We asked the 12 BLM state offices  that manage BLM programs across the United States to complete surveys  for each state in their jurisdiction with hardrock operations. We verified  the information in the surveys through discussions with BLM officials in  two state and four field offices and by reviewing case files and other  documents. In the first survey, which focused on states’ experiences with  hardrock operations, we asked these 12 offices to provide information on  (1) the number of existing hardrock operations for each state within their  jurisdiction, (2) the types and the amounts of financial assurances  provided for existing hardrock operations in each state, (3) their views on  the effectiveness of the various types of financial assurances, (4) their  views on the reliability and sufficiency of hardrock operation data  contained in LR2000, and (5) their use of LR2000 for managing hardrock  operations and financial assurances in their states. In the second survey,  which focused on selected hardrock operations, we asked these 12 offices  to provide detailed information on hardrock operations within their  jurisdiction that met both of the following criteria: the operator (1) ceased  operations after the requirement for financial assurances went into effect— August 1990 for plan-level operations, January 2001 for new notice-level  operations, and January 2003 for existing notice-level operations and (2)  failed to complete the required reclamation. We used information in this  survey to determine the estimated reclamation costs and the adequacy of  financial assurances for reclaiming each hardrock operation that BLM  identified as meeting these criteria. We took steps to determine whether  BLM officials identified all hardrock operations that met these criteria,  such as comparing BLM’s list of operations with operations identified by  others. To the extent that BLM did not identify all hardrock operations that  had ceased and not been reclaimed by the operator, the information it  reported to us would be understated. In addition, we did not collect  information on the thousands of ceased hardrock operations since 1872  that did not require financial assurances and therefore fell outside the  scope of this review.
We also took steps to understand BLM’s management and oversight of  hardrock operations and the use of financial assurances to ensure  reclamation. We reviewed BLM regulations, documents, and independent  studies relevant to hardrock operations and financial assurances. We also  discussed these issues with BLM officials at headquarters and in selected  state and field offices. To understand the relationship between BLM and  state agencies responsible for overseeing hardrock operations, we met  with BLM state office and state agency officials in several states, and  reviewed relevant memorandums of understanding and other agreements.  To understand the reliability and sufficiency of LR2000, we spoke with BLM  officials responsible for administering the system and staff in selected BLM  state and field offices who enter information into the system and who use  the system to manage hardrock operations and financial assurances. We  also discussed relevant hardrock operation and financial assurance issues  with experts and representatives from the mining industry, academia, and  environmental groups. Finally, to better understand hardrock operations  and reclamation requirements, we visited five mining operations in Nevada  and Montana. Appendix I provides detailed information on our scope and  methodology.
We conducted our review from October 2003 through May 2005 in  accordance with generally accepted government auditing standards, which  included an assessment of data reliability.
subsections: section_title: Background
paragraphs: BLM is responsible for managing approximately 261 million acres of public  land, over 99 percent of which is located in 12 western states, including  Alaska. Approximately 90 percent of this land is open to the public for  hardrock mineral exploration and mining. Less than one-tenth of 1 percent  of BLM land is affected by existing hardrock operations. Figure 1 shows the  BLM land available for hardrock operations.
subsections: section_title: How Hardrock Operations Work and the Importance of Reclamation
paragraphs: Hardrock operations consist of three primary stages—exploration, mining,  and mineral processing. Operators are responsible for reclaiming the land  disturbed by such operations at the earliest economically and technically  feasible time, if this land will not be further disturbed. Exploration involves  prospecting and other steps to locate mineral deposits. Drilling is the most  common exploration tool for identifying the extent, quantity, and quality of  minerals within an area. The mining phase includes developing the mining  infrastructure (water, power, buildings, and roads) and extracting the  minerals. Mineral extraction generally entails drilling, blasting, and hauling  ore from pit areas to processing areas. To process minerals, operators  prepare the ore by crushing or grinding it to extract minerals. The material  left after the minerals are extracted—tailings (a combination of fluid and  rock particles)—is then disposed of, often in a nearby pile. In addition,  some operators use a leaching process to recover microscopic hardrock  minerals from heaps of crushed ore by percolating solvent (such as cyanide  for gold and sulfuric acid for copper) through the heap of ore. Through this  heap-leaching process, the minerals adhere to the solvent as it runs through  the leach heap and into a collection pond. The mineral-laced solution is  then taken from the collection pond to the processing facility, where the  valuable minerals are separated from the solution for further refinement.  Figure 2 provides an overview of the three stages of a hardrock operation  using a heap-leaching process.
At the earliest feasible time, operators are required to reclaim BLM land  that will not be further disturbed to prevent or control on-site or off-site  damage. Reclamation practices vary by type of operation and by applicable  federal, state, and local requirements. However, reclamation generally  involves resloping pit walls to minimize erosion, removing or stabilizing  buildings and other structures to reduce safety risks, removing mining  roads to prevent damage from future traffic, and capping and revegetating  leach heaps, tailings, and waste rock piles to control erosion and minimize  the potential for contamination of groundwater from acid rock drainage and other potential water pollution problems. Addressing potential water  pollution problems may involve long-term monitoring and treatment.  Reclamation costs for hardrock mining operations vary by type and size of  operation. For example, the costs of plugging holes at an exploration site  are usually minimal. Conversely, reclamation costs for large mining  operations using leaching practices can be in the tens of millions of dollars.
section_title: Laws and Regulations for Hardrock Operations
paragraphs: Hardrock operations on BLM land are regulated by federal and state laws.  Under the General Mining Act of 1872 (Mining Act), an individual or  corporation can establish a claim to any hardrock mineral on public land.  Upon recording a mining claim with BLM, the claimant must pay an initial  $25 location fee and a $100 maintenance fee annually per claim; the  claimant is not required to pay royalties on any hardrock minerals  extracted. The Mining Act was designed to encourage the settlement and  development of the West; it was not designed to regulate the associated  environmental effects of mining. The number of hardrock operations left  abandoned throughout the West after operations ceased is not known but is  estimated to be in the hundreds of thousands, many of which pose  environmental, health, and safety risks. Until Congress passed the Federal  Land Policy and Management Act of 1976 (FLPMA), development of  hardrock minerals on public land remained largely unregulated. FLPMA states that the Secretary of the Interior shall take any action necessary to  prevent “unnecessary or undue degradation” of public land.
Under FLPMA, BLM has developed and revised regulations and issued  policies to prevent unnecessary or undue degradation of BLM land from  hardrock operations. BLM issued regulations that took effect in 1981 on  how these operations were to be conducted. Named for their location in  the Code of Federal Regulations, the “3809” regulations classify surface  disturbance generated by hardrock operations into three categories: casual  use, notice-level operations, and plan-level operations. For all three  operation levels, the operator must prevent unnecessary and undue  degradation and complete reclamation at the earliest feasible time. BLM  issued the revised 3809 regulations, effective in part in January 2001 that,  among other things, changed the definition of the types of operations,  modified the reclamation requirements, and strengthened the financial  assurance requirements. Table 1 describes each type of operation under  both the old and new regulations.
While the performance standards for reclamation under the 1981 and 2001  regulations remain the same, the 2001 regulations specifically identified the  components involved in reclamation. For standards under both regulations,  the operator of a notice- or plan-level operation must reclaim the disturbed  land at the earliest time that is economically and technically feasible,  except to the extent necessary to preserve evidence of the presence of  minerals, by taking reasonable measures to prevent or control on-site and  off-site damage to federal land. Reclamation must include the following  actions:  saving topsoil to be applied after reshaping disturbed areas;  taking measures to control erosion, landslides, and water runoff;  taking measures to isolate, remove, or control toxic materials;  reshaping the area disturbed, applying the topsoil, and revegetating  disturbed areas, where reasonably practicable; and  rehabilitating fisheries and wildlife habitat.
The 2001 regulations specified that, as applicable, reclamation components  include:   isolating, controlling, or removing acid-forming and deleterious   regrading and reshaping the disturbed land to conform with adjacent  landforms, facilitating revegetation, controlling drainage, and  minimizing erosion;  placing growth medium and establishing self-sustaining vegetation;   removing or stabilizing buildings, structures, or other support facilities;  plugging drill holes and closing underground workings; and  providing for post-mining monitoring, maintenance, or treatment.
The 2001 regulations also significantly strengthened the financial assurance  requirements for hardrock mining operations. Under the 1981 regulations,  BLM had the option of requiring an operator to obtain a bond or other  financial assurances for plan-level hardrock operations and for notice-level  operations where the operator had a record of noncompliance. However,  BLM rarely exercised this option. In 1990, BLM instructed its officials to  require operators of plan-level operations to provide (1) financial  assurances of $1,000 per acre for exploration and $2,000 per acre for  mining and (2) financial assurances for all estimated reclamation costs for  operations that used leaching chemicals and for operators with a record of  noncompliance. Under the 2001 regulations, BLM requires all notice- and  plan-level hardrock operators to provide financial assurances that cover all  estimated reclamation costs for all plan- and notice-level operations before  exploration or mining operations begin. Casual-use operations do not have  to provide financial assurances.
The 2001 regulations amended the types of financial assurances that can be  used. The 1981 regulations identified three types of acceptable financial  assurances—bonds, cash, and negotiable U.S. securities. BLM could also  accept evidence of an existing bond pursuant to state law or regulations if  BLM determined that the coverage would be equivalent to the amount that  would be required by BLM. Some operations used corporate guarantees,  which were allowable under state laws and regulations. In contrast, the  2001 regulations prohibit the use of corporate guarantees for new  operations and state that corporate guarantees currently in use under an  approved BLM and state agreement cannot be increased or transferred.  The 2001 regulations specify the following types of financial assurances as  acceptable:   surety bonds that meet the requirements of U.S. Treasury Circular 570; cash in an amount equal to the required dollar amount of the financial  assurance and maintained in a federal depository account of the U.S.  Treasury by BLM;  irrevocable letters of credit from a bank or other financial institution  organized or authorized to transact business in the United States;   certificates of deposit or savings accounts not in excess of the Federal  Deposit Insurance Corporation’s maximum insurable amount;  negotiable U.S., state, and municipal securities or bonds with a market  value of at least the required dollar amount of the financial assurance  maintained in a Securities Investors Protection Corporation insured  trust account by a licensed securities brokerage firm for the benefit of  the Secretary of the Interior; investment-grade securities that (1) have a Standard and Poor’s rating of  AAA or AA, or an equivalent rating from another nationally recognized  securities rating service, (2) have a market value of at least the required  dollar amount of the financial assurance, and (3) are maintained in a  Securities Investors Protection Corporation insured trust account by a  licensed securities brokerage firm for the benefit of the Secretary of the  Interior;  certain types of insurance underwritten by a company having an A.M.
Best rating of “superior” or an equivalent rating from another nationally  recognized insurance rating service;  evidence of an existing financial assurance under state law or  regulations, as long as the financial assurance is held or approved by the  state agency for the same operations covered by the notice or plan of  operation, has a value equal to the required amount, and is redeemable  by BLM. These financial assurances can include any of the above  instruments. In addition, they can include state bond pools, as well as  corporate guarantees that existed on January 20, 2001, under an  approved BLM and state agreement; or  trust funds or other funding mechanisms available to BLM. The 2001  regulations require operators, when BLM identifies a need for it, to  establish a trust fund or other funding mechanism to ensure  continuation of long-term treatment to achieve water quality standards  and for other long-term, post-mining maintenance requirements.
Finally, under the 2001 regulations, all notice- and plan-level operators  must submit a reclamation plan and an associated cost estimate with its  notice or plan of operation and any modifications or renewals. The  financial assurance amount is based on the cost estimate. Furthermore, the  associated cost estimate must reflect the cost to BLM as if the agency had  to contract with a third party to complete reclamation. In addition, BLM  issued guidance in February 2003, which was revised in March 2004, setting  forth factors that should be considered in developing cost estimates. For  example, estimates should include administrative and other indirect costs.  The regulations require BLM to periodically review the estimates to  determine if the estimate should be updated to reflect any necessary  changes in the cost of reclaiming the operation.
section_title: BLM’s Management and Oversight of Financial Assurances
paragraphs: BLM headquarters manages and oversees hardrock operations as well as its  other programs, primarily through its headquarters, 12 state offices, and  157 field offices. Within headquarters, the Minerals, Realty, and Resource  Protection group is responsible for administering the mining laws and  establishing hardrock operations policies. This office is also responsible  for evaluating the effectiveness of policy implementation at the state- and  field-office levels. For example, in 2004, BLM conducted a survey of 18 of  its 157 field offices to determine, among other things, whether operators  had obtained financial assurances as required.
Each state office is headed by a state director who reports to the Director  of BLM in headquarters. BLM state office delegations of responsibilities for  financial assurances vary from state to state. For example, some state  offices verify the authenticity of the financial assurance and confirm that  financial assurances are payable to BLM. The state offices manage BLM  programs and land in the geographic areas that generally conform to the  boundary of one or more states. The state offices are Alaska, Arizona,  California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah,  Wyoming, and Eastern States. BLM has little land in the east and the  Eastern state office is responsible for all of the states in the east. Figure 3  shows the boundaries of the 12 BLM state offices.
The 157 BLM field offices, which are headed by field managers who report  to the state directors, are responsible for implementing several BLM  programs and policies, including many aspects of the hardrock mining  program. The field offices maintain case files on each hardrock operation  in their jurisdiction. Field office staffs are generally responsible for, among  other things, (1) reviewing notices and plans of operations, along with  associated reclamation plans and cost estimates; (2) determining the  amount of financial assurances needed to pay reclamation costs; and (3)  inspecting hardrock operations for compliance with regulations.
In addition, BLM has specialized centers, which are organizationally  affiliated with headquarters, to carry out a variety of activities. One of these  centers, near Denver, Colorado, administers BLM’s LR2000, which is an  automated information system used to collect and store information on  BLM land and programs, including hardrock operations. LR2000 includes  several subsystems that contain information on hardrock operations and  the financial assurances provided by operators. Specifically, the Case  Recordation System contains information on hardrock operations, such as  the name and address of the operator; the location, type, and size of the  operation; and inspection information. The other subsystem—the Bonding  and Surety System—contains information on financial assurances, such as  the types and amounts of financial assurances and the names of the  providers. BLM state and field offices both enter data into LR2000 and thus  are primarily responsible for the data’s accuracy and completeness. In most  instances, field offices are responsible for entering data about hardrock  operations into the Case Recordation System, while BLM state offices are  more often responsible for entering data about financial assurances into  the Bonding and Surety System.
section_title: BLM Identified 11 Types of Financial Assurances Valued at Approximately $837 Million, but These Financial Assurances May Not Fully Cover Reclamation Costs
paragraphs: BLM reported that, as of July 2004, hardrock operators were using 11 types  of financial assurances, valued at approximately $837 million, to cover  reclamation costs on BLM land in 12 western states. Surety bonds, letters  of credit, and corporate guarantees accounted for almost 99 percent of this  $837 million. However, these financial assurances may not fully cover all  future reclamation costs if operators fail to complete required reclamation.  BLM reported that it had approximately 2,500 existing notice- and plan- level hardrock operations as of July 2004 and that some of these operations  do not have financial assurances, and some have no or outdated  reclamation plans and/or cost estimates on which financial assurances  should be based. While BLM state office explanations indicated that  financial assurances are not yet required for some operations, other  explanations indicated that some operations may not be complying with  BLM’s requirements.
subsections: section_title: Surety Bonds, Letters of Credit, and Corporate Guarantees Are the Financial Assurances Currently Used to Cover Most of the Estimated Reclamation Costs
paragraphs: As of July 2004, operators were using 11 different types of financial  assurances valued at approximately $837 million to guarantee reclamation  costs for BLM land disturbed by hardrock operations, according to our  analysis of survey results. Almost 99 percent of the $837 million in financial  assurances is in the form of surety bonds, letters of credit, and corporate  guarantees. Figure 4 shows the types of financial assurances used, their  value, and the percentage of the total value accounted for by each type.
BLM reported that all of the current notice- and plan-level hardrock  operations on BLM land—2,490 operations—are located in 12 western states. Table 2 shows the states with existing hardrock operations and the  types and amounts of financial assurances operators are currently using in  each state.
The information below describes the types of financial assurances  currently being used and BLM state offices’ views of the effectiveness of  these assurances in minimizing losses to the federal government if the  operator does not complete reclamation.
Surety bonds. Surety bonds are a third party guarantee that an operator  purchases from an insurance company. As a third party with possible  financial responsibility for reclamation, the insurance company has a  strong incentive to monitor the operator’s environmental safety record and  efforts to fulfill reclamation obligations. If the operator does not complete  required reclamation once operations cease, the insurance company has  the option of performing the reclamation work or paying the financial  assurance value to BLM or the designated state agency for reclamation.  According to industry representatives and experts, insurance companies  are amenable to issuing surety bonds for hardrock operations for  predictable reclamation activities that will occur in a defined time frame.  As table 2 shows, operators in 10 of the 12 states with hardrock operations  are using surety bonds. In 7 of these 10 states, BLM state offices rated  surety bonds as “effective” or “very effective” for minimizing losses to the  federal government; in the other three states, BLM state offices reported  that they had no experience (that is, they had not taken steps to obtain  funds from the financial assurance provider) in using this type of assurance  in minimizing losses to the federal government.
Letters of credit. Letters of credit, which hardrock operators typically  purchase from a bank or other financial institution, require the institution  to pay BLM or the designated state agency the value of the letter of credit if  the purchaser does not complete the required reclamation. Depending on  the financial condition of the operator, the financial institution may require  a deposit or collateral. Letters of credit are used in nine states with  hardrock operations. In seven of these states, BLM state offices rated  letters of credit as “moderately effective” or “very effective” in minimizing  losses to the federal government; in the other two states, the BLM state  offices reported that they had no experience in using this type of assurance  in minimizing losses to the federal government.
Corporate guarantees. Corporate guarantees are promises by operators,  sometimes accompanied by a test of financial stability, to pay reclamation  costs, but do not require that funds be set aside to pay such costs. Although  BLM prohibits new corporate guarantees in its 2001 regulations, 3 of the 12  states had existing corporate guarantees that were to cover almost one  fourth of the total estimated reclamation costs, as of July 2004. Most of  these corporate guarantees—$200 million of the approximately $204  million—are for operations in Nevada. The Nevada BLM state office rated  corporate guarantees as “not effective” for minimizing losses to the federal  government. Operators in Utah and Wyoming are also using corporate  guarantees, although in relatively smaller amounts of $122,000 and $3.4  million, respectively. The Utah BLM state office reported that it has no  experience in using this type of financial assurance to minimize losses to  the federal government and therefore did not rate the effectiveness of this  type of assurance. The Wyoming BLM state office rated corporate  guarantees as a “very effective” financial assurance, although the office  reported it had no experience with an operation that had this type of  financial assurance and failed to reclaim the land.
State bond pools. Operators in two states—Alaska and Nevada—use state  bond pools to cover reclamation costs. According to Alaska BLM state  office officials, all hardrock operators on BLM land in Alaska participate in  the state bond pool. Operators in the Alaska bond pool do not develop  individual cost estimates for reclaiming the land disturbed by their  operations. The bond pool, administered by the Alaska Department of  Natural Resources, had $1 million in reclamation funds as of July 2004.  According to Alaska BLM state office officials, if the bond pool funds are  not sufficient to cover reclamation costs, the state of Alaska has agreed to  cover any additional costs. The Alaska BLM state office rated the bond pool  as “effective” in minimizing financial losses to the federal government. The  office also reported that to date no requests or claims have been initiated to  use bond pool funds for reclamation because either BLM has successfully  negotiated with the operators to have the operations reclaimed, or the  operations are pending further action.
The Nevada reclamation bond pool—which had about $1.2 million as of  July 2004—is open to operators on BLM or private lands. The state’s  Division of Minerals administers this pool that was designed to help smaller  operations that may have difficulty securing other forms of financial  assurances. The Nevada bond pool does not establish the amount of the  assurance required for each operation; this is typically done by BLM for  operations on BLM land. The maximum bond amount for a participant is  $3 million. The Nevada BLM state office rated the state’s bond pool as  “very effective” in minimizing financial losses but noted that the pool had  not been used as of our July 2004 survey. Subsequently, the office told us  that the bond pool was used for the first time in late 2004, when BLM  requested funds from the pool to reclaim a hardrock operation.
Certificates of deposit and savings accounts. Certificates of deposit and  savings accounts can be used to guarantee reclamation costs but must not  exceed the maximum amount insured by the Federal Deposit Insurance  Corporation. Operators use certificates of deposit in 10 of the 12 states  with hardrock operations. BLM state offices in 7 of these 10 states rated  these assurances as “effective” or “very effective” in minimizing losses to  the federal government. Another state office rated this type of assurances  as “moderately effective” and noted that care must be given to ensure that  BLM is the beneficiary of the certificate. In the other two states, the BLM  state offices reported that they had no experience with this type of  assurance in minimizing losses to the federal government. Operators in one  state are using savings accounts, and the BLM rated savings accounts as  “very effective” for minimizing losses to the federal government.
Cash accounts. Operators provide cash to BLM to guarantee reclamation  costs, and BLM must deposit and maintain this cash in a federal depository  account of the U.S. Treasury. Operators in 10 of the 12 states with hardrock  operations use cash accounts. BLM state offices in 8 of these 10 states  rated cash as “very effective” for minimizing losses to the federal  government. In the other two states, the offices reported that they had no  experience with using this type of assurance to minimize losses to the  federal government.
Trust funds. The 2001 regulations require operators, when BLM identifies a  need for it, to establish a trust fund or other funding mechanism to ensure  the continuation of long-term treatment to achieve water quality standards  and other long-term, post-mining requirements. Funds are placed in an  interest-bearing trust account by an operator with BLM as the beneficiary.
The trust account should accrue sufficient funds to be sustained in  perpetuity. The Nevada BLM state office reported one trust fund with just  over $1 million and said it did not have sufficient experience to determine  the effectiveness of this type of assurance in minimizing losses to the  federal government.
Property. The Montana BLM state office reported that one operator has  used $617,000 in property—consisting of 17 mining claims on private land  owned by the operator—as a financial assurance. According to BLM state  office officials, the operator pledged these properties as collateral. The  Montana BLM state office reported that it had no experience using property  to minimize losses to the federal government. We note that the revised  federal regulations do not identify property as an acceptable type of  financial assurance.
Negotiable U.S. securities and bonds. Operators in two states—Arizona  and Nevada—use negotiable U.S. securities. The Arizona BLM state office  reported it had no experience in using this type of assurance to minimize  losses to the federal government. The Nevada BLM state office rated this  type of assurance as “effective.” The Idaho BLM state office reported that  operators in the state use U.S. bonds to guarantee reclamation costs and  that the state has no experience using bonds to minimize losses to the  federal government.
Although the $837 million in financial assurances that BLM reported is the  most complete information available, we note that this total may not  include all financial assurances for hardrock operations on BLM land.  Some BLM state offices had difficulty determining the value of financial  assurances for hardrock operations in their jurisdictions when designated  state agencies hold these assurances. For example, the state offices  reported the following:   Washington. The Oregon BLM office did not provide the value of  financial assurances for the 139 hardrock operations it identified in  Washington state.
California. The information the California BLM office provided may not  be complete because some financial assurances may be held by  California’s 58 county agencies, and the state office did not contact each  county agency to complete our survey.
Montana. The Montana BLM office does not track state-held financial  assurances for hardrock operations on BLM land. BLM obtained  information on these assurances for our survey from the state and  reported that this information was not all inclusive but appeared to be  reasonably accurate.
See appendix II for the number of notice- and plan-level hardrock  operations and associated financial assurances for each state identified by  BLM state offices, as of July 2004.
section_title: Existing Financial Assurances May Not Fully Cover Future Reclamation Costs
paragraphs: Existing financial assurances for reclaiming BLM land disturbed by  hardrock operations may not fully cover future reclamation costs for the  approximately 2,500 hardrock operations that BLM reported if operators  do not complete required reclamation. The costs may not be fully covered  because BLM reported that some of these operations do not have financial  assurances, and some have no or outdated reclamation plans and/or cost  estimates. BLM’s explanations for this lack of coverage indicate that some  operators may not be complying with BLM requirements.
As of July 2004, BLM state offices reported that some notice- or plan-level  operations in 9 of the 12 states with existing hardrock operations did not  have financial assurances. For example, BLM state offices reported that in  five states (Arizona, California, Idaho, New Mexico, and Utah) more than 5  percent of both notice- and plan-level operations did not have financial  assurances. All of the operations in two other states—Colorado and  Wyoming—had financial assurances, and the Oregon BLM state office  reported that all plan-level operations in Washington state had financial  assurances, but the office did not know the percentage of notice-level  hardrock operations without financial assurances in Washington state.  Table 3 shows the number of notice- and plan-level hardrock operations  and the percentage of these operations without financial assurances for  each of the 12 states with existing hardrock operations.
For the states in which BLM state offices indicated that less than 100  percent of their hardrock operations had financial assurances, we asked  them to provide an explanation. While some of the explanations indicated  that financial assurances are not yet required for some operations, such as  those that are pending BLM acceptance or have not yet begun exploration  or mining, others indicated that the operations may not be complying with  BLM’s requirements. The following explanations provided by BLM state  offices for the lack of financial assurances suggest that some operators  may not be complying with applicable financial assurance requirements.
Alaska. The operator failed to submit state bond pool fees on time.
California. Some older operations may not have financial assurances.
Idaho. The office could not find records of financial assurance for two  plan-level operations.
Nevada. Some operations have been terminated by the state bond pool,  operators have gone bankrupt, or operations have been abandoned and  the operator cannot be found.
BLM state offices also reported that, as of July 2004, some hardrock  operations on BLM land have no or outdated reclamation plans and/or  reclamation cost estimates. Specifically, BLM state offices reported that  some existing hardrock operations in 9 of the 12 states did not have  reclamation plans and/or cost estimates. For example, BLM state offices  reported that in three states (Arizona, California, and Utah) both types of  operations (notice- and plan-level operations) were missing some  reclamation plans and cost estimates. In addition, according to BLM state  office officials, all hardrock operators on BLM land in Alaska currently  participate in the Alaska bond pool and do not develop cost estimates. All  of the operations in two other states—New Mexico and Wyoming—had  both reclamation plans and cost estimates, and the Oregon BLM office  reported that in Washington state all plan-level operations have  reclamation plans and cost estimates, but it did not know the percentage of  notice-level hardrock operations without plans and estimates. Table 4  shows the percentage of BLM’s notice- and plan-level hardrock operations  without reclamation plans and cost estimates, as of July 2004.
For the states in which BLM state offices reported that less than 100  percent of their operations had reclamation plans and/or cost estimates, we  asked BLM to provide an explanation. All notice- and plan-level operations  are required to have reclamation plans and cost estimates. The following  explanations provided by BLM state offices for the lack of reclamation  plans and/or cost estimates suggest that some operators may not be  complying with financial assurance requirements.
Arizona. Some of the older plan-level operations may still have financial  assurances that were calculated on the basis of $2,000 per acre, which  was the policy under previous federal regulations, rather than all of the  estimated costs of reclamation as the 2001 regulations now require.
Colorado. No reclamation plan was required when some of the notices  were submitted.
Idaho. A record of a cost estimate for two plans could not be found.
Oregon. Not all of the notice-level operations have a reclamation plan  because of a general backlog in updating reclamation plans, and  reclamation cost estimates are still being developed in a few cases.
In addition, three state offices reported that some reclamation plans and  cost estimates had not been updated. For example, the California BLM  state office reported that some of the older reclamation plans for  operations in that state have not been updated because of a workload  backlog and staff vacancies. Consequently, these plans and estimates may  not provide a sound basis for establishing financial assurances to cover all  future reclamation costs.
Like our survey results, the results of the 2004 BLM survey of 18 of its 157  field offices showed that some hardrock mining operations under the  jurisdiction of 7 field offices did not have financial assurances that met  BLM’s requirements in fiscal year 2003. For example, one field office  reported that it did not have financial assurances that met BLM’s  requirements because none of the reclamation cost estimates for plan-level  operations included indirect costs. Another field office had a backlog of  nearly 80 plan-level operations that had not had their reclamation cost  estimates updated because, among other things, the office did not have  sufficiently trained staff to review updates. In yet another field office,  higher priority work prevented timely updates of some reclamation cost  estimates.
section_title: Financial Assurances Were Not Always Adequate to Pay All Estimated Costs for Required Reclamation for Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators
paragraphs: BLM identified 48 hardrock operations on BLM land that had ceased and  not been reclaimed by operators since it began requiring financial  assurances. BLM reported that the most recent cost estimates for  reclamation required by applicable plans and federal regulations for 43 of  these operations totaled about $136 million, with no adjustment for  inflation; it did not report reclamation cost estimates for the other 5 operations. However, as of July 2004, financial assurances had provided  or were guaranteeing $69 million, and federal agencies and others had  provided $10.6 million to pay estimated reclamation costs for the 48  operations, leaving $56.4 million of reclamation costs unfunded. In  particular, financial assurances were not adequate to pay all estimated  costs for required reclamation for 25 of the 48 operations because (1) some  operations had no assurances, (2) some operations’ assurances were less  than the most recent reclamation cost estimates, and (3) some financial  assurance providers declared bankruptcy and could not pay. In addition,  for about half of the remaining 23 operations, cost estimates may be  understated because the cost estimates may not have been updated to  reflect inflation or other factors that could increase reclamation costs.  Furthermore, the $136 million cost estimate is understated to the extent  that BLM did not identify or report information on all hardrock operations  that had ceased and not been reclaimed by operators as required. Finally,  according to BLM officials, required reclamation had been completed for  only 5 of the 48 operations as of July 2004, but they believe it is likely that  required reclamation will be completed for 28 of the remaining 43  operations.
subsections: section_title: BLM Identified 48 Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators Since It Began Requiring Financial Assurances and About $136 Million in Estimated Costs for Required Reclamation
paragraphs: BLM identified 48 hardrock operations in seven states that had ceased and  not been reclaimed by operators, as required by applicable reclamation  plans and federal regulations, since it began requiring financial  assurances. The number of operations BLM identified in each of the seven  states, along with the primary minerals explored, mined, and/or processed,  and the operating authority for the 48 operations are shown in table 5.  Appendix III, table 14, contains additional information about these  operations.
According to BLM officials in each of the seven states, BLM had taken steps  to compel operators of most of the 48 operations to reclaim BLM land. For  example, it had sent notices of noncompliance (24 operations) and taken  administrative, legal, or other actions (19 other operations), such as  revoking plans of operations. BLM took no action to compel reclamation of  the remaining five operations. However, none of the operators for these 48  operations completed reclamation, primarily because of bankruptcy (30  operations). Appendix III, table 16, details the actions BLM took to compel  operators to complete reclamation and the reasons reclamation was not  completed.
BLM reported reclamation cost estimates for 43 of the 48 operations that  had ceased and not been reclaimed by the operators; it did not report  estimates for the other 5 operations—2 in Alaska, 2 in Nevada, and 1 in  Arizona. The most recent estimates as of July 2004 indicated that the total reclamation cost for the 43 operations was about $136 million. Almost 99  percent of this estimated cost was associated with operations in Montana  and Nevada—primarily for the Zortman and Landusky mining operation in  Montana ($85 million) and the Paradise Peak operation ($21.2 million) and  MacArthur Mine operation ($17 million) in Nevada. Clearly, the total cost  estimate would be higher if the costs for the 5 operations with no estimates  were included. The number of hardrock operations for which BLM  reported cost estimates and the value of the most recent cost estimates, as  of July 2004, for each of the seven states is shown in table 6. Appendix III,  table 17, provides the reported estimates for each of the 43 operations.
section_title: Financial Assurances and Funds Provided by Others Were Not Adequate to Pay All of the Estimated $136 Million in Costs for Required Reclamation
paragraphs: Financial assurances and funds provided by others were not adequate to  pay all of the estimated $136 million needed to complete the required  reclamation of the 43 operations for which BLM reported cost estimates.  Surety bonds and other types of financial assurances had provided or were  guaranteeing $69 million of the estimated costs for required reclamation  that BLM reported for these operations, or about 51 percent. According to  our analysis of information BLM officials provided in response to our  survey, these funds were not adequate to pay all estimated costs for  required reclamation for 25 of the 48 operations. Moreover, cost estimates  may be understated for 12 of the other 23 operations. In addition, funds  provided by federal agencies and others paid only a fraction of the  estimated reclamation costs. As a result, at least $56.4 million, or about 41  percent, of the estimated $136 million needed for required reclamation was  unfunded, as shown in figure 5. Finally, the $136 million cost estimate for  required reclamation is understated to the extent that BLM did not identify  or report information on all hardrock operations that had ceased and not  been reclaimed, as required.
Operators used a variety of types of financial assurances for 38 operations  to pay or guarantee coverage of $74.2 million of the $136 million of  estimated costs for required reclamation, as table 7 shows. (The remaining  10 operations had no financial assurances.) Operators used surety bonds, a  trust fund, and corporate guarantees to guarantee almost 97 percent of  these costs, with the rest guaranteed by state bond pools, letters of credit,  certificates of deposit, cash, and a construction bond provided by an  operator. However, as of July 2004, financial assurances had provided or  were guaranteeing only $69 million, or almost 51 percent, of the  reclamation costs. This amount decreased because $4.2 million in  corporate guarantees had lost all their value when the operator that  guaranteed the reclamation costs declared bankruptcy and had no funds to  pay such costs, and $949,350 was not available from a surety bond because  the financially-troubled financial assurance provider paid for reclamation  instead of relinquishing the bond. See appendix III, table 18, for the types of  financial assurances used for each hardrock operation.
These 38 financial assurances provided or guaranteed funds for only about  half of the estimated costs for required reclamation for the 48 hardrock  operations. Specifically, these financial assurances were not adequate for  25 of the 48 operations because (1) operators did not provide financial  assurances for 10 hardrock operations, (2) the financial assurances that  were provided were less than the most recent cost estimates for 13  operations, and/or (3) the financial assurance providers declared  bankruptcy and did not have the funds to pay all reclamation costs for two  other operations. (Also, 2 of the 13 operations whose financial assurances  were less than the most recent cost estimates went bankrupt.) Table 8  shows the reasons financial assurances were not adequate and the  associated funding differential. Table 8 also shows that most of the  difference between the value of the estimated reclamation costs and the  value of the financial assurances occurred because the financial assurances  were less than the most recent cost estimate.
As table 8 shows, 10 hardrock operations had no financial assurances.  These operations were located in Washington (2), Arizona (4), and Nevada  (4). The most recent reclamation cost estimates for 9 of these 10 operations  indicated that slightly over $2 million in reclamation costs was unfunded;  BLM reported no cost estimate for the other operation. BLM officials  provided the following explanations for why the 10 operations did not have  the required financial assurances:  Two operations in Washington. An official in Oregon’s BLM state office,  which manages BLM programs in Oregon and Washington, said that two  operations in Washington did not have financial assurances, probably  because the responsible BLM field office did not have adequate staff to  enforce compliance with this requirement. The official also said that  financial assurance training had been a problem and that staff turnover  in one field office meant that financial assurances were overlooked for a  period of time.
Four operations in Arizona. According to BLM state office officials, the  operators of two operations did not provide financial assurances, even  though BLM told them that financial assurances were required.  According to an official in the BLM state office, the heavy workloads  associated with other BLM programs dissuaded staff from taking  enforcement actions that could involve time-consuming activities, such  as obtaining court orders. Furthermore, the official said that case files  indicated the third operation had financial assurances sometime during  the 1990s, but information on the type and amount of financial  assurances after it ceased could not be found. No reason was given for  the fourth operation.
Four operations in Nevada. According to BLM state office officials,  operators of three operations did not provide financial assurances, even  though BLM notified the operators that financial assurances were  required. At one of these operations, for example, BLM’s field office  issued a noncompliance order that, after the operator appealed it, was  upheld by the BLM state office. BLM is currently working with the state  of Nevada to reclaim this operation. BLM state office officials said that  the operator of another operation, who eventually went bankrupt, was  never able to provide a suitable financial assurance instrument.  Regarding the fourth operation—Relief Canyon—officials in BLM’s  responsible field office told us that the operator refused to provide  financial assurances despite the field office’s enforcement steps. The  field office issued a noncompliance order and took other enforcement  actions, such as revoking the operator’s plan of operation.
The Relief Canyon gold mine is located in north-central Nevada on  about 344 acres, including 295 acres of BLM land. According to BLM  officials, the mine was being reclaimed when a new operator purchased  it in 1995 and, at that time, the agency advised the new operator of the  need for financial assurances for all required reclamation—including  past and future disturbances. However, the operator never obtained the  financial assurances. According to BLM, the mine’s plan of operation  was last updated in October 1996, and before the operation ceased, the  operator estimated reclamation costs at about $889,000. BLM reported  that, as of July 2004, 26 to 50 percent of the operation had been  reclaimed. BLM officials told us that they had revoked the mine’s plan  of operation, operations had ceased, and the operator should complete  reclamation, but the operator has appealed this revocation to Interior’s  Board of Land Appeals. The operator contends that he plans to either  begin mining operations when he gets the funds or sell the operation.  When we visited the operation in September 2004, we did not see any  signs of ongoing mining activity and observed that buildings, collection  pond liners, the security fence, and other structural facilities needed  repair. As of June 2005, BLM was awaiting the board’s decision.
subsections: section_title: Financial Assurances Were Less Than Recent Cost Estimates
paragraphs: As table 8 also shows, 13 operations had financial assurances that were less  than the most recent cost estimates. These operations were located in  Alaska (1), California (1), Montana (1), and Nevada (10). The most recent  cost estimate for these 13 operations was $128.19 million, and the value of  the associated financial assurances was $64.45 million, leaving $63.74  million of the estimated reclamation costs with no financial assurance  coverage. Table 9 shows the most recent cost estimates, compared with the  value of financial assurances for each of the 13 operations. Three mining  operations—Zortman and Landusky, MacArthur Mine and Paradise Peak— accounted for about 95 percent of the amount that the cost estimates  exceeded the financial assurances.
For these 13 hardrock operations, we identified several reasons why  financial assurances were less than the most recent reclamation cost  estimate. In particular:  Estimates at the time operations ceased for 6 of the 13 operations did  not consider all costs. BLM reported that some estimates excluded BLM  administrative or indirect costs, interim maintenance costs, long-term  maintenance and monitoring costs, costs for inflation, and/or other  costs. For example, estimates for five operations did not include  sufficient funds to cover BLM administrative or indirect costs, which  can be high, especially if BLM gets involved with bankruptcy  procedures. In its guidance on preparing cost estimates BLM states that  estimates should include (1) costs for contract administration, which  should be between 6 and 10 percent of estimated operations and  maintenance costs, depending on the size of the operation, and (2)  indirect costs, which should be 21 percent of the contract  administration costs.
One operator intentionally understated reclamation costs for an  operation to minimize the amount of financial assurances required,  according to BLM field office officials in Nevada. They said, for  example, that the operator calculated the estimate as if very large  equipment were going to be used, which would reduce costs; however,  the operator did not have such equipment available in the state. The  field office officials said that the BLM staff who reviewed the cost  estimate were inexperienced and did not detect the understatement.
Reclamation plans and cost estimates sometimes were not updated to  reflect all reclamation costs when the scope of the plan of operations  changed and, as a result, the reclamation requirements changed. For  example, BLM reported that the amount of financial assurances for the  Zortman and Landusky mining operation in Montana was significantly  less than the cost estimate prepared after the operations ceased. The  difference in costs was due in part to the failure to update the  reclamation plan to address acid rock drainage found during an  inspection in the early 1990s, despite efforts by the operator to update  the plan. Specifically, the most recent cost estimate for water treatment  is greater than the estimate prepared before operations ceased. In  addition, the cost estimate increased because the revised reclamation  plan required more extensive work on the heap-leach pad than in the  earlier plan. Approval of the plan was delayed until 2002 by the review  process and litigation over the effects of the proposed changes, and by  that time the operator had declared bankruptcy.
According to the Montana Department of Environmental Quality, which  jointly manages the hardrock operation with BLM, the value of the  financial assurances increased during this period. However, the most  recent reclamation cost estimate was still greater than the associated  financial assurances. An estimate of $85.2 million for reclamation costs  was prepared after operations ceased and addressed water  contamination and other reclamation activities, such as backfilling,  regrading, and revegetating. This estimate included $36.3 million for  earthworks, $22 million for water treatment through 2017, and $26.9  million for long-term water monitoring and treatment, according to  BLM field office officials. This estimate was $27.4 million more than the  $57.8 million in financial assurances provided for the reclamation. The  financial assurances consisted of $29.6 million in surety bonds for  earthworks, a $2 million construction assurance bond for water  treatment facilities, $13.9 million in surety bonds for water treatment  through 2017, and $12.3 million in a trust fund for long-term water  treatment and monitoring. Part of the funding shortfall—about $8.7  million—was covered with funds from other sources.
section_title: Financial Assurance Providers Declared Bankruptcy
paragraphs: For four operations in Nevada, as table 8 shows, financial assurances were  not adequate because financial assurance providers went bankrupt and  could not pay all the reclamation costs they guaranteed. For three of these  operations—Paradise Peak, County Line, and MacArthur Mine—an  operator used corporate guarantees totaling $4.2 million to guarantee part  of the estimated reclamation costs. However, these corporate guarantees  lost all their value when the operator went bankrupt. Reclamation costs for  the fourth operation were guaranteed with a surety bond underwritten by a  company that went bankrupt and spent $850,650 for partial reclamation of  the operation instead of relinquishing the $1.8 million surety bond. In  particular:  Paradise Peak, a mining operation in central Nevada, used heap leaching  to extract gold from ore. When the operation ceased, it covered almost  1,000 acres, about half of which was on BLM land. The plan of operation  was last updated in May 1996, and in November 1995, the operator  estimated that reclamation costs would be $5,462,000. The operator,  Arimetco Inc., provided financial assurances totaling $4,625,000— $1,157,000 in a surety bond and $3,468,000 in a corporate guarantee that  lost all of its value when Arimetco went bankrupt. As of July 2004, the  surety bond company had relinquished the $1,157,000, but none of the  funds had been spent. BLM reported that estimated reclamation costs  were $21,157,000—$20 million more than the funds the surety bond  company relinquished. This estimated cost is significantly more than the  original estimate, according to BLM state office officials, because the  original estimate did not include all costs that it should have, such as  costs for reclaiming collection ponds, and because the cost estimate  was not updated to reflect changes in the reclamation plan. BLM  reported that no reclamation had been done as of July 2004, but it was  very likely that reclamation would be completed because a portion of  the needed funding was obtained through bankruptcy procedures and  BLM was working with the operator to perform reclamation.
County Line Project, located on 130 acres of BLM land in western  Nevada, used heap leaching to extract gold from ore. The plan of  operation was last updated in January 1992, when the operator  estimated that reclamation costs would be about $837,000. BLM  reported no more recent reclamation cost estimates. Arimetco Inc., the  operator, provided $838,000 in financial assurances—$210,000 in surety  bonds and $628,000 in a corporate guarantee that lost all of its value  after Arimetco went bankrupt. As of July 2004, the surety bond company  had relinquished the $210,000, but none of the funds had been spent.  BLM reported that, as of July 2004, between 26 percent and 50 percent  of the operation had been reclaimed. BLM also reported that it was very  unlikely that reclamation would ever be completed because it was  unlikely that the operator would remain viable after bankruptcy.
The MacArthur Mine covers about 550 acres, over three-quarters of  which are on BLM land. The MacArthur Mine was purchased by  Arimetco in 1988. This copper mine consisted of a pit, waste dump, and  roads used to haul ore from the pit to three heap-leach pads that  Arimetco constructed on the nearby Yerington Mine, which was also on  BLM land, to extract copper from the MacArthur ore. BLM reported  that Arimetco began operating the MacArthur Mine in 1992 and ceased  operations in 1997, after it filed for bankruptcy. BLM also reported that  the plan of operation was last updated in 1995 and that Arimetco had no  reclamation cost estimate before operations ceased. Further, BLM  provided documents that showed the MacArthur reclamation plan  covered not only the MacArthur land but also the heap-leach pads at the  Yerington Mine. Although Arimetco had no cost estimate, it did have  $184,300 in financial assurances—$47,000 in a surety bond and $137,300  in a corporate guarantee that had lost all of its value when Arimetco  went bankrupt. BLM reported that, as of July 2004, the $47,000 in surety  bond funds had been relinquished but not spent. BLM also reported that  estimated reclamation costs would be $17,047,000—$17 million more  than the funds relinquished by the surety bond company. This estimate,  according to an official in a BLM Nevada field office, was prepared by  the state of Nevada for bankruptcy procedures. BLM reported that, as of  July 2004, no reclamation of the MacArthur operation had been  undertaken or completed and that it was very unlikely reclamation of  this operation would occur. However, in March 2005, the BLM official  told us that the Yerington Mine, including the leach heaps built and used  by Arimetco for the MacArthur operation, would be cleaned up under  the Comprehensive Environmental Response, Compensation, and  Liability Act of 1980, as amended (CERCLA). CERCLA governs  cleanup of severely contaminated hazardous waste sites.
The Olinghouse Mine operation, a exploration and mining operation in  northwest Nevada, used heap leaching to extract gold from ore on 502  acres, of which 447 acres were BLM land. The plan of operation was last  updated in September 2002, and the operator estimated that reclamation  costs would be about $851,000. BLM has not reported any more recent  cost estimates. Alta Gold Company, the operator of the Olinghouse  operation and eight other hardrock operations in Nevada, provided  financial assurances to guarantee reclamation of all nine operations  through a statewide surety bond underwritten by the Frontier Insurance  Company (Frontier). In April 1999, Alta Gold Company filed for  bankruptcy, and BLM gave Frontier the option of paying or performing  reclamation. Subsequently, the insurance company filed for bankruptcy  and was put into “rehabilitation”—a term for bankruptcy with the intent  of making the company solvent. In October 2001, Frontier offered to  reclaim the operation to a “satisfactory level.” According to BLM, its  options were to (1) wait upon the bankruptcy court, with no guarantee  to obtain funds or (2) find an alternative solution to reclaim most of the  land. BLM entered into an agreement with Frontier for it to perform  reclamation using contractors, with BLM oversight. Frontier completed  the agreed-upon reclamation by February 2003, and in December 2003,  BLM released the company from future financial obligations for this  operation. Frontier performed the reclamation for $850,650, which was  significantly less than the $1.8 million surety bond that it would have  relinquished if Frontier had not performed the reclamation. BLM state  and field office officials told us that this solution was satisfactory to all  parties, even though all reclamation required by the reclamation plan  was not completed. BLM reported that, as of July 2004, 86 to 95 percent  of the reclamation had been completed, but it was very unlikely that the  remaining reclamation would ever be completed. For example, BLM  reported that all exploration roads were not reclaimed.
section_title: Financial Assurances for 12 Hardrock Operations May Not Be Adequate to Pay All Costs for Required Reclamation
paragraphs: Financial assurances may not be adequate to pay all costs for required  reclamation for 12 of the other 23 operations—11 for operations where  financial assurances were equal to the associated cost estimates and 1  where the financial assurance was greater than associated cost estimate.  The financial assurances may not be adequate because the cost estimates  on which they were based were prepared before operations ceased—in  some cases, as long as a decade ago—and likely do not reflect inflation or  other factors that would cause reclamation costs to increase. Table 10  shows the value of the cost estimate prepared before the operations ceased  and the number of months elapsed between that time and July 2004, when  our surveys were completed.
Because reclamation costs can be influenced by many factors, we did not  attempt to project the amount that the cost estimates prepared before  operations ceased were likely to be less than the amount currently needed  to complete reclamation. However, BLM’s past experience with  reclamation costs indicates that cost estimates prepared after operations  ceased likely will be higher than cost estimates prepared before operations  ceased. Specifically, BLM updated cost estimates for 16 of the 43  operations for which cost estimates had been prepared before operations  ceased, and those updated estimates were the same for 2, lower for 2, and  higher for 12 operations. The increases in BLM’s 12 higher estimates totaled  about $35.5 million, or about a 47 percent increase over the estimates  before operations ceased, and ranged from $690 to $16.7 million per  hardrock operation, while the decreases in BLM’s 2 lower estimates totaled  $10,497, or about a 33 percent decrease, and were $6,000 and $4,497 for the  two hardrock operations.
section_title: Federal Agencies and Others Provided Only a Fraction of the Funds Needed to Pay Estimated Costs for Required Reclamation
paragraphs: As of July 2004, BLM reported that federal agencies and others had  provided about $10.6 million to help reclaim 11 operations. These funds  accounted for about 8 percent of the estimated $136 million needed to pay  for required reclamation for operations identified by BLM as ceased and  not reclaimed by operators. The sources and amounts of funds provided by  others are shown in figure 8. Appendix III, table 19, shows the other  sources of funds for the 48 operations.
BLM headquarters provided over $6.7 million to reclaim 10 operations.  Nearly all of this amount—$5,594,500—was for the Zortman and Landusky  mining operation in Montana. Officials in Montana’s Lewistown field  office told us that most of these funds came from BLM’s Abandoned Mine  Land Program and were used to remove leach pads and tailings, backfill pits, and treat water. BLM headquarters officials told us that some of the  funds used to reclaim the 10 operations were special funds that became  available on a one-time basis as the result of a GAO report. In March 2001,  we reported that BLM had improperly used Mining Law Administration  Program funds for purposes other than intended by that program and  recommended that BLM correct the improper charges. BLM made the  corrections and, according to BLM headquarters officials, used some of the  funds for reclamation.
The U.S. Army Corps of Engineers (the Corps) provided about $0.8 million  to reclaim two operations through its Restoration of Abandoned Mines  Sites (RAMS) program, according to BLM. The RAMS program, created in  1999, allows the Secretary of the Army to provide assistance to federal and  nonfederal entities for projects to address water quality problems caused  by drainage and related activities from inactive and abandoned noncoal  mines, such as hardrock operations. Specifically, BLM reported that the  Corps provided $171,000 to reclaim the Easy Jr Mine located near Ely,  Nevada. These funds were used for a site characterization study and for  construction to close the operation, with the primary goal of recontouring  and reclaiming a heap-leach pad. In addition, the Corps provided $600,000  to reclaim the Golden Butte Mine, which is also located near Ely, Nevada.  This project included collecting and analyzing water data, characterizing  the leach pad, and developing a closure plan. The Corps also partnered  with BLM through the RAMS program on another operation that had  ceased and not been reclaimed by the operator—the Elder Creek operation  located near Battle Mountain, Nevada. BLM told us that, as of July 2004, the  Corps had provided all of the funds to develop the engineering closure  design for this project, but BLM did not identify the amount of funds  provided.
Funds to reclaim the Zortman and Landusky mining operation also were  provided from other sources, according to BLM. Through a bankruptcy  procedure, the bankrupt operator provided $1,050,000 to help reclaim the  operation. The Environmental Protection Agency provided $340,000 in  grant funds, primarily to prepare a supplemental environmental impact  statement. Finally, the Montana Department of Environmental Quality  provided $1,697,000 for reclamation activities, such as studies, sampling,  tailings removal, water treatment, and monitoring. The status of  reclamation in 1993 and 2004 for the Zortman and Landusky mining  operations is shown below.
Description of Zortman and Landusky Mine The Zortman and Landusky Mine is located in north-central Montana on about 1,200  acres, half of which are on BLM land. The operation, originally permitted in the  1970s, was the first large open-pit gold mine to use heap leaching in the United  States. BLM reported that the operation began under a BLM-approved plan of  operation in 1981 and ceased in 1999 after Pegasus Gold, the parent company,  went bankrupt. BLM reported that, as of July 2004, over 85 percent of the required  reclamation had been done and that complete reclamation is very likely.
section_title: The $136 Million Estimate of Costs for Required Reclamation Is Understated to the Extent That BLM Did Not Identify or Report on All Hardrock Operations
paragraphs: The $136 million estimate of costs for required reclamation for hardrock  operations that had ceased and not been reclaimed by the operators as  required is understated to the extent that BLM did not identify or report  information on all such operations. For example, officials in Oregon’s BLM  state office estimated that 20 notice-level operations in Washington state  met these criteria, but neither the Oregon BLM state office nor its field  offices completed our surveys for any of these operations. State office  officials did not explain why surveys had not been completed for these  notice-level operations. Clearly, the $136 million estimate would be higher  if BLM’s state or field offices had reported this information. Furthermore,  some other BLM offices had difficulty identifying operations that met our  criteria and may not have identified all such operations. For example,  Nevada’s BLM state office completed additional hardrock operation  surveys after we questioned whether they had identified all the operations  that met the criteria. For more detailed information on the difficulties in  identifying hardrock operations that met our criteria, see our scope and  methodology in appendix I.
section_title: Required Reclamation Has Been Completed for 5 of the 48 Hardrock Operations, and BLM Officials Believe That Reclamation Will Likely Be Completed for 28 Others
paragraphs: BLM reported that, as of July 2004, required reclamation had been  completed for 5 of the 48 hardrock operations on BLM land that had ceased  and not been reclaimed by operators since it began requiring financial  assurances, and it expects to complete reclamation for most of the  remaining operations. BLM reported that the reclamation status was in  various stages or unknown for the 43 operations that had not completed  reclamation. BLM officials’ views on the likelihood of completing required  reclamation for these operations varied, but they believed that 28 of the 43  operations are likely to be reclaimed, as shown in table 11. Appendix III,  table 19, shows the status and likelihood of completing reclamation for the  48 operations.
Required reclamation of the five operations that were fully completed was  accomplished with funds from several sources. For three of the five  operations, financial assurances were sufficient to cover the costs to  complete reclamation, including one for which the operator did some  reclamation and negotiated with BLM to have BLM do the remaining  reclamation. For the other two operations, BLM paid at least part of the  reclamation costs. Specifically, BLM spent $92,000 to reclaim one operation  that had no financial assurances, and spent $15,000 to reclaim another  operation whose financial assurance was less than the most recent  reclamation cost estimate. In the latter case, the operator agreed to  abandon the claim if BLM did the reclamation; the operation was in a wild  and scenic river canyon in California.
BLM officials generally believed that required reclamation would be  completed for most of the 43 operations that had not been reclaimed by the  operators as of July 2004. They reported that required reclamation was  somewhat or very likely for 28, or almost two-thirds of the 43 operations.  Some BLM officials believed reclamation would be completed because  funds were available from financial assurances or other sources. For  example, BLM reported that completion was very likely for the Zortman  and Landusky mining operation in Montana, which was between 86 and 95  percent reclaimed as of July 2004, partly because funds for earthwork were  available and work was under way. At the same time, BLM noted that more  than $18 million in additional funds would be needed to maintain water  treatment at the operation in perpetuity. In other cases, officials believed  that operations may be taken over by new operators, or reopened by the  existing operators, who will ultimately complete reclamation of the  operations. For example, BLM reported that completing reclamation of an  operation in Alaska that was less than 50 percent reclaimed was very likely  because another operator agreed to reclaim the area in conjunction with  taking over the operation from the bankrupt operator. Conversely, BLM  reported that completing required reclamation was somewhat or very  unlikely for nine operations, most of which had less than 50 percent of  required reclamation completed as of July 2004. BLM said that the  operators of several of these operations could not do the required  reclamation, usually because they lacked funds.
section_title: BLM’s LR2000 Is Not Reliable and Sufficient for Managing Financial Assurances for Hardrock Operations
paragraphs: BLM’s LR2000 is not reliable and sufficient for managing financial  assurances to cover reclamation costs for BLM land disturbed by hardrock  operations because staff do not always update information, and LR2000 is  not currently designed to track certain critical information. Specifically,  staff have not entered information on every hardrock operation and, for  those hardrock operations included in LR2000, information is not always  current. In addition, the system does not track some information on  hardrock operations and their associated financial assurances, which we  believe is critical for effectively managing financial assurances. This  information includes the basic status of operations, some types of  allowable financial assurances, and state- and county-held financial  assurances. Given these limitations, it is not surprising that BLM’s reliance  on LR2000 to manage financial assurances is mixed. In part to compensate  for LR2000 limitations, some BLM offices use informal record-keeping  systems to help manage financial assurances. BLM has taken some steps  and identified others to improve LR2000 for managing financial assurances  for hardrock operations.
subsections: section_title: Information in LR2000 Is Not Reliable and Sufficient
paragraphs: Information in LR2000 is not reliable and sufficient because staff do not  always update the information, and the system is not currently designed to  track critical information. Specifically, some hardrock operations are not in  LR2000:  In Nevada—the state with the largest number of hardrock operations— LR2000 does not contain information on all hardrock operations that a  state BLM official’s informal records show. When Nevada officials  queried LR2000 during our visit, the system showed 248 plan-level  operations in the state. However, according to a senior Nevada BLM  state office official who keeps informal records of the hardrock  operations, some of the operations are not in LR2000; his records  contain 300 plan-level operations. According to BLM state and field  office officials, some operations are not in the system because some  data were lost during the conversion from an earlier information system  to LR2000 in 1999. Officials in one Nevada field office told us that they  have not had time to reenter some of the lost data but plan to do so in  the future.
Alaska—with 240 hardrock operations—does not use LR2000 to record  information on these operations. Instead, BLM state office officials told  us that they use the Alaska Land Information System (ALIS) because  LR2000 cannot be used to meet the office’s other needs. That is, LR2000  cannot process the conveyance of land from the federal government to  the state of Alaska and to Native villages and corporations. In addition,  the costs and staff time associated with incorporating the information in  ALIS into LR2000 contributed to BLM’s decision to continue to use ALIS.
In BLM’s March 2004 assessment of 18 of its 157 field offices’  compliance with current hardrock regulations, 3 of the 18 offices  reported that all hardrock operations were not recorded in LR2000. For  example, one of these field offices reported that its office had only  recently received training on LR2000.
Furthermore, for some operations that are in LR2000, information is not up  to date. For example, in responding to our survey regarding the number of  existing notice- and plan-level hardrock operations with financial  assurances, the New Mexico state office explained that some of its existing  operations without financial assurances may be inactive and should be  closed in LR2000. BLM officials are to open a case in LR2000 when a notice  or plan of operation is received, and they are to close the case in LR2000  when operations have ceased and reclamation is complete. However, BLM  state and field office officials reported that data entry is not always timely.  For example, some field office officials told us that they do not enter data  until the winter, when it is more difficult to work in the field and they spend  more time in the office. In addition, in BLM’s March 2004 assessment, 11 of  the 18 field offices reported that the results of compliance inspections were  not entered in a timely manner. These inspections are critical to ensuring  that all hardrock operations are meeting federal requirements. The field  offices explained that this problem occurred because of other office  priorities, lack of staff trained to use LR2000, and staff workload. In  addition, the BLM officials who administer LR2000 said the quality of the  data currently in LR2000 varied in part because of the varied emphasis the  field offices gave to data entry.
LR2000 also does not track some critical information on hardrock  operations and their associated financial assurances. In particular, LR2000  does not track the following:  The status of hardrock operations, such as whether the operation is  ongoing or has ceased and should be reclaimed. LR2000 uses the term  “open” to identify both operations that are ongoing and operations that  have ceased and should be reclaimed. It uses the term “closed” to refer  to those operations where reclamation has been completed. While field  staff should know whether an operation is ongoing or has ceased  because of first-hand knowledge or access to case files in their offices,  BLM headquarters and state office officials do not have ready access to  this basic information. For example, in response to our survey regarding  the number of ongoing hardrock operations with financial assurances,  the Arizona state office reported that only 32 of 55 plan-level operations  had financial assurances. The office also reported that it was reviewing  its case files to determine the status of the operations without financial  assurances, such as whether any of these operations have ceased, been  reclaimed, and should have been closed in LR2000. Also, in response to  our survey, the California state office reported that LR2000 showed 639  “open” hardrock operations in the state, but officials estimated that only  303 of these operations were actually ongoing. Furthermore, for 9 of the  13 states with hardrock operations, BLM state offices reported that they  did not track the status of reclamation where operators had failed to do  required reclamation using LR2000 or other means.
Information on all types of financial assurances allowed under  federal regulations. LR2000 has data entry fields for five of the allowed  types of assurances—surety bonds, letters of credit, certificates of  deposit, cash, and treasury securities—as well as a “personal” field.  However, some of the missing types of financial assurances, such as  corporate guarantees, bond pools, and trust funds, are being used to  guarantee reclamation costs. For example, corporate guarantees  covered $204 million in reclamation costs, or 24 percent of the total  value of financial assurances that BLM reported as of July 2004. To  overcome this system limitation, the Nevada BLM state office uses the  “personal” field to track information on both corporate guarantees and  operations covered by the state bond pool. Without the capability to  track all types of financial assurances, BLM cannot identify the total  amount of reclamation costs that each type of financial assurance  guarantees.
Information on financial assurances held by the state or county  agencies. Several BLM state offices reported that some financial  assurances for hardrock operations on BLM land are held by state or  county agencies and are not included in LR2000. For example, the  Montana BLM state office contacted the Montana Department of  Environmental Quality to obtain information on the types and  amounts of financial assurances. The Idaho office reported that it  relies on its own informal records to track state-held financial  assurances and provided the information. In California, where county  agencies can hold the financial assurances for hardrock operations  on BLM land, the office reported that it does not have information on  all financial assurances held by the counties and did not contact  them to provide it. In commenting on a draft of this report, Interior  stated that BLM issued an instruction memorandum in April 2005 to  provide guidance and direction on data standards for LR2000. The  instruction memorandum states that BLM data entry staff must use a  specific action code when financial assurances are filed and instructs  the staff to use that action code when BLM receives documentation  that a financial assurance is held by another agency.
section_title: BLM Makes Limited Use of LR2000
paragraphs: Given LR2000’s limitations, it is not surprising that BLM’s reliance on the  system to manage financial assurances is mixed. At the headquarters level,  BLM does not always rely on information in LR2000. Rather, to obtain  information needed on hardrock operations and associated financial  assurances, BLM headquarters officials must contact their state and field  offices. For example, because the information was not in LR2000, in March  2003, BLM headquarters requested information from its state and field  offices on the number of notice-level operations that (1) did not meet the  required deadline to request an extension, (2) requested an extension, and  (3) were extended under the 2001 regulations. BLM needed this  information to determine if all notice-level operations were in compliance  with current regulations.
Furthermore, BLM headquarters does not always rely on LR2000 to answer  questions on financial assurances at a national or state level from the  Congress, the public, and other interested parties. For example, BLM  headquarters could not provide information on hardrock operations and  financial assurances in response to our request for such information and  told us we would have to get this information from the state and field  offices. State offices told us that some of the critical information, such as  the status of the hardrock operation and reclamation cost estimates needed  to determine the adequacy of the financial assurances, is in paper case files  located in the field offices. Others also have found that BLM does not  systematically use LR2000 to track information on hardrock operations.  For example, in its 1999 report on hardrock mining, the National Research  Council found no systematic, easily available compilation and analysis of  information about hardrock operations on BLM land.
At the state- and field office-levels, BLM’s reliance on LR2000 for managing  financial assurances for hardrock operations varies. BLM state offices  reported that in four states with hardrock operations LR2000 was relied on  to little or no extent; in eight states, to a moderate or some extent; and in  one state—Nevada—to a very great extent. Of the four BLM state offices  reporting little or no reliance on LR2000, two explained that there is no  BLM state office oversight of the program; one defers program  responsibility to the state agency; and one has few hardrock operations.
The lack of reliance on LR2000 for managing financial assurances is due in  part to state office concerns about the reliability and adequacy of  information in the system. For example, as discussed earlier, some BLM  state offices do not use LR2000 because it does not contain information on  financial assurances held by state or county agencies. States’ views on the  reliability and adequacy of LR2000 are shown in table 12.
Some BLM offices reported using informal record-keeping systems or  records to track information on hardrock operations and associated  financial assurances within their jurisdiction. For example:   In Alaska, the field offices use an Alaska state agency database to obtain  information on the number of existing notice- and plan-level hardrock  operations.
The New Mexico BLM state office has an informal database that lists all  financial assurances filed and approved to track financial assurance  information in the state.
The Nevada BLM state office uses field offices’ logs and the Nevada  state database to track information on hardrock operations.
The Idaho BLM state office maintains informal records on state-held  financial assurances.
According to agency officials, BLM has taken some steps to improve the  information in LR2000 and is planning others. Specifically, BLM reported  the following actions:  Developing revised data standards for LR2000, which have not been  updated since the 1990s. These standards set forth the type and format  of information that must be entered into LR2000. Officials are  considering expanding information on the status of hardrock operations  in the system to show whether operations have been abandoned and the  type of activity associated with the operation, such as mining and road  construction. In commenting on a draft of this report, Interior stated  that BLM’s April 2005 instruction memorandum provided guidance on  action codes to track the length of time between submission and  approval of hardrock plans of operation.
Planning to add an additional report to LR2000 so that BLM officials  can directly compare information on hardrock operations with their  associated financial assurances. The creation of this report was  prompted by a request from the Nevada BLM state office for this  information.
Reengineering LR2000 to better reflect the way BLM does business so  that officials will have better management information. Officials said  that while progress has been made on this effort with some other BLM  programs, such as oil and gas, reengineering BLM’s data management  for hardrock operations is planned for the future.
BLM state offices also identified some changes to LR2000 that could help  them better manage financial assurances for hardrock operations. These  changes included ensuring the codes in LR2000 match the on-the-ground  conditions of operations; changing it to better identify critical information  on financial assurances, such as those held by state and county agencies;  and enhancing its capability to notify BLM officials when it is time to  review financial assurance amounts. According to BLM officials  responsible for administering LR2000, the system has the capacity to  handle virtually any changes that the state and field offices request. In  commenting on a draft of this report, Interior stated that BLM will continue  to refine and enhance LR2000 data systems as needed to facilitate the  hardrock mining program.
section_title: Conclusions
paragraphs: Having adequate financial assurances to pay reclamation costs for BLM  land disturbed by hardrock operations is critical to ensuring that the land is  reclaimed if operators fail to complete reclamation as required.  Furthermore, financial assurances must be based on sound reclamation  plans and current cost estimates so that BLM can be confident that  financial assurances will fully cover reclamation costs. For years, BLM  headquarters has relied on BLM state offices that, in turn, rely on BLM field  offices and sometimes on state and county agencies to obtain adequate  financial assurances. However, while federal regulations and BLM guidance  set forth financial assurance requirements for notice- and plan-level  hardrock mining operations, BLM does not have a process for ensuring that  the regulations and guidance are effectively implemented to ensure that  adequate financial assurances are actually in place, as required.
Moreover, BLM does not know whether all hardrock operations have  adequate financial assurances because of limitations in the types of  information collected in LR2000 and failure of staff to update information  in a timely manner. Specifically, LR2000 does not track the status of  hardrock operations, whether each existing operation that requires a  financial assurance has the assurance, and whether the financial assurance  is adequate to pay the cost of required reclamation.
Because BLM does not have an effective management process and critical  management information, it has not ensured that some current and  previous operators have adequate financial assurances, as required by  federal regulations and/or BLM guidance. Furthermore, some operations  either do not have any, or have outdated reclamation plans and/or cost  estimates. When operators without any financial assurances, or with  inadequate financial assurances, fail to reclaim BLM land disturbed by their  hardrock operations, BLM is left with public land that requires tens of  millions of dollars to reclaim and poses risks to the environment and public  health and safety. Until BLM establishes monitoring and accountability  mechanisms to ensure that all operations have required financial  assurances—based on sound reclamation plans and current cost  estimate—and improves the information it collects to effectively manage  financial assurances, these problems will continue.
section_title: Recommendations for Executive Action
paragraphs: To ensure that hardrock operations on BLM land have adequate financial  assurances, we recommend that the Secretary of the Interior direct the  Director of BLM to take the following two actions:  require the BLM state office directors to establish an action plan for  ensuring that operators of hardrock operations have required financial  assurances and that the financial assurances are based on sound  reclamation plans and current cost estimates, so that they are adequate  to pay all of the estimated costs of required reclamation if operators fail  to complete the reclamation, and   modify LR2000 to ensure that it tracks critical information on hardrock  operations and associated financial assurances so that BLM  headquarters and state offices can effectively manage financial  assurances nationwide to ensure regulatory requirements are met.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from the  Department of the Interior. Interior stated that it appreciated the advice  and critical assessment we provided on BLM’s management of financial  assurances required for hardrock operations. However, Interior did not  acknowledge or address specific deficiencies identified in our report and  did not concur with our recommendations or the conclusions upon which  the recommendations were based.
In commenting on our recommendation to establish an action plan for  ensuring that operators of hardrock operations have required financial  assurances, Interior stated that existing procedures and policies ensure  financial guarantees are in place to protect the public should an operator  fail to reclaim. We disagree and believe that Interior’s view is inconsistent  with the evidence we developed based on information provided by BLM’s  own offices. While we agree that existing federal regulations and BLM  guidance require financial assurances to cover all reclamation costs for  notice- and plan-level hardrock operations, the evidence in our report  shows that notices and plans of operation do not always have adequate  financial assurances, as required. As we stated in this report, BLM state  offices with existing hardrock operations informed us that, as of July 2004,  some notice- and/or plan-level operations did not have adequate financial  assurances. Furthermore, the evidence is clear that hardrock operations  have ceased without operators having the adequate financial assurances  required by regulations and BLM guidance. As a result, funds are not  available to pay at least $56.4 million in reclamation costs for operations  that had ceased and not been reclaimed since BLM began requiring  financial assurances. We continue to believe that this evidence clearly calls  for a plan of action that includes monitoring and accountability  mechanisms to ensure that the requirements in the federal regulations and  BLM guidance to have adequate financial assurances are met.
In commenting on our recommendation to modify LR2000 to ensure that it  tracks critical information on hardrock operations and associated financial  assurances, Interior stated that BLM does track all critical information on  authorized operations in LR2000. Again, we disagree with BLM’s opinion  and find this view troubling when viewed in the context of clear evidence  to the contrary presented in this report. As we reported, LR2000 does not  track the critical information needed to effectively manage and oversee  financial assurances, including the operation’s basic status, such as  whether the operation is ongoing or has ceased and should be reclaimed;  some types of financial assurances being used, such as corporate  guarantees, bond pools, and trust funds; and the adequacy of financial  assurances to pay the cost of required reclamation. We are encouraged by  BLM’s April 2005 instruction memorandum to provide guidance and  direction on data standards for LR2000 and the recent addition of codes  and edits to LR2000 for plans of operations and financial guarantees, and  we have added information to our report, as appropriate. We are also  encouraged by BLM’s willingness to refine and enhance LR2000. However,  we continue to believe that until BLM timely enters, tracks, and uses this  critical information it will not be able to effectively manage financial  assurances to ensure that federal regulations and BLM guidance are  followed.
Interior also suggested some technical changes that we have incorporated  as appropriate. Interior’s letter is included in appendix IV, along with our  comments.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. We will then send copies to other appropriate congressional  committees and to the Secretary of the Interior. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-3841 or Nazzaror@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix V.
section_title: Objectives, Scope, and Methodology
paragraphs: This appendix details the methods we used to examine three aspects of  financial assurances used to cover reclamation costs for the Department of  the Interior’s Bureau of Land Management (BLM) land disturbed by  hardrock exploration, mining, and processing operations. Specifically, we  were asked to determine the (1) types, amount, and coverage of financial  assurances operators currently use to guarantee reclamation costs; (2)  amount that financial assurance providers and others have paid to reclaim  operations that had ceased and not been reclaimed since BLM began  requiring financial assurances and the estimated costs of completing  reclamation for such operations; and (3) reliability and sufficiency of BLM’s  automated LR2000 information system for managing financial assurances  for hardrock operations.
To address these objectives, we designed two surveys to obtain information  from BLM’s state and field offices because they maintain the case files and  other specific information on hardrock operations. We asked the 12 BLM  state offices that manage BLM programs across the United States to  complete surveys for each state in their jurisdiction with hardrock  operations. The 12 BLM state offices were Alaska, Arizona, California,  Colorado, Idaho, Montana, New Mexico, Nevada, Oregon, Utah, Wyoming,  and Eastern States.
We used the first survey, which focused on states’ experiences with  hardrock operations, to determine the types and amounts of financial  assurances currently used to guarantee reclamation costs. Specifically, we  asked the 12 BLM state offices to provide information on (1) the number of  existing hardrock operations for each state within their jurisdiction, (2) the  types and the amounts of financial assurances provided for existing  hardrock operations in each state, (3) their views on the effectiveness of  the various types of financial assurances, (4) their views on the reliability  and sufficiency of hardrock operation data contained in the LR2000, and  (5) their use of LR2000 for managing hardrock operations in their states.
We used the second survey, which focused on selected hardrock  operations, to determine the amount of funds provided by financial  assurances and others to reclaim hardrock operations that had ceased and  not been reclaimed by operators since BLM began requiring financial  assurances and the estimated costs of completing reclamation of such  operations. We asked the state offices to provide detailed information on  each hardrock operation within their jurisdiction that met both of the  following criteria: the operator (1) ceased operations after the requirement  for financial assurances went into effect—August 1990 for plan-level  operations, January 2001 for new notice-level operations, and January 2003  for existing notice-level operations—and (2) failed to complete the  required reclamation. In most cases, BLM field office staff completed this  survey because hardrock operation case files are maintained in these  offices. Also, as necessary, we obtained information from BLM state and  field staff to clarify responses to the survey. We used the information  obtained to determine the estimated reclamation costs and the adequacy of  financial assurances for reclaiming the hardrock operations that BLM  identified as meeting our criteria.
To determine the adequacy of financial assurances, we compared the most  recent complete reclamation cost estimate that BLM reported for each  operation with the dollar value of the financial assurance that BLM  reported for that operation. We then computed the difference between the  most recent cost estimate and the value of the financial assurance to  determine the total net excess or deficiency of the financial assurances.  The total is the sum of the differences between the values of the financial  assurances and the cost estimates that were made at different times over  the past 15 years and were not adjusted for inflation. For each operation,  we asked BLM to report the value of the (1) estimates that the operator had  before operations ceased, (2) estimates that BLM prepared after operations  ceased, (3) actual reclamation costs, (4) BLM’s estimate of the shortfall in  funds needed to complete reclamation in excess of funds relinquished by  the financial assurance provider, and (5) BLM’s estimates of funds needed  to complete required reclamation. BLM reported one or more of these  values for 43 operations, and no value for the other 5 operations. For 24 of  these 43 operations, BLM reported only one value, and we used that value  as the most recent reclamation cost estimate. For the other 19 operations,  BLM reported two or more values. In determining which value to use for  our analysis, we generally did not use the (1) actual costs for operations  that were not fully reclaimed because the actual cost could not be known  unless reclamation was complete and (2) estimated funds needed to  complete reclamation for operations that were partly reclaimed because  those estimates did not include funds that had already been spent. We used  the following values as the most recent reclamation cost estimate for these  19 operations.
For 12 operations, we used BLM’s estimate prepared after operations  ceased because those estimates were the most recent.
For three operations that BLM reported as having no reclamation  completed or not knowing the status of reclamation, we used BLM’s  reported estimate of funds needed to complete required reclamation.
For one operation that BLM reported as being fully reclaimed, we used  BLM’s reported actual cost.
For one operation, we used BLM’s estimate of the shortfall of funds  needed in excess of funds relinquished by the financial assurance  provider because that estimate was the most recent and most accurate,  according to BLM officials.
For one operation, we used the estimate available before operations  ceased because the only other value reported for the operation was  BLM’s estimate of funds needed to complete reclamation and  reclamation was only partly completed.
For one operation, we used the estimate available before operations  ceased because the other values reported for the operation were BLM’s  estimate of funds needed to complete reclamation and the reported  amount of actual costs, but reclamation was only partly completed.
We provided a copy of these two surveys to BLM headquarters and  incorporated officials’ comments as appropriate. We also pretested these  surveys with state and field office staff in Nevada, Utah, and Arizona and  made changes in the surveys’ scope and content as appropriate. Further,  after respondents submitted their answers, we (1) verified the information  in the survey that focused on states’ hardrock operations experience  through discussions with BLM officials in two state offices with extensive  financial assurance experience in hardrock operations—Nevada and  Montana—and (2) verified information reported in four randomly selected  hardrock operations surveys through discussions with officials and a  review of case files in three Nevada field offices—Carson City, Elko, and  Winnemucca—and one Montana field office—Lewistown. We checked the  answers respondents had given to the questions against information  contained in the case files. In many cases, staff provided answers based on  their own knowledge and information in the case files.
Some BLM state offices had difficulty identifying hardrock operations that  met our criteria. For example, some states completed our surveys for  hardrock operations that did not appear to meet our criteria, and we  contacted the respondents to clarify whether the operations did or did not  meet the criteria. We eliminated 12 surveys that did not meet the criteria  from our analysis.
Furthermore, we cannot know whether BLM reported to us all hardrock  operations that met our criteria. To address this concern, we took  additional steps to help ensure that BLM completed the selected hardrock  operations survey for all operations that met our criteria. For example, in  Nevada, we compared a list of bankrupt operations prepared by the Nevada  Bonding Task Force with a list of BLM’s completed surveys to identify  potential omissions. In addition, we asked selected experts, interest  groups, and others to identify instances when operators failed to complete  required reclamation and the federal government or others paid such  reclamation costs or the required reclamation was not fully completed. To  the extent that BLM staff did not identify all of the operations that met our  criteria or did not report information on those operations that did meet the  criteria, the information the BLM staff reported is incomplete.  Furthermore, we did not collect information on the thousands of ceased  hardrock operations since 1872 that did not require financial assurances  and, therefore, fell outside the scope of this review.
To determine the reliability and sufficiency of BLM’s LR2000 system, we  spoke with BLM information technology officials in the headquarters unit  near Denver, Colorado, who are responsible for administering the system;  BLM state and field office staff in two states who enter information into the  system; and BLM managers at headquarters and in two states who use  information from the system. In addition, we visited information  technology officials near Denver to discuss the structure and history of  LR2000 and to observe firsthand how data are entered into and processed  by the two subsystems used to manage financial assurances—the Case  Recordation System, which contains information about hardrock  operations, and the Bond and Surety System, which contains information  about financial assurances. Also, in our two surveys of BLM’s 12 state  offices, we asked questions to gather data on whether each respondent  used LR2000 to respond to the survey. Specifically, we asked questions  about whether the information used to respond came from LR2000 or from  state office personnel’s knowledge, field office personnel’s knowledge,  other databases, case files, or other sources. These questions helped us  determine the extent to which BLM officials used and relied on the data in  LR2000.
It is important to note that the practical difficulties of conducting any  survey introduce various types of errors. Differences in how a particular  question is interpreted and differences in the sources of information  available to respondents can also be sources of survey response errors. We  included steps in both the data collection and data analysis stages to  minimize such errors. These steps included developing our survey  questions with the aid of our survey specialists, conducting pretests of the  questionnaires, and twice verifying the entry of survey data where  applicable.
In addition to the surveys, we took several steps to understand BLM’s  management and oversight of hardrock operations and the use of financial  assurances to ensure reclamation. We reviewed GAO reports, federal laws  and regulations, BLM documents, and independent studies on hardrock  operations and financial assurances. We also discussed these issues with  BLM officials at headquarters and in selected state and field offices in  Arizona, Montana, Nevada, and Utah. To understand the relationship  between BLM and state agencies responsible for overseeing hardrock  operations, we met with BLM and state agency officials in Colorado and  Nevada, and we reviewed relevant memorandums of understanding and  other documents for these and other states. We also discussed relevant  hardrock operation and financial assurance issues with experts and  representatives from the mining industry, academia, and environmental  groups. Finally, to better understand hardrock operations and reclamation  requirements, we visited five hardrock operations on BLM land in two  states—the Florida Canyon, MacArthur Mine, Olinghouse, and Relief  Canyon operations in Nevada and the Zortman and Landusky operation in  Montana.
We conducted our review from October 2003 through May 2005 in  accordance with generally accepted government auditing standards,  including an assessment of data reliability.
section_title: Number of Notice- and Plan-Level Hardrock Operations and Value of Associated Financial Assurances
paragraphs: This appendix provides information on the number of notice- and plan-level  operations and dollar value of associated financial assurances for the 12  states with existing hardrock operations as of July 2004, as reported by  BLM.
section_title: Detailed Information on 48 Hardrock Operations That Had Ceased and Not Been Reclaimed by Operators
paragraphs: This appendix provides detailed information obtained from our survey on  the 48 hardrock operations that BLM identified as ceased but not reclaimed  by the operator since BLM began requiring financial assurances.  Specifically, the appendix presents tables 14 through 19 showing: the basic  characteristics of the 48 hardrock operations; key reclamation dates; BLM  steps to compel operators to reclaim BLM land disturbed by hardrock  operations and reasons operators did not reclaim the land; estimated  reclamation costs; the types and amount of financial assurances and the  amount of financial assurances relinquished and spent on reclamation; and  sources of other funds and the status of reclamation.
section_title: Comments from the Department of the Interior
paragraphs: The following are GAO’s comments on the Department of the Interior’s  letter dated June 8, 2005.
subsections: section_title: GAO Comments
paragraphs: 1. See agency comments and our evaluation section of this report. 2. See agency comments and our evaluation section of this report. 3. We did not change the title of the report because doing so would  indicate that adequate financial assurances are in place to guarantee  reclamation costs. As we report, this is not the case.  4. We added a sentence to state that plans of operations that were  approved before January 20, 2001, were required to have financial  assurances in place no later than November 20, 2001. 5. We changed the language to state that BLM has the authority to take  steps, such as issuing noncompliance and suspension orders or  revoking plans of operations, if operators do not comply with financial  assurance or other regulatory requirements. 6. The “other” sources of information on hardrock operations that had  ceased and not been reclaimed, as required, are identified in appendix I. 7. We added the National Research Council as one of the other sources  used to develop figure 2. 8. We removed step 5, which described leftover material known as  tailings, from figure 2.  9. We changed the language to clarify that upon recording a mining claim  with BLM, the claimant must pay the fees discussed in our report, and  that the location fee is not paid annually. 10. We did not add this language to this section of the report because we  explain in the background section of the report that BLM requires all  notice- and plan-level hardrock operations to have financial assurances  before exploration or mining operations begin.  11. We clarified the language by adding “notice- and plan-level” before  hardrock operations. 12. We clarified this sentence in our conclusion to state that “However,  while federal regulations and BLM guidance set forth financial  assurance requirements for notice- and plan-level hardrock mining  operations, BLM has no process for ensuring that the regulations and  guidance are effectively implemented to ensure that adequate financial  assurances are in place, as required.” Our report shows that BLM state  offices with hardrock operations reported that, as of July 2004, some  hardrock operations did not have adequate financial assurances.  Furthermore, past experience has shown that some hardrock  operations have ceased without operators having the adequate  financial assurances required by regulations and BLM guidance. We  continue to believe that until BLM establishes monitoring and  accountability mechanisms to ensure that all hardrock operations have  required financial assurances based on sound plans and current cost  estimates, these problems will continue. 13. We did not change this sentence in our conclusion because evidence in  our report shows that LR2000 does not track the critical information  BLM needs to effectively manage financial assurances on hardrock  operations. Specifically, we reported that LR2000 does not track some  critical information, including the operation’s basic status, such as  whether the operation is ongoing or has ceased and should be  reclaimed; some types of financial assurances being used, such as  corporate guarantees, bond pools, and trust funds; and the adequacy of  financial assurances to pay the cost of required reclamation.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Andrea Wamstad Brown, Byron S.  Galloway, Heather Holsinger, Carol Herrnstadt Shulman, Walter Vance, and  Amy Webbink made key contributions to this report.