It is hardly likely to grab headlines, but a quiet debate is taking place within the U.S. Government over changes to a piece of legislation known as the Surface Mining Control and Reclamation Act of 1977 (SMCRA for short) – in particular the “stream protection rule” – that could cause a fundamental shift in the economics of mining in the U.S.
The Obama administration has been trying to finalize an updated version of the rules for regulation of the SMCRA that would have massive implications for miners.
By placing stringent restrictions on mines developed under streams or other waterways, and by extending miners’ liability for reclaimed mines essentially until the end of time, the new version of the rules could cut recoverable reserves of some mined materials by 30 or 35%, costing the industry billions of dollars and potentially causing the loss of hundreds of thousands of jobs.
The changes are being driven by an administration that is very much pro-environment and anti-mining.
It is not alone. There is a global trend among developed and developing nations alike toward environmental regulation designed to place a far bigger burden of responsibility on natural resource firms than they had previously been accustomed to.
Many practices that were acceptable in the past have become unacceptable. So we see U.S. miners being asked to set aside all reclamation costs at the beginning of projects and accept liability for mines decades and centuries after they have been wound down. In the U.K., we have witnessed utility firms being fined 10 times the cost of cleanup for relatively small environmental mishaps.
Coupled with a series of environmental disasters—in the U.S., Brazil and Hungary, among others—the current regulatory environment has led to a decreased appetite among insurers, while issues such as reclamation are not insurable, instead necessitating offset through surety bonds or other financial instruments.
There is growing pressure for natural resource firms, insurers and financial institutions to develop some creative thinking on how to meet regulators’ demands—and stay profitable. That is why, in our recent Natural Resources Risk Index, regulatory change was at the top of the minds of C-suite executives across the board of the natural resources industry.
It is especially important that executives retain this focus, because the current trend toward greater regulation shows no sign of abating. The next U.S. administration may take a more lenient view of the SMCRA, but that is by no means a certainty. European, U.S. and Australian regulation is only likely to become more stringent–and other territories will follow suit.