$170 million owed for mine clean-up
Ekati water licence security expected to be settled soon
Walter Strong
Northern News Services
Published Monday, October 27, 2014
NORTHWEST TERRITORIES
The territorial government is in the final review stages of negotiations with Dominion Diamond Corporation (DDC), operator of the Ekati diamond mine, over how the company will make good on a $170-million security owing under its water licence to guarantee money will be available for the eventual cleanup of the mine.
Weledeh MLA Bob Bromley is worried that the GNWT will accept a form of security not equal to either cash or an irrevocable letter of credit.
According to GNWT, instead of a letter of credit, the territory is completing due diligence on a surety bond for more than $170 million owing on the Ekati water licence.
"The GNWT has been taking steps along with Ekati to fulfil the final steps ... of posting security under the water licence," said Carla Conkin, director of liabilities and financial assurances with the Department of Lands.
The GNWT is permitted under NWT Water Act
legislation to set an acceptable form of security, according
to Conkin - whether it be cash, irrevocable letter of credit, or a surety bond (among others), - once the amount of the security has been determined by the relevant land and water board.
"A surety bond is one of the acceptable forms of security under the legislation we inherited," Conkin said.
"The company (DDC) is proposing a surety bond, and we're actively working with the company to finalize that," she added.
"We're very close to completion."
Describing a surety bond as something similar to an insurance policy, Conkin said the GNWT would have ready access to funds in the event they were required.
"If the company doesn't fulfil the terms and conditions of the regulatory instrument or the terms and conditions of the bond, then we have access (to funds)," said Conkin.
Bromley is not convinced.
"An ILOC (irrevocable letter of credit) is the standard required," said Bromley. "(A surety bond) is not a bankable instrument, it is a promise to pay.
"I would be very disappointed (if the government accepted a surety bond)," he added.
"I'd love to be proven wrong, but why go there when you don't need to."
Conkin said that in determining an acceptable form of security, the government has to consider the entire context of a project.
"The legislative framework and the regulations are structured to be responsive," said Conkin.
"It's a balancing act. We want to make sure that the environment and the public interest are protected. At the same time we want to ensure the corporate viability and the economic development side of this are also addressed."
Conkin said the GNWT expects negotiations to conclude shortly and will be advising the public through regular board processes when the security is posted.
There is a security of more than $253 million attached to Dominion Diamond Corporation's Ekati diamond mine water licence to cover accumulated reclamation costs at the mine site, as determined by the Wek'eezhii Land and Water Board.
A document tabled on Oct. 16 in the legislative assembly shows that the GNWT holds a little more than $82.6 million toward that security.
Dominion Diamond has also posted approximately $43 million in fulfilment of separate land use permitting and environmental agreements.
The amount of security attached to water or land use permits are an important part of protecting the public interest.
Wek'eezhii Land and Water Board executive director Brett Wheeler explained that in the case of Ekati, the amount assigned as a security represents the existing liability on the mine site.
The security represents the best estimate of the clean-up costs the GNWT would inherit if, for example, a mining company were to walk away from its reclamation obligations.
Until July 2013, the reclamation security required by the Wek'eezhii Land and Water Board under the Ekati mine's water licence was approximately $82 million, which the company had posted in the form of an irrevocable letter of credit.
It was increased to $253 million to reflect the accumulated environmental liability associated with the mine's ongoing operations.
This was not an unusual development, Wheeler said.
"Through all stages of mine development, security is based on a closure cost estimate," Wheeler said.
"Over time, that estimate will understandably be revised."
Dominion Diamond played a role in raising its own required security.
"The $253 million is based partly on the company's own estimate of what it would cost to close the site," Wheeler said.
At the time, collecting and holding the security was a federal responsibility.
Last February, News/North reported that Bromley raised concerns surrounding the issue, fearing the territory would inherit unsecured liabilities under devolution.
"We are potentially assuming huge financial liabilities here without the securities to cover them," Bromley said at the time.
Since devolution, the GNWT inherited all existing posted securities, as well as the responsibility to collect and hold future securities, including the revised Ekati water licence security.
The Wek'eezhii Land and Water Board is currently proposing an amendment to the regulations that would stipulate any revised securities must be posted within 90 days.
Prairie Creek mine proponent Canadian Zinc has a little more than $6 million in securities attached to its land and water permits. The company has posted $275,000 toward that amount.
The company has not achieved financing to commence work under that water licence and has requested both that the amount be lowered and that the security be held in abeyance until work can begin on the project.
Zabey Nevitt, executive director of the Mackenzie Valley Land and Water Board, said the board is considering that application and expects to rule on it within a month.
