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How would 'damage deposit' work for PolyMet? Many questions, no answer

MinnPost photo by Ron Meador
PolyMet representative Brad Moore — the company's senior vice president for environmental and regulatory matters — testified on Tuesday.

A five-hour legislative hearing Tuesday on "financial assurance" for PolyMet's proposed copper/nickel operations turned up little if anything in the way of common-sense assurance that long-term cleanup costs typically associated with such mines won't become a public burden at this one.

There was extensive reference to Minnesota law, dating from the early 1990s, that requires mining companies to provide such guarantees as a condition of mining, and to back them with failure-proof financial instruments.

There were repeated assurances from high-ranking officials of the Minnesota Department of Natural Resources that they would apply those legal requirements rigorously when PolyMet applies for permits to mine at a site south of Babbitt and to process ore at a plant near Hoyt Lakes.

And there was discussion in a highly general way of the kinds of instruments that could be used — bonds, insurance policies, irrevocable letters of credit, deposits of cash and cash equivalents, trust funds.

There was also skeptical questioning from a range of witnesses who wonder how any or all of those instruments can be expected to function for 200 or 500 years into the future — the working timelines, for the moment, of how the state must plan for control of acid drainage at PolyMet's mine and mill, respectively.

And at the end of more than five hours' testimony, those questions remained unanswered.

DNR gathering data

Jess Richards, who heads the DNR's lands and minerals division, told the House Environment, Natural Resources and Agriculture finance committee that the department is in the early stages of looking for useful models in how other states have approached financial assurance for hardrock mining.

A database of some 200 mining projects in western states has been obtained and a private contractor will be hired to help analyze the contents for guidance Minnesota regulators may use in placing conditions on PolyMet when its project moves to the permit phase, perhaps later this year.

A mining industry representative, Laura Skaer of the American Exploration & Mining Association, spokesman said financial-assurance requirements have become a standard feature of mining permits since the 1970s, and can take a variety of forms.

No examples given

However, she couldn't point to an example where the guarantee had yet been tested, let alone found sufficient. I listened hard for that kind of example throughout the half-day's testimony and didn't hear anything that came particularly close.

I think it was about six years ago that the debate about how best to address the environmental risks in PolyMet's proposal moved off of the question of requiring the company to prove that its methods would be environmentally benign, to insisting that it put down a sufficient damage deposit to protect the taxpayer if those methods failed.

Six years on, the question of how that damage deposit could be made remains a subject of theoretical answers only.

The DNR says it is working on that and will follow the requirements of state law, repeatedly described as "robust" in yesterday's session. PolyMet says it will meet whatever requirements are contained in its permit.

But how?

PolyMet's stonewalling

Brad Moore

Perhaps the most interesting exchange occurred at the end of the five-hour session, when a PolyMet representative came to the witness chair — Brad Moore, the company's senior vice president for environmental and regulatory matters. (He's no stranger to such proceedings, having headed the Minnesota Pollution Control Agency in the Pawlenty administration and serving as an assistant DNR commissioner before that.)

Moore opened his comments with a description of a robust review process with the DNR and other agencies, and emphasized that "the regulators are in charge."

It seemed at that point to be an acknowledgment that PolyMet's provisions of financial assurance would be defined by state requirements, not company offers. Of course.

But as Moore stood for questions, in a performance I think can be characterized as belligerent stonewalling, it echoed more as a suggestion that the Legislature had no business exploring the issues of financial assurance because that was a matter for proceedings in the executive branch.

I've never seen anything quite like it. But I don't cover the Minnesota Legislature day in and day out. So I asked several people with very long experience for their take and they, too, found it remarkable and unprecedented, and two ventured that it was not only belligerent but bizarre.

You can see for yourself if you go to video coverage of the session and start at the 5:01 mark. But here's a summary:

Andrew Falk, DFL-Murdock, who holds a business degree from the University of Minnesota's Carlson school, asked a series of simple questions about PolyMet's last annual report — the nature of certain assets; how the data squared with information about the North Met project; whether PolyMet was in fact, a shell company, principally owned and due to be taken over by others.

Won't discuss finances

Except for a summary denial that PolyMet was a shell company or controlled by corporate parents elsewhere, Moore's responses followed a single, consistent line: I'm in charge of the environmental aspects of PolyMet's activities, and I can't answer financial questions, but I'll be happy to take them back to the office and ask the finance people to get back to you.

This led to the obvious question of why PolyMet would send, to a hearing on financial assurance matters, a representative who couldn't speak about finances.

Digging his heels in deeper, Moore said the finance people weren't present because financial assurance was an administrative matter that belonged in the permitting process.

And when the committee chair, DFLer Jean Wagenius of Minneapolis, asked him to have his finance folks provide some basis for their estimate  of the financial guarantees PolyMet  should expect to provide, he actually declined — twice — to say he would do so.

I emailed Moore and a couple of PolyMet communications execs to ask why Moore was chosen to testify for the company yesterday, and why he chose to respond as he did. Here is the full response I received from Bruce Richardson, vice president for corporate communication and external affairs, with emphasis and paragraphing added:

The Committee supplied 14 questions prior to the hearing, none of which referred to the company’s annual report.

Rep. Falk’s inability to obtain answers to his questions about aspects of the company’s annual report should not be construed as a lack of preparedness on PolyMet’s part. Establishing financial assurance terms for mining projects, by Minnesota Statute, is a function of the permitting process and is administrated by the DNR. It is not a legislative function or a function of the Environmental Impact Statement (NEPA).

The DNR made clear in the hearing that no application for a Permit to Mine has been made by the company. Furthermore, the environmental review process (the SDEIS), which helps inform the permitting process, is still in the public comment period and will not be completed until probably sometime later this year.

The EIS process allows for those who have questions or concerns about any aspect of the environmental review to formally make those concerns known during the public comment period as outlined by EIS guidelines. (Virtually all of the issues that opponents and some of the legislators raised in yesterday’s hearing can and will be addressed in either the SDEIS or permitting processes.)

As with the SDEIS process, permitting will be a transparent, open process that also will provide for public input and involvement. To attempt to address those issues outside of and out of sync with the prescribed processes compromises the integrity of those processes and our and other law-abiding companies’  ability to work within them. 

The House hearing was an opportunity for the committee to better understand the process and the law, and we sincerely hope it accomplished that yesterday.

Three thoughts on that:

First, PolyMet seems to be saying that legislators or citizens who have concerns about PolyMet's ability to provide financial assurances can raise those issues in an EIS process which specifically does not deal with financial assurance, because that subject belongs in the subsequent permitting process.

Second, it seems to me the advance questions prepared for the session (by nonpartisan legislative staff) dealt extensively with exactly the financial subjects Moore said he was not prepared to discuss. (No need to rely on my reading; you can see for yourself.)

Finally, I guess I still wonder why a company seeking clearances to launch a new and bitterly contested industry in this state would go out of its way to antagonize some key lawmakers — unless it can comfortably assume their views won't matter anyway.

* * *

I've chosen here to focus on just the central subject of a hearing that ranged all over the place; for further reading, see coverage of yesterday's session in the Star Tribune, the Duluth News-Tribune, the Hibbing Daily Tribune, and at Minnesota Public Radio and KJBR-TV in Duluth. Additional links at BringMeTheNews.

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Comments (14)

What

were the 14 questions the committee posed to Polymet before the hearing?

Do opponents of the project have numbers to offer regarding the necessary financial assurances? If not, is that because they don't have the necessary data at this point from which to derive those numbers? (E.G., precise location and scale of operations, specific drainages which might be affected, types of remedial and preventive measures which might be taken/required, geological features of any retention ponds, etc.) If not, then it's more than a bit dishonest to demand numbers or mechanisms from Polymet, isn't it?

Frankly, Mr. Meador's opposition to the project is apparent, making it difficult for me to accept as accurate or unbiased his synopsis of a 5 hour hearing.

For those who might suspect I've made up my own mind: no, I haven't. I am, however, becoming increasingly frustrated by the lack of objectivity I find in most reports or articles on this process.

Belligerent? No

I watched the tape. I get that you don't like the answers given, but at no time in his testimony was Mr. Moore "belligerent." He was asked a series of detailed questions about his company's comprehensive annual financial report. He made it clear that (as their VP for environmental affairs, and not a member of the financial staff) he didn't prepare that report, would not be able to address those questions directly, but would direct them to the CFO and controller to address. His tone was measured and scrupulously polite, even when repeatedly asked questions it was clear he wasn't in a position to address.

He also correctly stated that the financial assurance calculations are a part of the permitting process. He stated that they aren't at that point in the process yet, that at the appropriate time they'd be getting guidance from the regulators on what documentation would be deemed sufficient and on the substance of the financial assurance itself. Since that hasn't been done yet, it is premature to talk about sharing documents that don't apparently exist yet.

Those seem to be questions of fact, which I didn't read you disputing. Determining whether that is in fact the case, and then reporting on the substance of the permitting documentation and hearings is reporting work that, while likely to be less dramatic than the theater of a legislative hearing, will be more substantive. I look forward to reading it.

Why just Moore?

The agenda for the hearing was:
"Agenda: Financial Assurance and Polymet This hearing will be limited to the question of how best to structure financial assurance. The specific questions to be answered at the hearing were developed by the nonpartisan House Research Department and are posted on the committee website."

So since Polymet only made Moore available for the hearing, it could certainly be construed as an attempt to evade the issue.

PolyMet

I spent 25 years working in the drilling business in and around mining in a number of countries. I have seen many things.

Hold as many meetings, produce as many reports, make as many assurances, make as many promises, write as many letters, what will matter is what actually happens on and in the ground.

We should know by now that jobs do not get done, for all sorts of reasons, even in critical positions. Greed for profit will always trump budgets for compliance in many areas, and doing the right thing.

It is more comfortable for a company environmental watch dog worker to stay in the vehicle, than get out, get cold, get wet, get muddy and get actual work to do. Easier to let someone else notice the problem on the next shift, and do the right thing, hopefully.

I know how important jobs are. I know how critical the environment is (an asset, not a consumable). Take your pick.

Do you really trust big business and the government? The answer is found in the high powered arsenals and ammunition stores Iron Rangers keep to hunt deer. Environmentalists are concerned for your health and the health of your descendents for many hundreds of years to come, and there is much to be concerned about here. Environmentalists are not a threat to you, poison is.

Good Article

Keep on writing! Since the beginning we have heard nothing but rhetoric that this operation would be safe from both Polymet and MN DNR yet neither can offer any specifics. Even if the exact $$ amount is not known, at least they could state their rational, process, or assumptions. Yet they offer nothing but 'trust us'.

This deal smells to high heaven when our DNR Richards states "We assume PolyMet has done its homework on its profitability and the protections that need to be in place before mining" (Star Tribune). You can rest assured Polymet has done its homework on profitability and hiring ex MN PCA chief Moore protects Polymet against environmental and regulatory concerns.

It just seems our DNR officials are working for Polymet rather than MN.

Will they pay a damage deposit?

Doesn't seem like that tough question. The needed amount understandably is complicated, but they won't give an answer on the concept. Makes it seem the business plan requires externalizing all environmental costs, which is jargon for making someone else pay while they make the profits.

Love is blind

Ms. Skaer may not be able to "point to an example where the guarantee had yet been tested". But in a Feb 9 Star-Trib article:

"The Summitville gold mine in Colorado is often described as the poster child for inadequate financial assurance. In 1992, its owner, Galactic Resources, declared bankruptcy and abandoned the site, leaving behind byproducts from the cyanide leaching it had used to extract the gold. In all, the EPA spent $150 million to stabilize the site. The company’s financial assurance was $4.5 million."

Finding fault

It’s hard *not* to find fault with PolyMet’s preparations.

The revolving door that allows Mr. Moore to work for the DNR, then the state’s Pollution Control Agency, then PolyMet, does more than suggest that the mining company has bought and paid for access to the regulatory powers-that-be in the form of someone who surely knows the bureaucratic ropes.

As are most corporate types when big bucks are on the line, he is unfailingly polite, and unrelentingly opaque, in his responses to questions. He’s been well-schooled in the uninformative response to what might be an embarrassing question.

The agenda for the hearing is quite straightforward. Sending someone who purports not to be able to answer financial questions when the subject of the hearing is precisely those financial questions is fairly representative of modern corporate arrogance. They know what they’re doing, and are operating on the presumption that obfuscation (i.e., confusing the issue) will continue to work to their advantage by consuming the time, energy and resources of opponents long before the actual EIS hearings take place.

Mark Voorhees and Eric Ferguson seem right on the mark to me. I think it *very* safe to assume that PolyMet has done quite a bit of homework regarding potential profitability, and in various scenarios, depending upon how much restitution seems necessary after the inevitable environmental incident. Mr. Ferguson is correct in suggesting that what’s happening here is a scenario that big corporations with less-than-admirable track records have been through many times: privatize the profits, socialize the costs.

And thanks to Harris Goldstein for pointing out that there *are* at least a few examples of mine cleanups, and they do not inspire confidence. Summitville is but one of several former mines in Colorado that continue to leach poison into nearby streams decades after the mining operation itself came to an end. As the Summitville quote suggests, financial assurances rarely cover a significant portion of the actual costs of environmental cleanup, and if it’s deemed better for shareholders, mining companies, like other companies (West Virginia’s Freedom Industries comes readily to mind), simply declare bankruptcy and walk away.

My own not-entirely-rhetorical questions are:

When was the last time a group of mining company executives were imprisoned until the environmental damage inflicted by their company's operations, under their direction, was corrected?

When was the last time a group of mining company executives were imprisoned when the financial assurance provided by the company proved to be wholly inadequate (let's say, less than 10%) to deal with the pollution/poisoning created by that company’s mining operation?

I don’t honestly know the answer(s), but my guess is that neither one of those things has ever happened, at least not in this country.

I bet this deal goes through

The people screaming the loudest are the "Jobs, jobs, jobs" people. What politician or public official can go up against that since "jobs, jobs, jobs" represents the present and that's about all a whole lot of people think about.

If problems with this mining operation occur, they probably won't happen for decades in the future. No one will remember the names of those involved. No elected official or public official will ever be held accountable for their bad decisions because they will either be dead or simply long forgotten. In giving their OK, there's simply no risk for the people involved in this decision. Yes, risks to the State of MN, risks to our environment, but really no risk to any one individual because once again - problems probably won't occur for years and years.

Saying "No" to jobs - right now - now that's risky. I simply don't believe anyone involved in this decision has the man parts to do that.

Polymet has us right where it wants us

Mr. Meador wrote, "It was about six years ago that the debate about how best to address the environmental risks in PolyMet's proposal moved off of the question of requiring the company to prove that its methods would be environmentally benign, to insisting that it put down a sufficient damage deposit to protect the taxpayer if those methods failed."

The regulators and the public should go back and question (1) whether the environmental damages that will result are acceptable or not; if the damages are acceptable, then the next question is (2) whether remediation should be required after the mining ends, and if it is, (3) proof that solutions are scientifically sound, and if they are, then, finally, (4) how will the solution will be paid for? Polymet's owners are quite happy that they have finessed items 1-3 and the focus is on item 4.

We forget

That Polymet has an equity partner in Swiss energy giant, Glencore. That is who has to provide the long term financial stability for this project. Polymet's financial assets are limited.

And what happens

When the tell us in essence to "pound sand" after the damage is already done? How many decades do you suppose it will take for any judgement to filter through the legal system? Its really quite simple, as was previously stated, there is no meaningful punishment that will encourage good behavior on the part of the mining company, not while liquidation is an option, and as such no reason to accept ANYTHING they say as truth. Why is this so hard for people to understand? They have no financial incentive to work in good faith and no punishment to discourage it, therefore they will act in whatever way will ensure the largest profit margin possible, with no thought to the environmental consequences whatsoever.

Hearing replay

Go to The Uptake to listen to a replay of the hearing. A lot of very good information was provided the Margaret Watson of the Grand Portage band and other presenters on the true problems with the PolyMet project.
Brad Moore was put in a very embarrassing position. If I were him, I would quit, rather than be the scapegoat.

Revolving door with financial assurance negotiators

You missed the core of the February 12th story on the legislative hearing on the financial risks to taxpayers of proposed metallic sulfide mining next to the Boundary Waters.

Under current law the so-called "financial assurances" to protect us from the cost of pollution cleanup for centuries will be negotiated every year between DNR executives and the mining companies. When the public is not watching the terms will be weakened. Why? Because of the revolving door between DNR and the mining companies.

The photo of the hearing shows of a former assistant DNR commissions (who also headed the pollution control agency) who now is a lobbyist for PolyMet Mining. The predecessor of the current director of Lands and Minerals Division of DNR who defended the process at the hearing went to work for the mining companies immediately upon retirement.

My prediction is that taxpayers will pay many times the payroll and local purchases made by these mines in cleanup costs even though the state will also lower water quality standards to achieve “compliance”.