Hardrock Mining: BLM Needs to Revise Its Systems for Assessing the Adequacy of Financial Assurances

What GAO Found:

Based on data reviewed from BLM's Bond Review Report, mine operators had provided financial assurances valued at approximately $1.5 billion to guarantee reclamation costs for 1,365 hardrock operations on federal land managed by BLM. We determined that 57 hardrock operations had inadequate financial assurances--amounting to about $24 million less than needed to fully cover estimated reclamation costs. Nevada had the largest number of hardrock mining operations and the largest number of inadequate financial assurances. As we have reported, BLM has taken some steps to strengthen and improve its management of hardrock financial assurances but has not yet addressed the issues we identified in 2008 regarding how the Bond Review Report calculates the total value of those financial assurances that are inadequate. To improve its management of hardrock financial assurances, BLM in 2009 issued IM 2009-153, which, among other things, directs periodic review of reclamation cost estimates for all ongoing operations to ensure the current cost estimate and the amount of the required financial assurance continue to meet applicable regulatory requirements. However, we found that only two BLM state offices--Montana and Wyoming--fully implemented IM 2009-153 by conducting timely reviews of financial assurances and ensuring that financial assurances for hardrock operations under their purview were adequate. Although some BLM state offices reported that they had not always succeeded in conducting reviews of financial assurances in a timely manner, or had not always secured adequate financial assurances, they all had submitted a certification that included an action plan for addressing these deficiencies. In addition, in reviewing the Bond Review Report, we found that the implementation of IM 2009-153 has helped BLM reduce the amount of its inadequate financial assurances since 2008 by about $37 million. Regarding the issue with the Bond Review Report that we identified in 2008, BLM has not modified LR2000 to correct how it calculates the value of inadequate financial assurances. Consequently, the Bond Review Report, as currently designed, provides inaccurate summary information by offsetting the shortfalls of some operations' financial assurances with surpluses from the financial assurances of other operations. For example, the Bond Review Report we examined estimated that the total financial assurances in place were about $7 million more than needed to fully guarantee estimated reclamation costs. However, we found that the report's estimated financial assurances were incorrect. By separately assessing the adequacy of financial assurances on an operation-by-operation basis, we determined that BLM's hardrock financial assurances, when aggregated, were about $24 million less than needed. To ensure that BLM's Bond Review Report provides reliable and accurate data on the total value of inadequate financial assurances, we recommend that the Secretary of the Interior direct the Director of BLM to revise LR2000 and its Bond Review Report to calculate and report the value of inadequate hardrock financial assurances on an operation-by-operation basis in order to more accurately represent the adequacy of BLM's hardrock financial assurances.

Why GAO Did This Study:

The General Mining Act of 1872 encouraged the development of the West by allowing individuals to stake claims and obtain exclusive rights to the 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 managed by Department of the Interior's Bureau of Land Management (BLM). BLM issued regulations in 1981 requiring all operators of hardrock mines to reclaim the land disturbed by mining when operations cease. BLM amended the regulations in 2001 to require all mining operators to provide bonds or other financial assurances before beginning exploration or mining operations on BLM land for both notice-level hardrock mining operations--those disturbing 5 acres of land or less--and plan-level hardrock mining operations--those disturbing over 5 acres of land and those in certain designated areas, such as the national wild and scenic rivers system. These financial assurances must cover, among other things, the estimated cost as if BLM were to contract with a third party to reclaim the operations according to the reclamation plan. In June 2005, we reported that some current hardrock operations on BLM land do not have adequate financial assurances in place, and some had no or outdated reclamation plans or cost estimates on which the financial assurances should have been based. 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 the mining operators fail to do so. In a July 2011 testimony, we summarized the key findings of our prior work on hardrock mining, including the adequacy of financial assurances. As a result, Congress asked us to update our prior work assessing the hardrock mining financial assurances held by BLM and determine (1) the value and adequacy of financial assurances that operators use to guarantee reclamation costs for hardrock mining operations on BLM land and (2) the status of BLM's efforts to address issues we previously identified regarding the Bond Review Report and supporting documentation used to determine the adequacy of hardrock mining financial assurances. At this hearing, we stated that the BLM had taken actions to strengthen its processes, but the financial assurances that it had in place, when we last reported on this issue in 2008, were inadequate to cover estimated reclamation costs from hardrock mining operations, and the agency's Bond Review Fiscal Report (Bond Review Report) inaccurately calculated this shortfall. At the July 2011 hearing, the BLM witness testifying for the department stated that the agency had corrected these issues in response to the concerns we identified in the past. This document updates our prior work assessing the hardrock mining financial assurances held by BLM and determine (1) the value and adequacy of financial assurances that operators use to guarantee reclamation costs for hardrock mining operations on BLM land and (2) the status of BLM's efforts to address issues we previously identified regarding the Bond Review Report and supporting documentation used to determine the adequacy of hardrock mining financial assurances.

For more information, contact Anu K. Mittal (202) 512-3841 or mittala@gao.gov.