Collapse: How Societies Choose to Fail or Succeed (84 page)

Zortman-Landusky gold mine mentioned already in Chapter 1 and devel
oped by Pegasus Gold Inc., a Canadian company. When opened in 1979, it was the first large-scale open-pit cyanide heap-leach gold mine in the U.S.,
and the largest gold mine in Montana. The mine proceeded to cause a long
series of cyanide leaks, spills, and acid drainage, abetted by the fact that nei
ther the federal government nor the Montana state government required
the company to test for acid drainage. By 1992, state inspectors had estab
lished that the mine was contaminating streams with heavy metals and acid.
In 1995 Pegasus Gold agreed to pay $36 million to settle all lawsuits by the
federal government, state of Montana, and local Indian tribes. Finally, in 1998, at a time when less than 15% of the mine site had undergone any
surface reclamation, Pegasus Gold's board of directors voted themselves
more than $5 million in bonuses, transferred Pegasus's remaining profitable
assets to the new company of Apollo Gold that they created, and there
upon declared Pegasus Gold bankrupt. (Like most mine directors, those of
Pegasus Gold did not live in the downstream watershed of the Zortman-
Landusky mine, and they thus exemplified elites insulated from the consequences of their actions as discussed in Chapter 14.) The state and federal
governments then adopted a plan of surface reclamation to cost $52 mil
lion, of which $30 million would come from the $36 million payment by
Pegasus while $22 million would be paid by U.S. taxpayers. However, that
surface reclamation plan still does not include the expense of water treatment in perpetuity, which will cost taxpayers much more. It turns out that
five out of the 13 recent major hardrock mines in Montana, four of them
(including the Zortman-Landusky mine) open-pit heap-leach cyanide mines,
were owned by the bankrupt Pegasus Gold Inc., and that 10 of the major
mines will require water treatment forever, thereby increasing their closure and reclamation costs by up to 100 times previous estimates.

A bankruptcy more expensive to taxpayers was that of another Canadian-
owned heap-leach gold mine in the U.S., Galactic Resources' Summitville
Mine in a mountainous area of Colorado receiving over 32 feet of snow an
nually. In 1992, eight years after the state of Colorado had issued an operat
ing permit to Galactic Resources, the company declared bankruptcy and
closed the mine on less than a week's notice, leaving a large local tax bill un
paid, laying off its employees, stopping essential environmental mainte
nance, and abandoning the site. A few months later, after the start of the
winter snowfalls, the heap-leach system overflowed, sterilizing an 18-mile
stretch of the Alamosa River with cyanide. It was then discovered that the
state of Colorado had required a financial guarantee of only $4,500,000

from Galactic Resources as a condition for issuing the operating permit,
but that the cleanup would cost $180,000,000. After the government had
extracted another $28,000,000 as part of the bankruptcy settlement, tax
payers were left to pay $147,500,000 through the Environmental Protection
Agency.

As a result of such experiences, American states and the federal govern
ment eventually began to require hardrock mining companies to guarantee in advance some form of financial assurance that enough money would be
available for cleanup and restoration, in case the mining company itself re
fused or proved financially unable to pay for the cleanup. Unfortunately,
those assurance costs are typically based on a cleanup cost estimate made by
the mining company itself, because government regulatory bodies lack the
time, knowledge, and detailed mine engineering plans necessary to make such an estimate for themselves. In the many cases where mining compa
nies have not cleaned up and the government has been forced to fall back
on that assurance, the actual cleanup costs have proved to be up to 100
times the mining company estimate. That's not surprising, because the esti
mate was provided by the company, which regularly underestimates be
cause it has no financial incentive or government regulatory pressure to
estimate the amount fully. The assurance is provided in one of three forms: cash equivalents or a letter of credit, the safest form; a bond that the mining
company obtains from an insurance company in return for an annual pre
mium; and a "self-guarantee," meaning that the mining company pledges in
good faith that it will clean up and that its assets stand behind its pledge.
However, frequent breaking of such pledges has shown self-guarantees to be
meaningless, and they are now no longer accepted for mines on federal
land, but they still account for most assurance in Arizona and Nevada, the
American states most friendly to the mining industry.

U.S. taxpayers currently face a liability of up to $12 billion to clean up
and restore hardrock mines. Why is our liability so large, when governments
have supposedly been requiring financial assurance of cleanup costs? Parts
of the difficulty are the just-mentioned ones of assurance costs being un
derestimated by the mining companies, and the two states with the big
gest taxpayer liabilities (Arizona and Nevada) accepting company self-
guarantees and not requiring insurance bonds. Even when an underfunded
but real insurance company bond exists, taxpayers face further costs for rea
sons that will be familiar to any of us who have tried to collect from our in
surance company for a large loss in a home fire. The insurance company
regularly reduces the amount of the bond payoff by what are euphemistically

termed "negotiations": i.e., "If you don't like our reduced offer, you may go to the expense of hiring lawyers and waiting five years for the courts to re
solve the case." (A friend of mine who suffered a house fire has just been go
ing through a year of hell over such negotiations.) Then the insurance
company pays out the bonded or negotiated amount only over the years as cleanup and restoration are carried out, but the bond contains no clause for
inevitable cost escalations with time. Then, too, not only mining companies but sometimes also insurance companies faced with large liabilities file for
bankruptcy. Of the mines posing the 10 biggest taxpayer liabilities in the
U.S. (adding up to about half of the total of up to $12 billion), two are
owned by a mining company on the verge of bankruptcy (ASARCO, accounting for about $1 billion), six others are owned by companies that have
proved especially recalcitrant at meeting their obligations, only two are owned by less recalcitrant companies, and all 10 may be acid-generating
and may require water treatment for a long time or forever.

Not surprisingly, as a result of taxpayers' being left to foot bills, there has
been a backlash of anti-mining public sentiment in Montana and some
other states. The future of hardrock mining in the U.S. is bleak, except for
gold mines in underregulated Nevada and platinum/palladium mines in
Montana (a special case about which I shall say more below). Only one-quarter as many American college undergraduates (a mere 578 students in the whole U.S.) are preparing for careers in mining as in 1938, despite the explosive growth of the total college population in the intervening years.
Since 1995, public opposition in the U.S. has been increasingly successful in
blocking mine proposals, and the mining industry can no longer count on
lobbyists and friendly legislators to do its bidding. The hardrock mining in
dustry is the prime example of a business whose short-term favoring of its
own interests over those of the public proved in the long term self-defeating
and have been driving the industry into extinction.

This sad outcome is initially surprising. Like the oil industry, the
hardrock mining industry too stands to benefit from clean environmental
policies, through lower labor costs (less turnover and absenteeism) result
ing from higher job satisfaction, lower health costs, cheaper bank loans and
insurance policies, community acceptance, less risk of the public blocking
projects, and the relative cheapness of installing state-of-the-art clean technology at a project's outset as compared to having to retrofit old technology
as environmental standards become more stringent. How could the hard
rock mining industry have adopted such self-defeating behavior, especially
when the oil industry and the coal mining industry facing apparently simi-

lar problems have not driven themselves towards extinction? The answer
has to do with the three sets of factors that I mentioned earlier: economics,
mining industry attitudes, and society's attitudes.

Economic factors that make environmental cleanup costs less bearable to the hardrock mining industry than to the oil industry (or even the coal industry) include lower profit margins, more unpredictable profits, higher cleanup costs, more insidious and long-lasting pollution problems, less
ability to pass on those costs to consumers, less capital with which to absorb
those costs, and a different labor force. To begin with, while some mining
companies are more profitable than other mining companies, the industry
as a whole operates at such low profit margins that its average rate of return over the last 25 years hasn't even met the cost of its capital. That is, if a min
ing company CEO with $1,000 to spare had invested it in 1979, then by the
year 2000 the investment would have grown to only $2,220 if invested in
steel industry stock; to only $1,530 if invested in metal stocks other than
iron and steel; to only $590, representing a net loss even without considering inflation, if invested in gold mine stock; but to $9,320 if invested in an
average mutual fund. If you're a miner, it doesn't pay you to invest in your
own industry!

Even those mediocre profits are unpredictable, at the level both of the
individual mine and of the industry as a whole. While an individual oil well within a proven oil field may turn out to be dry, the reserves and oil grade of
a whole oil field are often relatively predictable in advance. But the grade
(i.e., the metal content, and hence the profitability) of a metal ore often
changes unpredictably as one digs one's way through an ore deposit. Half of
all mines that are developed prove unprofitable. The average profits of the
whole mining industry are also unpredictable, because metals prices are no
toriously volatile and fluctuate with world commodity prices to a much
greater degree than do oil and coal prices. The reasons for that volatility are
complex and include the lower bulk and smaller amounts consumed of
metals than of oil or coal (making metals easier to stockpile); our percep
tion that we always need oil and coal but that gold and silver are dispensable
luxuries during a recession; and the fact that gold price fluctuations are
driven by factors having nothing to do with the supply of gold and the in
dustrial demand for gold
—namely, speculators, investors buying gold when
they grow nervous about the stock market, and governments selling off their gold reserves.

Hardrock mines create far more wastes, requiring much more expensive cleanup costs, than do oil wells. The wastes that are pumped up from an oil
well and that have to be disposed of are mostly just water, typically in a
waste-to-oil ratio of only around one or not much higher. If it weren't for
the access roads and the occasional oil spill, oil and gas extraction would
have little environmental impact. In contrast, metals constitute only a small
fraction of a metal-bearing ore, which in turn constitutes only a small frac
tion of the dirt that has to be dug up to extract the ore. Hence the ratio of
waste dirt to metal is typically 400 for a copper mine, and 5,000,000 for a gold mine. That's a huge amount of dirt for mining companies to clean up.

Pollution problems are more insidious and much more long-lasting for
the mining industry than for the oil industry. Oil pollution problems arise
mainly from quick and visible spills, many of which it has been possible to avoid by careful maintenance and inspections and by improved engineering design (such as double-hulled rather than single-hulled tankers), so that the
oil spills that still occur today are mainly ones due to human error (such as the
Exxon Valdez
tanker accident), which can in turn be minimized by rig
orous training procedures. Oil spills can generally be cleaned up within a
few years or less, and oil degrades naturally. While mine pollution problems
also occasionally appear as a quick visible pulse that suddenly kills lots of
fish or birds (like the fish-killing cyanide overflow from the Summitville mine), more often they take the form of a chronic leak of toxic but invisible
metals and acid that don't degrade naturally, continue to leak for centuries,
and leave slowly weakened people rather than a sudden pile of carcasses. Tailings dams and other engineered safeguards against mine spills continue
to suffer from a high rate of failure.

Like coal, oil is a bulk material that we see. The gas pump gauge tells us how many gallons we just bought. We know what it is used for, we consider it essential, we have experienced and been inconvenienced by oil shortages,
we are frightened of their possible recurrence, we are grateful to be able to
get gas for our cars at all, and we don't balk too much at paying higher
prices. Hence the oil and coal industries may have been able to pass on their
costs of environmental cleanup to consumers. But metals other than iron
(in the form of steel) are mostly used for invisible little parts inside our cars,
phones, and other equipment. (Tell me quickly without looking up the answer in an encyclopedia: where are you using copper and palladium, and how many ounces of each were in the things that you bought last year?) If increased environmental costs of copper and palladium mining tend to in
crease the cost of your car, you don't say to yourself, "Sure, I'm willing to