BLM Identified 11 Types of Financial Assurances Valued at Approximately $837 Million, but These Financial Assurances May Not Fully Cover Reclamation Costs

BLM reported that, as of July 2004, hardrock operators were using 11 types  of financial assurances, valued at approximately $837 million, to cover  reclamation costs on BLM land in 12 western states. BLM reported that it had approximately 2,500 existing notice- and plan- level hardrock operations as of July 2004 and that some of these operations  do not have financial assurances, and some have no or outdated  reclamation plans and/or cost estimates on which financial assurances  should be based. Surety bonds. Letters of credit. BLM reported that the most recent cost estimates for  reclamation required by applicable plans and federal regulations for 43 of  these operations totaled about $136 million, with no adjustment for  inflation; it did not report reclamation cost estimates for the other 5 operations. However, as of July 2004, financial assurances had provided  or were guaranteeing $69 million, and federal agencies and others had  provided $10.6 million to pay estimated reclamation costs for the 48  operations, leaving $56.4 million of reclamation costs unfunded. In addition,  for about half of the remaining 23 operations, cost estimates may be  understated because the cost estimates may not have been updated to  reflect inflation or other factors that could increase reclamation costs. Specifically, these financial assurances were not adequate for  25 of the 48 operations because (1) operators did not provide financial  assurances for 10 hardrock operations, (2) the financial assurances that  were provided were less than the most recent cost estimates for 13  operations, and/or (3) the financial assurance providers declared  bankruptcy and did not have the funds to pay all reclamation costs for two  other operations. However, these corporate guarantees  lost all their value when the operator went bankrupt. BLM’s LR2000 Is Not Reliable and Sufficient for Managing Financial Assurances for Hardrock Operations

BLM’s LR2000 is not reliable and sufficient for managing financial  assurances to cover reclamation costs for BLM land disturbed by hardrock  operations because staff do not always update information, and LR2000 is  not currently designed to track certain critical information. Specifically,  staff have not entered information on every hardrock operation and, for  those hardrock operations included in LR2000, information is not always  current. This  information includes the basic status of operations, some types of  allowable financial assurances, and state- and county-held financial  assurances. Given these limitations, it is not surprising that BLM’s reliance  on LR2000 to manage financial assurances is mixed. In part to compensate  for LR2000 limitations, some BLM offices use informal record-keeping  systems to help manage financial assurances. BLM has taken some steps  and identified others to improve LR2000 for managing financial assurances  for hardrock operations. At the headquarters level,  BLM does not always rely on information in LR2000. Recommendations for Executive Action

To ensure that hardrock operations on BLM land have adequate financial  assurances, we recommend that the Secretary of the Interior direct the  Director of BLM to take the following two actions:  require the BLM state office directors to establish an action plan for  ensuring that operators of hardrock operations have required financial  assurances and that the financial assurances are based on sound  reclamation plans and current cost estimates, so that they are adequate  to pay all of the estimated costs of required reclamation if operators fail  to complete the reclamation, and   modify LR2000 to ensure that it tracks critical information on hardrock  operations and associated financial assurances so that BLM  headquarters and state offices can effectively manage financial  assurances nationwide to ensure regulatory requirements are met. Specifically, we  were asked to determine the (1) types, amount, and coverage of financial  assurances operators currently use to guarantee reclamation costs; (2)  amount that financial assurance providers and others have paid to reclaim  operations that had ceased and not been reclaimed since BLM began  requiring financial assurances and the estimated costs of completing  reclamation for such operations; and (3) reliability and sufficiency of BLM’s  automated LR2000 information system for managing financial assurances  for hardrock operations.
Why GAO Did This Study

Since the General Mining Act of 1872, billions of dollars in hardrock minerals, such as gold, have been extracted from federal land now managed by the Department of the Interior's Bureau of Land Management (BLM). For years, some mining operators did not reclaim land, creating environmental, health, and safety risks. Beginning in 1981, federal regulations required all operators to reclaim BLM land disturbed by these operations. In 2001, federal regulations began requiring operators to provide financial assurances before they began exploration or mining operations. GAO was asked to determine the (1) types, amount, and coverage of financial assurances operators currently use; (2) extent to which financial assurance providers and others have paid to reclaim land not reclaimed by the operator since BLM began requiring financial assurances; and (3) reliability and sufficiency of BLM's automated information system (LR2000) for managing financial assurances for hardrock operations.

What GAO Found

According to GAO's survey of BLM state offices, as of July 2004, hardrock operators were using 11 types of financial assurances, valued at about $837 million, to guarantee reclamation costs for existing hardrock operations on BLM land. Surety bonds, letters of credit, and corporate guarantees accounted for most of the assurances' value. However, these financial assurances may not fully cover all future reclamation costs for these existing hardrock operations if operators do not complete required reclamation. BLM reported that, as of July 2004, some existing hardrock operations do not have financial assurances and some have no or outdated reclamation plans and/or cost estimates, on which financial assurances should be based. BLM identified 48 hardrock operations on BLM land that had ceased and not been reclaimed by operators since it began requiring financial assurances. BLM reported that the most recent cost estimates for 43 of these operations totaled about $136 million, with no adjustment for inflation; it did not report reclamation cost estimates for the other 5 operations. However, as of July 2004, financial assurances had paid or guaranteed $69 million and federal agencies and others had provided $10.6 million to pay for reclamation, leaving $56.4 million in reclamation costs unfunded. Financial assurances were not adequate to pay all estimated costs for required reclamation for 25 of the 48 operations because (1) some operations did not have financial assurances, despite BLM efforts in some cases to make the operators provide them; (2) some operations' financial assurances were less than the most recent reclamation cost estimates; and (3) some financial assurance providers went bankrupt. Also, cost estimates may be understated for about half of the remaining 23 operations because the estimates may not have been updated to reflect inflation or other factors. BLM's LR2000 is not reliable and sufficient for managing financial assurances for hardrock operations because BLM staff do not always update information and LR2000 is not currently designed to track certain critical information. Specifically, staff have not entered information on each operation, and for those operations that are included, the information is not always current. Also, LR2000 does not track some critical information--operations' basic status, some types of allowable assurances, and state- and county-held financial assurances. Given these limitations, BLM's reliance on LR2000 to manage financial assurances is mixed: headquarters does not always rely on it and BLM state offices' reliance varies. To compensate for LR2000's limitations, some BLM offices use informal record-keeping systems to help manage hardrock operations and financial assurances. BLM has taken some steps and identified others to improve LR2000 for managing financial assurances for hardrock operations.