Mining BI Insurance: Remediation and Rehabilitation

  • Date02 August, 2022
  • Author Conrad Biegel

All mines, no matter how vast or intricate, are ultimately temporary and will one day be depleted. When all valuable materials are extracted, or at least those that are cost-effective, mining operations will cease, and the mine will be decommissioned. Whether due to regulation, legal exposure, or for other reasons, the mine’s end of life (“EOL”) will require its operators to consider their obligations to remediate and rehabilitate the site and surrounding environment.

While mines are in operation, the miners should plan for its EOL. They should prepare for what will be necessary to return the mine to nature once operations cease. Estimates of the costs necessary to remediate and rehabilitate the site in the future should be accrued over time as the mine operates. The accounting details, methods of estimating future remediation and rehabilitation costs, and the magnitude of such obligations will be mine-specific, as are the potential impacts of such obligations on any business interruptions that may occur. This being the case, understanding the mine’s method(s) of accounting for remediation and rehabilitation obligations, including whether obligations are fixed, variable, or partially variable to operations, can have a material impact on business interruption loss assessments.

Remediation and Rehabilitation

Remediation – to provide a remedy; to redress, to correct, or to make right.

Rehabilitation – to return something damaged or deteriorated to a prior good condition.

In the context of environmental damage from a mine, remediation and rehabilitation efforts seek to return the site to its original, pre-mining state, or as close as possible. These efforts can include, among others, removal of structures, closing or backfilling the mine, and remediation of potential contaminates that may impact humans, animals, plants, and the water, soil, and air.

Remediation and rehabilitation can be achieved through a variety of methods. Which of these to employ and their effectiveness will depend on, among other things, the location of the mine, the nature of the operations that were located there, human resources in the area, site geography / topography, and environmental requirements imposed upon the mine.

In other words, there is no formula that miners can follow to account for such obligations because the specific factors in play at the mine site will ultimately be the best guide for what needs to be done.

Remediating and Rehabilating Methods

Methods for remediating environmental damage from mining and rehabilitating the site are numerous. For the mine itself and the operating / processing structures and equipment on site, methods focus on decontamination and demobilization. Planning for the site’s long-term future may also be required as part of this process, including consideration of site safety protocols, backfilling or sealing the mine, and/ or legally restricting the site’s use in the future (e.g., deed restrictions or limitations on development).

When rehabilitating damage that mining causes to soil, air, and water, methods typically focus on containment and remediation of polluted areas. Among others, these methods include:

  • Capping and Other Erosion Controls
  • Cleaning, Flushing, Filtering, Washing, etc.
  • Chemical Treatment
  • Detention Basins, Containment Walls, etc.
  • Run-On / Run-Off Controls
  • Disposal or Destruction of Contaminants
  • Remining / Reprocessing

New and developing remediation methods even include phyto- or bio-remediation processes and vitrification of waste materials. Phytoremediation and bioremediation methods employ plants, bacteria, and / or fungi to degrade, stabilize, or absorb certain hazardous compounds or materials.

The vitrification process uses high temperatures to convert certain waste materials into a glass or crystalline structure. This can isolate and stabilize waste materials for long-term disposal, reduce the overall volume of waste, and make materials resistant to leaching, among other benefits.

Accounting and Impact on Business Interruptions

Because mining, extracting, and processing activities give rise to future environmental obligations, miners must account for these obligations in the financial statements by accruing a provision for environmental remediation and rehabilitation. Such obligations are generally recognized over the mine’s operating life, or over the expected economic life of the mining operation or process to which they relate. Obligations are typically valued at the present value of the expected future cost that will be required for remediation and rehabilitation. In certain instances, miners may choose to, or be required to establish a fund in order to set aside money for future environmental obligations.

Depending on the nature of the mining operations and required standards of environmental rehabilitation, EOL obligations can be fixed, variable, or partially variable to mine operations. Fixed obligations include the decommissioning or removal of assets when the mine closes. These obligations are created when the assets are installed but are accrued over time through asset capitalization and depreciation. Variable obligations, on the other hand, can arise from such mining activities as the removal and movement of topsoil, waste rock, and ore. As mining continues and the volume of materials removed grows, so too will the future remediation obligations associated with the extracted materials. When assessing fixed versus variable obligations, it can be helpful to ask: is the underlying activity that gives rise to the obligation variable in nature?

When business interruptions occur at mines, forensic accountants and other claims professionals must consider the extent to which remediation and rehabilitation costs and accruals will continue, or whether variable expense savings may be realized. If the business interruption causes mining operations to cease, variable remediation and rehabilitation expense accrual associated with the expansion of the mine and movement of ore may also cease. This reduction in the variable expense accrual should be considered in the loss measurement. Proper analysis of these somewhat subjective allocations of site and situation-specific variable costs will require discussion with the mine’s operators and an understanding of the mine’s process for estimating accrued obligations.


The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.

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