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Teck Resources Ltd., Canada’s largest coal producer, may be considering selling off assets, a move that a non-profit environmental law firm believes could leave local communities in B.C.’s Interior at risk of holding the bag for massive environmental liabilities.
Enormous waste rock piles at a string of coal mines in B.C.’s Elk Valley have been a decades-long source of water pollution, caused by leached selenium, which is toxic to fish and other aquatic life even at low levels, as well as other contaminants such as calcite, which can solidify streambeds, degrading fish habitat.
“It’s deeply concerning that a company like Teck might sell these assets off to a company that has less resources or commitment to addressing the selenium pollution concerns that have already been created,” said David Khan, a lawyer with Ecojustice.
“We see this time and again in Alberta with orphan wells, and oil and gas wells more generally, being abandoned by their operators after profits have been extracted,” Khan said.
While some companies have gone bankrupt, others have sold wells off to smaller companies that didn’t have the resources to meet their clean-up obligations, he explained.
Teck pled guilty earlier this year to charges under the Fisheries Act and was ordered to pay $60 million in penalties for selenium and calcite contamination from its Fording River and Greenhills coal mining operations.
While the company has invested roughly $1 billion in water treatment facilities and other measures in an attempt to address pollution, selenium continues to leach from mine waste and could pose a threat to fish both in the Elk Valley and further downstream in the United States for centuries. Despite Teck’s investment in a solution, there is no proven technology to address such widespread selenium pollution as seen in the Elk.
In a statement to The Narwhal, the company said: “Teck does not comment on market rumours or speculation.”
A Sept. 21 presentation to investors shows Teck’s focus today is on growing its copper production, with a long-term goal over the next 20-plus years of becoming the “leading copper producer supplying essential metals for a low-carbon world.”
Over the next decade or more, the presentation shows the company expects to continue producing some metallurgical coal, which is used for the production of steel and is sometimes referred to as steelmaking coal, while working to “reduce carbon as a proportion of our total business.”
For some observers, talk of a possible sale has created apprehension about the capacity and willingness of any potential buyers to deal with the legacy of selenium contamination in B.C.
The core issue, Khan said, is that governments need to collect a larger security deposit from mining companies to ensure there is money available for environmental liabilities, in the event that a company is unable to pay to clean up what it leaves behind.
Currently, the provincial government holds $1.197 billion in bonding to cover reclamation of Teck’s Elk Valley mines, half a billion dollars short of the $1.709 billion the government estimates is needed for clean up, according to a spokesperson for the B.C. Ministry of Energy, Mines and Low Carbon Innovation.
In the event of a sale, “before a permit is transferred into the name of the new owner, EMLI conducts due diligence to ensure that the new company understands their obligations with respect to reclamation, and is able to assume that responsibility,” the spokesperson said in a statement.
“The new permittee must post a bond/security equivalent to that held for the previous owner before the permit can be transferred. Once the new security is in place, the previous bond is released to the former owner,” the statement said.
“Regardless of the bond held, companies that take on an existing permit assume both the rights and responsibilities associated with that permit — including the requirements under the Mines Act and Code to reclaim the site,” the spokesperson added.
Though the provincial regulator may not be able to stop the signing of a contract, in practice it could prevent the sale of a mine by refusing to transfer the necessary permits to a company that didn’t post the required reclamation bond, Kristen van de Biezenbos, an associate law professor at the University of Calgary, told The Narwhal.
In that scenario, “what are you buying?” she said. “If you can’t actually operate this mine, then the sale would not be worth anything to you.”
The bigger concern for van de Bienzenbos, is whether the bond required by the government would be enough to cover the eventual costs of clean up.
It’s a concern shared by Calvin Sandborn, legal director of the University of Victoria’s Environmental Law Centre, who said the situation “highlights the problem of inadequate bonding and the vulnerability of taxpayers to ending up paying for clean up.”
“We could be looking at centuries of water treatment at many millions of dollars a year,” he said. And, in a scenario where the owner of a mine fails to clean up, any shortfalls in the bonding are likely to wind up costing British Columbians.
Asked whether Environment and Climate Change Canada could stop a possible sale over concerns that the potential buyer wouldn’t be able to meet its environmental obligations, a spokesperson said in a statement that the department “does not have any regulatory tools to stop or prevent a possible sale.” Any potential mergers would be subject to review under the federal Competition Act but “the Competition Bureau’s mandate relates only to the assessment of competition.”
The coal mines would remain subject to the Fisheries Act, which prohibits substances harmful to fish from being released into fish bearing waters, regardless of who owns the mines, the spokesperson said.
Federal coal mining effluent regulations that would both authorize coal mines to release wastewater and set limits on the harmful contaminants allowed in that wastewater are currently being developed. A fifth round of consultation on the proposed approach to these regulations is planned for this fall.
Seth Feaster, an energy data analyst with the Institute for Energy Economics and Financial Analysis, wrote in a commentary that “Teck may sense that strong recent commodity prices and other global trade factors provide an opportunity to cash out of (metallurgical) coal when asset values are high.”
In an interview with The Narwhal, Feaster said that Teck’s possible exit from metallurgical coal may signal diversified mining companies are feeling the pinch from a financial sector that’s increasingly looking to drop coal from their portfolios.
Khan said Teck is likely in a process of reevaluating its priorities.
“There’s a whole worldwide movement gaining incredible steam to shut down coal burning and coal use across the world to try to maintain our global warming below 1.5 degrees,” he said.
“I’m not that surprised that a sophisticated company is recognizing that coal mining, be it metallurgical or thermal, is not where the future lies.”
But Teck is “walking a tightrope,” he said. “They want to flag to investors that they’re moving towards sectors that would be more in demand in a cleaner economy.”
On the other hand, if the company is looking at selling its coal assets, “they can’t overly malign them in their investor prospectus.”
With the impacts of climate change — including sweltering heat waves and devastating droughts and wildfires — already being felt around the world, work is underway globally to develop lower carbon steel, however production today continues to rely heavily on metallurgical coal.
And, in the short-term, Teck is expected to benefit from high coal prices and demand from China for steel production, RBC Capital Markets analyst Sam Crittenden wrote in a note to clients on Sept. 21.
Looking forward, Crittenden said Teck could also see the value of its shares rising as its Quebrada Blanca phase 2 copper mine project inches closer to completion, increasing the share of its assets tied to base metals.
“However, we note that [metallurgical] coal companies have historically traded below copper producers so if [metallurgical] coal was to weigh on Teck’s valuation, a split into ‘Teck Coal’ and ‘Teck Base Metals’ could unlock value,” he wrote.
In response to the speculation over the future of Teck’s coal mines, Randal Macnair, the Elk Valley conservation coordinator with Wildsight, reiterated the environmental group’s call for Canada’s Commissioner of the Environment and Sustainable Development to launch an inquiry into the federal government’s failure to control ongoing coal mine pollution in the area.
For Macnair, like Khan, discussion of a potential sale or spinoff raises immediate concerns about much-needed investments in the Elk Valley’s water quality.
But at the end of the day it is the regulators that need to ensure the pollution problems are addressed, regardless of who owns the mines, Macnair added.
In July, the Environmental Law Centre at the University of Victoria submitted a request for an inquiry into the failure to regulate water contamination in the Elk Valley to the Canadian commissioner of the environment and sustainable development — Canada’s parliamentary environmental watchdog — as well as the Auditor General of Canada.
In its report the law centre writes that the “failure to use the Fisheries Act and other federal powers to address catastrophic coal mines pollution in the Elk Valley…has directly contributed to one of the most serious and permanent environmental disasters in Canadian history.”
“It is essential that you review the errors made by federal regulators, so that such failures are not made in the future,” it says.
Alongside water quality concerns, communities in the Elk Valley, where many people rely on the coal mines for work, must also confront the challenge of an economic transition as the long-term outlook for metallurgical coal declines.
“We need to recognize that Teck is a corporation and they’re going to make decisions that are best for them and best for their shareholders,” Macnair, who was formerly mayor of Fernie, B.C., said.
“Of course, the thousands of Teck employees who are here in the valley, care deeply and work hard and sincerely to do as good a job as possible,” he said.
“They’re my friends and neighbours … and I see how committed they are to ensuring that our valley succeeds. But Teck as a corporate entity has a very different bottom line objective.”
It’s a transition that’s likely to take place over the course of decades, not just a few years, Macnair said, giving the Elk Valley time to prepare.
“The way I put it to people now is, a young person that gets hired at Teck at 22, 25 years old, they’re probably going to have employment for the rest of their career, it’s the next generation that we really need to start looking at,” he said.
“To make those changes successfully you need to make them now.”
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