Study calls for moratorium on new northeast mines

A new study out by the Corporate Mapping Project argues that the local mines play a large role in the decline of caribou populations in the Northeast, and that the proposed economic benefits of the mines are not coming to fruition, and calls for a moratorium on building new mines

According to the study, some scientists are predicting caribou herds located in northeastern BC will go extinct within our lifetimes. “How could this be?” asks the study authors, economist Robyn Allan, financial analyst Peter Bode, Simon Fraser University Assistant Geography Professor Rosemary Collard, and University of BC Associate Professor, Geography Jessica Dempsey. “We were led to believe that environmental oversight introduced decades ago would protect this iconic Canadian species despite the large-scale industrial development that threatens them. We were promised a win-win: thriving caribou and a thriving economy.”

Instead, they say, we are witnessing these herds quickly declining. “Regulatory requirements and legislative protections failed us,” they write. “In 2013, the last member of the Burnt Pine herd fell into a mining exploration pit and died. The region’s other five herds have declined to fewer than 70 animals. The only reason they are hanging on is due to the heroic efforts of First Nations who have resorted to stop-gap measures such as corralling pregnant mothers in pens to protect them from predation.”

Caribou, they say, are not thriving and herd extirpation is on the horizon.

Which might be acceptable if the promised benefits—the taxes, jobs and economic growth—were being realized, but, they say, they have examined the tax, employment and production promises made between 1999–2019 and measured them against actual results and found the results lacking.

“We found that approvals for all three mines were based on unreasonable benefits expectations,” says the report. “Of the $250 million predicted in corporate taxes, net corporate taxes paid, up to and including 2016, were zero.”

According to public records the authors accessed, Western Coal paid corporate taxes in 2010. “However, due to operating losses in the following two years, the mines’ new owner, Walter Energy, reported in its financial statements that those taxes were refunded, taking the cumulative balance for corporate taxes paid back to zero. This means that by 2016, despite all the impact to caribou habitat over the preceding decade and a half, these companies had paid no corporate taxes, in total.”

Of course, that was Walter Energy, who bought the mines at an astronomical price, then watched as the price of coal dropped precipitously. The mines are under new ownership, and have done a much better job, haven’t they?

Not really, says the authors. “After Conuma Coal purchased the three mines out of receivership and reopened them, corporate taxes paid totaled $86 million from 2017 to 2019. However, Conuma’s weak financial performance suggests that even these taxes may be refunded.”

“Habitat-destroying coal mining projects are approved because decision-makers believe financial and economic benefits outweigh the cost of caribou loss,” says the study. “Project proponents submit promises of tax revenue, job creation, production activity and investment during the regulatory review process. Regulators point to these benefits as the primary justification for project approval even while risk to caribou populations is well documented in these same applications. During the assessment process regulators are assured that environmental harm can and will be mitigated, minimizing environmental cost.”

According to the study, the notion that benefits will significantly exceed costs is the underlying assumption in all project approvals during the past two decades, not just for the coal mines of northeastern BC. Projects appear unstoppable because of promises of huge economic returns along with assurances that environmental harm will be mitigated. “While scientists study ecological costs and document how major projects are driving caribou to extinction, and social scientists look to understand social costs and benefits projects have for regional communities, financial and economic impacts are not tracked. The broader public has no way of knowing if the promises of vast economic benefits from resource extraction are being kept.”

It has not, they argue. Employment at the mines, they say, has only hit 60 percent of what was promised and coal production “did not even reach 40 per cent of the level regulators and politicians were led to believe would occur over the period we reviewed.”

These results, say the authors, is not an economic win. Indeed, they say, “when it comes to coal mines and caribou in northeastern BC, the reality is lose-lose.”

The report comes on the heels of news the Canada Enterprise Emergency Funding Corporation announced it would lend Conuma $120 million to cover cash flow needs and to expand the company’s mining footprint.

“Moody’s responded on October 28 by issuing a credit downgrade,” says the authors. “Conuma’s debt is speculative and the company has a high risk of defaulting. That risk is now on the backs of Canadian taxpayers.”

Part of the problem, they say, that between April 2018 and 2020, the company paid US$225 million in dividends to its shareholders including its majority shareholder, AMCI Group. “Insufficient equity was retained within the company to weather the inevitable downturn…Before COVID-19, Conuma was in financial difficulty because of its aggressive dividend strategy.”

This has put the company in a difficult financial position as the price of coal has dropped from near $300 in 2017 to just over $100 earlier this year. “It appears that if Conuma had not advanced US$225 million to its shareholders as dividends,” says the authors, “there would have been no need for the company to go cap in hand to Ottawa.”

The study looks at the public data for the companies that have owned these mines over the last nearly 20 years—Western, Walter and Conuma. This data includes quarterly and annual reports, bankruptcy proceedings and credit rating reports. “This information allowed us to quantify the economic impacts from these mines, which we consolidated into a database for the period 1999–2019. We then compared reported results against the benefits mining companies forecasted in their environmental assessment certificate applications and related technical reports.”

As Conuma is a privately held company, it made it harder to get financial details. This is also why the Trend Mine is not included in the analysis.

Still, they were able to track taxes paid, number of people hired and amount of coal mined.

Paid back

“Over the period of 1999–2019, project proponents promised a total of $250 million in corporate taxes,” says the authors. But only $86 million has been paid (all of that by Conuma). “Promises of corporate tax revenue exceeded actual payments by almost three times. Not only were corporate tax projections aggressively overstated, corporate tax revenue did not begin accumulating until 2017, a full decade and a half later than initially predicted. Up to 2016, net corporate tax paid was zero.”

In addition to overstating taxation revenue to the province, the report says they only employ about half the people they said they would, and are only shipping 40 percent the volume of coal promised. Or, to put that another way, they overstated the job benefits by 1.7 times and the amount of coal shipped by 2.7 times.

This, the authors freely admit, is due to the boom and bust cycle of mining. Since 1999, the mines have been shut down about a third of the time. (Note that while it received its mines act permit in 1998, Willow Creek only opened in 2005; Brule opened in 2004 and Wolverine opened in 2006.)

Land use impacts

Land-use change in the Peace Region has accelerated since the 1980s, exacerbated by the Northeast Coal Project, says the report. They point to a cumulative effects assessment of the Peace River region from 2012, which estimates that at least 67 per cent of the region is now disturbed. “Over a 22-year period from 1990 to 2012, scientists documented a 65.9 per cent loss of high-quality habitat for caribou in the South Peace region, which includes some of the Central Mountain herds.”

One of the biggest contributors to that habitat loss, the report argues, are coal mines. “Open-pit coal mines place a heavy footprint and can result in the loss of a large area of caribou habitat. The disturbance of high-elevation range is particularly damaging for caribou, and open-pit mines are often dug on top of mountains in the very landscape preferred by caribou. Caribou also typically have an “avoidance area” of three kilometres — possibly even four — in each direction from an open-pit coal mine’s immediate footprint.”

And the loss of habitat is long-lasting. Although mine operators are required by BC law to reclaim closed mines, open pits remain pits, says the report. “Reclamation requirements are minimal; for example, operators are required to establish vegetation on the pit floor where ‘safely accessible.’ Landscapes are arguably impossible to fully restore after an open-pit mine is dug. Mining is not a temporary disturbance.”
In addition to the mines themselves, there is also the infrastructure impact—roads, transmission lines, rail lines—which also has negative effects for caribou, “fragmenting habitat and creating linear access features that make caribou more vulnerable to predation.”

This infrastructure also serves other industries, admits the report, and mining is only one extractive activity affecting caribou. “Industrial developments have significant cumulative impacts. As a result, it is not possible to identify the precise percentage of caribou loss caused by mining.”

Still, they maintain that mining has significant impacts. “Scientists and government officials acknowledge the impacts of coal mining on caribou, including during the environmental assessments that companies are mandated to undergo for major project approvals.”

The report notes is that all the mines in the Peace were approved “with a finding of either insignificant impacts on caribou or no impacts on caribou, despite the known adverse effects of coal mining on caribou.” This is because each project is examined based on its own impacts, with little thought given to cumulative impacts or the compounding impacts from previous projects. “The impacts from one project may be relatively small, but the collective impact becomes large, leading to precipitous caribou declines. The limited scope of the environmental assessment review process facilitates species extirpation.”

Finally, the report looks at the “engine of economic growth narrative”. The study authors looked at the predicted mine production output and measured that against production delivered and found only 37 percent of the production capacity applied for and approved by regulators was reached in the period 1999–2019. “With actual production far below productive capacity, economic activity anticipated in project applications would correspondingly be compromised.”

Part of that is due to the fact that production started much later than predicted due to producer-related delays. Willow Creek, for instance, was supposed to be operating in 1999, but didn’t start until 2005. As well, market conditions led to shutdowns, with production stopping while mines were under care and maintenance.

“We also examined corporate profit and loss performance in an effort to illustrate the boom and bust nature of the industry and determine whether coal mining in northeastern BC could be characterized as profitable. We found that during the period 1998–2016 the companies that owned the three mines suffered an aggregate net loss of $1 billion.”

Over the course of 21 years, says the report, only $86 million of the $250 million in tax predicted to flow from the three coal mines we examined was generated, and current prospects are that Conuma will file for refunds of corporate taxes it has paid. “Only 59 per cent of forecasted employment materialized, and jobs were unstable, as the mines were closed on average for nearly one-third of the time. Production at the mines fell short by 63 per cent of the approved capacity, suggesting regional economic growth far below what was expected. The scant benefits that do materialize arrive years later than promised and while the public waits, highly endangered caribou populations continue to be negatively impacted by these mines.

“A small pool of international investors who bought and sold their shares in the companies that owned these mines, and a few private investors who leveraged the value of assets bought out of receivership, seem to be the only significant beneficiaries.

“Meanwhile, caribou continue on their crash course to extinction. The public may think it is allowing regulators to send caribou to their demise for a payoff, but in the case of coal mining in the critical habitat of endangered Central Mountain caribou, the public is hardly being paid, and where it is, that payment is far overdue. Furthermore, the provincial government is subsidizing extinction—and the government is doubling down on these subsidies.”

Ultimately, says the report, this narrative—this myth—of financial benefits to the government and to the economy drives government decision making. But the mines continue to over promise and under deliver.

The study makes four recommendations.

First, it calls for a moratorium on new mines in Central Mountain caribou habitat. “Given the paltry economic performance of the mines we studied, their impact on caribou and the evidence of negative social impacts, a moratorium on new mine approvals should take place.”

Second, they call for a public inquiry into the economic impact of all BC mines. “British Columbians and First Nations deserve thorough accounting of our collective capital in- vestments. To understand economic impact, the government should undertake an independent public inquiry of all existing mines with a view to fully evaluating their costs and benefits. This inquiry would form the basis for a necessary public conversation over what returns and risks the public wants to incur when approving mining developments.”

Thirdly, they ask for legal and policy reform “to ensure rigorous and realistic economic assessment of proposed projects and transparent, accountable tracking of economic impact

Proponent benefit projections should be based on standardized, independently verified best practices that recognize costs and benefits and incorporate a realistic interpretation of business realities. Once a project is approved, companies should regularly and transparently report their performance against their promises. If companies fall short of or exceed their promised benefits, they should provide explanations with a view to informing future regulatory decision-making.”

Finally, it asks for a full accounting of all subsidies to any industries linked to habitat loss and species extinction or extirpation in BC, including for caribou. “In line with international treaties signed by Canada that call for the phase-out of subsidies linked to biodiversity loss and climate change, subsidies that incentivize species decline and biodiversity loss should be catalogued and beneficiaries identified. Once this information is available, it can inform subsidy elimination and/or redirection.”

The study was conducted by the Corporate Mapping Project, a “research and public engagement project investigating the power of the fossil fuel industry in Western Canada, led by the University of Victoria, Canadian Centre for Policy Alternatives (BC and Saskatchewan Offices) and Parkland Institute”—and partially funded by the Social Science and Humanities Research Council of Canada.

Local and industry response to the report has been mostly negative.

The Mining Association of BC (MABC) issued a release taking issue with the “misrepresentation of facts” in the report, and “their inaccurate reflection of the mining sector’s commitments to the protection of caribou and caribou habitat and the communities where mines operate.”

Michael Goehring, President & CEO of MABC says the organization has been a strong supporter of recovery efforts for southern mountain caribou, including the Intergovernmental Partnership Agreement between Canada, BC, West Moberly and Saulteau First Nations.

“Our members have demonstrated their commitment by contributing over $6 million towards research, habitat restoration and Indigenous led maternal penning programs. They have also proactively surrendered, deferred or restored over 400,000 hectares of high value habitat, equal to 63 percent of the coal license reserves in the Central Group herd area.”

He says the report alleges mines in Northeast BC have not delivered their predicted economic benefits, but, he says, “this conveniently ignores the reality that low commodity prices caused the mines to close. The resource remained in the ground, however, and upon reopening the mines support thousands of jobs, hundreds of millions of dollars in economic activity and tens of millions of dollars in revenue for governments annually. For the local communities of Chetwynd and Tumbler Ridge, this meant $140 million in revenue for 130 small, medium and Indigenous affiliated businesses in 2018 alone.”

He also takes issue with the report’s claim that government subsidizes mining. “This is patently false. Our sector has contributed more than $4 billion in direct payments to government since 2015 – revenue essential to support the public services we all rely on. Provincially, BC’s mining sector generates more than $12 billion in economic activity annually and supports 35,000 high paying jobs in every corner of our province. Our low carbon minerals and metals account for 24 percent of BC’s total exports.”

We expect to have a more in depth response from Conuma for next issue.

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Trent is the publisher of Tumbler RidgeLines.

Trent Ernst
Trent Ernsthttp://www.tumblerridgelines.com
Trent is the publisher of Tumbler RidgeLines.

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