Toward Better Measures of Financial Feasibility : Finacial Risk=Environmental Risk

Our current work  at Bowker Associates has been a study of the relationship between mining economics and environmental risk.  We have been looking at this through the only century long compilation of adverse environmental consequence, Tailings Impoundment Failures, 1910-2010. It is well known and undisputed that environmental damages arise mostly from non revenue generating aspects of a mine: its tailings, waste rock and wastewater management.  When there are cash flow crunches, in the absence of regulatory controls which insure continuing adequate levels of mine waste management stewardship, mines that are less adequately capitalized avoid or are unable to attain “best practices”.  To my mind this is the Mt. Polley story.  The record is clear that they have been skating on a thin and vunerable balance sheet since their near bankruptcy following forced closure of the mine due to falling prices in 2001.   The record is clear that their engineer Knight Piesold had encouraged a redesign of the TSF and a reassessment of its Dam Hazard Classification Rating which would obligate the company to a set of specific practices appropriate to a its higher rating as well as requiring more frequent independent dam inspections.  ( Mt. Polley was grandfathered under new requirements because its permit was already active when new statutes were passed)The record is clear that Imperial/Mt Polley Mine Corporation, Mt. Polley resisted and avoided these recommendations and that the issue was cash flow.  In 2013, before the failure, Imperial Metals announced that it could no longer even fund production at its operating mines ( Sterling in Nevada, Huckleberry and Mt. Polley in B.C.) out of cash flow and would have to go to market keep its operations going and meet the outflow necessary to get Red Chris permitted and on line. 


In the course of our research we happened to stumble on an NI 43 101 technical report  filing by Avanti for its  Kisault Mine, a previously mined B.C. site with  a permit pending before the B.C. Ministry of Mines.  We were  shocked  at the very poor caliber of work in this report on “financial feasibility” and on further inquiry found what looks like, in effect, a hostile takeover by its unscrupulous only source of funding a TSX V listed venture capital company.  In effect the entity that applied for a permit no longer exists and has no capital at all.  The Board and key leadership positions were suddenly replaced on December 1, presumably all appointed by the venture capitalist .  There is nothing in the present B.C. mine permitting structure that will brinf this under review even though this mine will become, by 2080 a perpetual treatment mine.  A company that doesn’t even exist now surely can’t be relied on to eiher open and manage this mine responsibly or provide for perpetual treatment from 2080 into perpetuity.

 Few regulatory structures globally have clear or well defined financial capacity standards on entry ( issuance of a permit) and none we have seen include any recognition or understanding of how a disruption in financial viability at the company or mine level can manifest in catastophic environmental loss if left unattended.


British Columbia has no criteria at all which address financial viability with a view to environmental security. It apparently assumes the efficiency and quality of bank and securities markets will ensure that all operators are financially qualified to operate a mine.  They are apparently going to allow Kitsault to continue to operations.  They are apparently not concerned that Imperial Metals doesn’t have cash flow or access to capital still, by its own declarations, to even keep the mines in production.

 The following  is correspondence with a long term member of the B.C. Securities  Commission and a long distinguished engineer ( An FEC)with whom I bat ideas concerns and good papers back and forth.  This correspondence is about a superb paper that I think offeres some real touchstones for building appropriate financial capacity standards into the mine statutes and regulations.  I copied the folk at Info Mine on this, asked them to include this paper in their online library and asked them to please read the Kisault NI 43-101 in light of this brilliant paper.

 Dear Roy,

Thank you for sharing this wonderfully rich and insightful paper:

Samis, M., Martinez, L., Davis, G. A., and Whyte, J. B. “Using Dynamic Discounted Cash Flow and Real Option Methods for Economic Analysis in NI43-101 Technical Reports.” In The Valmin Seminar Series 2011-12 Proceedings, The Australian Institute of Mining and Metallurgy, Publication Series No 3/2012, 149-160 accessed December 2014 at

And  thank you for your ongoing exchange with me on financial capacity and environmental security.  As an expert  and as a co-creator of NI 43 101 in the course of your long term tenure on the B.C. Securities Commission you have a profound understanding of the degree of reliance mine regulation places on the workings of exchanges to pre select viable mine projects and viable miners.  B.C. as you know has no financial capacity requirements in its mine permitting and oversight process relying entirely  on the posted reclamation security as satisfaction of “financial capacity” concerns.

This brilliant paper( Samis, Whyte, Davis, Martinez), which I hope has been or will be widely read and deeply considered by environmental advocates, mine regulators and most especially by those engineering firms who prepare the NI 43 101 technical reports, really crystalized and clarified my own thought on this critical “orphan issue” of environmental risk management of metallic mines, especially their TSF’s.

My notes & quotes and commentary.

“​A further requirement under NI43-101 guidelines is that the technical report must inform the investor about the economic viability of the resource given a suitable project design and using reasonable assumptions about the current and future economic environment. This is an important requirement as it underlies the actual definition of a mineral resource: a mineral occurrence can only be declared a resource if it can be demonstrated that there is a reasonable prospect of economic extraction.”

“It is notable that the analysis supporting conclusions about the possibility of economic extraction is often not performed to the same level of sophistication as the technical analysis supporting conclusions about the quantity and quality of mineral resources.. ”

This point applies in general to mining analysis ..enumerating the volumes of mineralized ore with thousands of beautifully done 3 d graphs and drill core projections and colored  block  models is not the same as “identifying a resource”  It’s not a resource if it cannot be recovered profitably and with adequate levels of environmental security.   That’s just the starting point of “viability” not the proof of viability.

The level of sophistication point is certainly true of the qualifications and caliber of analysis offered in the Kisault NI 43 101.  The “qualified person” standard” has to reach for something more like the caliber of the authors of this excellent paper or you yourself who understand mining thoroughly who are real mining economists. In addition to indepednedent  dam review committees over a mine’s life there needs to be an independent team of qualified mine economists   over the life of a mine.  A “Financial Review Committee” with the mix of skills and expertise of these three authors would seem to be ideal.  I rarely see any interdisciplinary  cross fertilization in any part of “mine vetting”  There is a sort of insular cacooned  “do it ourselves” mentality among a small group of engineering firms .  It needs and NI 43 101 should require expertise from “first source” QPs like this team, like you, like Richard Schodde and others who are “mining economists”.

Their observations on the simplest flattest least insightful tool used in what analysis is done  also has the seeds of what I hope might begin to  evolve into a set of “financial capacity” criteria for use in mine permitting and life of mine oversight..

“Static DCF ignores randomness in cash flow variables: The reliance on only the expectations of uncertain cash flow variables such as metal price excludes a more detailed description of their randomness in the cash flow analysis”

“Static DCF ignores the effects of contingent cash flows and flexibility: Projects incorporate contingencies that cause the structure of cash flow to change with variations in the project environment”

( to me as a risk manager after my deep immersion with Dr. C. on 100 years of TSF failures this is the key issue in evolving financial capacity standards for entry ( issuance of a permit)  and for ongoing risk management viz environmental security)

​”​Static DCF risk adjustments do not recognize the dynamic variation of cash flow risk through time: The use of a single discount rate implies that project cash flow uncertainty increases through time in a regular manner. However, most mine valuation professionals would agree that the cash flow uncertainty changes in a dynamic and erratic manner due to changes in metal grades and prices, operating costs, mining method, exhaustion of tax shields, and tax and royalty rates among other things. A risk adjustment method that responds to changes in cash flow uncertainty would be preferred”.

This is exactly what Dr. C. & I have mapped as the main effect of the modern mining metric on environmental security ( as indicated in manifest loss from TSF failures 1910-2010..if you start with a financially marginal permit holder and or a marginally feasible mine project the environmental risk life of mine is that much higher..”proven reserves” are not “cash in the hole”.  Cash is what is needed to weather these contingencies and continue a high level of stewardship when the crunch is on.

The author’s observations on need for a more dynamic approach to understanding the ‘sensitivities” of a particular project are also foundation seeds for  regulatory “financial capacity standards”


“ single-variable sensitivity analyses superimposed on Static DCF calculations are a useful, but limited, way of describing the uncertainties surrounding a mineral project. “Other analyses” could include Dynamic DCF or RO NPV calculations that incorporate uncertainty analysis techniques such as Monte Carlo simulation or risk adjustments tuned to unique project uncertainty characteristics”


MCE standards are part of the norm in mine planning and TSF design standards but as these authors affirm the range of random events that in turn affect cash flow ( and therefore “environmental security” ) is not now part of the process of entry decisions on “overall viability” ( financial+environmental security) or ongoing “contingency monitoring”( risk management)

I could not do justice to the full value of the approach these authors advocate and hope it will be widely read and deeply considered especially by mine regulators who assume  that financial markets work properly to decide which miners are going concerns and which are not.  A few highlights with greatest bearing on  adequate risk management and the maintenance of adequate financial and environmental security ( you may have gathered my premise is that without  financial security there is no environmental security.)

“Traditionally, quantitative risk assessment within a Static DCF model has been limited to scenario and sensitivity analyses.However, they do not provide any guidance on project risk since they do not define nor provide a summary measure of project risk. ”


Additional Resources On Valuation of Mining Companies & Mineralized Assets

This is a really excellent primer focused on valuation of the mining company ( or from the regulators perspective, “the applicant” The financial risk at a mine which equates to and can manifest in environmental loss  resides partly in the company itself  and partly in the mineralized asset under consideration for permitting.    Both have to be considered ( and neither is now in B.C. nor adequately considered in most regulatory structures.

Who owns and is proposing to develop a given mineralized assets can have as much bearing on “environmental risk” as the geochemistry of the assets and its proposed mine plan and plan of operation.

His paper looks at “valuation” life of mine from the investors perspective  ( or the perspective of an exchange seeking to have quality and transparency in its operations).

“Environmental Security” requires  life of mine ability of the miner to weather the swings  uncertainties and contingencies that affect all miners ( the mega factors over which no individual company has control) and an asset that is only viable in some of the market  conditions that are likely to be encountered over the mine life. ( eg mines that have had or are likely to have  a pattern of price related active and inactive periods involve higher financial risk and therefore higher environmental risk


West Australia Requirements For Availability of Adequate Financial Resources

Click to access 54.pdf

Above is one of many cases interpreting and applying Warden decisions under the  178 Mines Act to deny or take back approvals for exploration & mining based on financial  capacity..available resources. .  In this as  a permit holder had not been able to raise exploration capital through the exchanges and another entity petitioned for repeal of the permit holders rights for failure to evidence capacity to explore the resource I accordance with its promised programme of exploration.

IN others I have read and may soo abstract in a directror of decisions on “adeaquate financial capacity” there are seeds of  better standards for “financial capacity” more thna a letter from some accountant saying that resources are adequate, current resources ( ie not just the most recent annual report)..iei driving toward where is the capital for this specifc project.

Other implied standards in these is the limit of the wardens authority..iei not to certify the over all capacity of the company  just the allocation and availability of resources for the project  which is the subject of the application.

Glad of any examples of useful and appropriate standards you might share via post here

About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2017 we partnered with Daveid M. Chambers, a world leader in responsible mining, in our third joint work on the economics of tailings failures. Bowker, L.N.; Chambers, D.M. In the Dark Shadow of the Supercycle Tailings Failure Risk & Public Liability Reach All Time Highs. Environments 2017, 4, 75. A peer reviewed journal published investigation of the cowboy economics of the supercycle and the resulting escalation on the number and magnitude of catastrophic failures. In 2016 we parnered with Dave Chambers in our 2nd joint work together looking at root causes of failures at a conference . Bowker, L.N.; Chambers, D.M. Root Causes of Tailings Management Failures: The Severity of Consequence of Failures Attributed to Overtopping 1915–2015. In Proceedings of the Protections 2016, Fort Collins, CO, USA, 14 June 2016. [Google Scholar] In 2015 Bowker Associates collaborated with geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of global mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) The third annual update of this globally referenced and used compilation was just released at Researchgate. ( In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp:// and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
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