greatwhitebuffalo
Active member
I don't mine very much. However, I do like to hunt. I'll agree that there's nothing more exhilarating than bonding requirements; but does anyone know if we'll get to hunt these areas??
WOW WYOMING LAND GRAB
- Thread starter 88man
- Start date
seeth07
Well-known member
Can anyone break down in simple man's terms what these bonds are that are being spoke of? I'm really lost here
VikingsGuy
Well-known member
Often, governments protect themselves from a company defaulting on various obligations by requiring the companies they are working with to buy "surety bonds". These are essentially insurance policies purchased by a company that pay out to the government if the company fails under its relevant obligation. Most commonly they are used in government construction. For example, XYZ Construction Co. wins a government contract to build 10 miles of road by a certain date. The government requires XYZ to buy a "completion bond" that will provide that the issuer of the bond, ABC Insurance, to pay for another construction company to complete the job if XYZ were to go bankrupt 6 miles into the job. Similarly, having a company promise to pay for mine clean up 40 years from now isn't a promise that is worth much to the state as it is unlikely that the present company will be around that long - so they require the mining company to buy a bond that will cover mine clean up if the company is not around to pay for it itself. It's economically more efficient than requiring large longer-term "escrows" or reserve funds.
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seeth07
Well-known member
Thanks, cleared up!
greatwhitebuffalo
Active member
Can you please start a separate thread on bonds?
SAJ-99
Well-known member
My bet is probably not. Maybe the state can work something out. I hope.
D
Deleted member 18333
Guest
The bond at my mine is almost twice what it would actually cost to reclaim. No mine I have worked at has been less than 30% higher than actual reclamation costs. I have worked at 5 different mines in wyo, mt and co. Btw, those aml projects are funded by fees on active mines. I pay several hundred thousand in aml fees each year. You have very little reason to be skeptical other than incomplete knowledge of the subject. That is not meant to be condescending. It’s just not something most know about unless they work in the industry
That's been my expierance too. I have worked at a coal mine in MT and Iron Ore mine in MI.
SAJ-99
Well-known member
Keep in mind that the surety bond co is the one taking the risk so it requires a return. The amount of the bond has a lot of assumptions built in regarding the commodity being extracted from the ground and its future demand. If those assumptions are wrong, the insurer ends up owning a huge liability because needless to say, but I will anyway, mining companies have a long and storied history of going bankrupt. They are not exactly the pillar of financial health. Some companies try to self-bond. Good luck with that. The more a state gets burned, the more they want someone else to take on the risk.
D
Deleted member 18333
Guest
Perhaps I am not understanding you correctly but the surety company has no involvement in determining the bond amount. That is entirely determined by the State and company requesting the bond. Wyo example, the state publishes guideline 12. This tells the operator that if you want to move a yard of material, x distance with y piece of equipment then it will cost z. The cost is largely derived from how much contractor companies are charging to move material with that piece of equipment. You can choose to use whatever piece of equipment you want within limits. In Wyo you cannot use your draglines, which are by far the cheapest dirt mover you have. You don't even have to currently own the piece of equipment. However, if you don't then you must purchase that equipment and that purchase price must be incorporated in your bond value. That price is based off current market value of that piece of equipment. The operator does this exercise for all the material needed moved to completely reclaim. You do the same exercise for all demo, remediation, reveg, etc. Some commodities require different remediation and cleanup but the future demand of the commodity plays no part in the calculation of the bond. This goes back and forth between operator and state until the state finally approves a bond amount. The use of third party costs in determining the bond amount is the reason for the big disconnect between required bond value and actual reclamation costs. This protects the state.
When that amount is determined the operator goes shopping for a surety company. The surety company will definitely factor in company strength, company history, commodity history, commodity value and future value when determining what bonding you is going to cost you. They do not tinker with the bond value. They tinker with bond premium cost and collateral requirements. You are correct that the surety company is left holding the liability bag. You are further correct that mining companies have a history of going bust. Some surety companies have written off working with certain commodities altogether. Coal in particular. Of those sureties that still work with coal companies they are far more concerned with the individual mines past, current and future financial health than they are the industry as a whole. The mine I work at for example has a strong past and current view and a moderate future view. It is easy for us to get bonding through surety companies. Our premium and collateral requirements are good, not great. For some of the new players in the PRB, its a totally different story.
Self bonding is going the way of the dodo and for the most part it should. Self bonding is not inherently a bad idea depending on the company but the way Wyo was allowing companies to value their capacity to self bond was just wrong. Wyo has changed it self bonding rules, this is a good thing for the state, and most mines are now bonded through sureties or other tangible assets. IMO, the state and therefore the taxpayer is at a relatively low risk of inheriting a reclamation project that they have to pay for should a company go bankrupt. My experience is in mining so I am not positive if it is the same for O&G but my assumption is that the process is the same. We go through the same process when we want to do exploration drilling for pads and roads so I would assume so do the O&G companies.
SAJ-99
Well-known member
Lots of good details. Thanks. I know the surety co doesn't set the bond amount, but they set the premium amount. I guess my point was is that the entire process is about risk transfer. The state sets the bond amount high because they have been left holding the bag before and want the surety co to take the risk. The surety company wants to make a profit so it needs to set premiums at a level to make a money while taking the potential for default into account. Only thing I would debate is your comment "but the future demand of the commodity plays no part in the calculation of the bond.". I agree it doesn't directly in the bond amount, but it does in the premium. You pointed this out when you said surety companies won't deal with coal miners. If instead of coal in the ground that were some rare material in the ground that was needed to make rechargeable batteries it would change the surety company's pricing. I think you pointed all this out later. Great stuff, thanks for the input.
My main point is that the land wasn't purchased by a mining company, it was purchased by an investment company. That makes me curious as to what the real plan is. Do they maybe re-sell it piecemeal? Someone pointed out earlier there are some potential mining opportunities, more than the obvious cola, oil, gas, which may not be attractive.
D
Deleted member 18333
Guest
I think its an all of the above strategy. I think the end result will include, land sales, leases, royalty collection, mineral right sales, etc. Given where it is, owning the land isn't always beneficial. Some developers don't want to own the land, some do. I think development will not happen any faster than it was going to happen when OXY/Anadarko owned it. I think, but don't know, that the largest amount of development will come from renewable energy. Existing royalty streams from O&G and trona will feed this for some time. Coal is actually fairly small and will only get smaller as the years do on. My experience with PE firms is that they have no desire to run an operating company. They may get one started but will quickly spin it off. I think that is the long term strategy. I think if Biden wins election, they will have renewable energy developers beating the door down to build wind turbines and solar farms. That's going to happen even if Trump wins but will gain greater urgency if a dem takes office. Just a hunch. I could easily be wrong.
BTW, there is a rather sizable known Lithium deposit on this land. Discovered by accident, but it had folks around here worked up for a while.
LopeHunter
Well-known member
I feel as though we took our disappointment in a 3rd party buying the land then found a way to gather, refocus, and dare I say...we bonded.
