BLM Needs to Revise Its Systems for Assessing the Adequacy of Financial Assurances

December 12, 2011

Based on data reviewed from BLM's Bond Review Report, mine operators had provided financial assurances valued at approximately $1.5 billion to guarantee reclamation costs for 1,365 hardrock operations on federal land managed by BLM. We determined that 57 hardrock operations had inadequate financial assurances--amounting to about $24 million less than needed to fully cover estimated reclamation costs. Nevada had the largest number of hardrock mining operations and the largest number of inadequate financial assurances. As we have reported, BLM has taken some steps to strengthen and improve its management of hardrock financial assurances but has not yet addressed the issues we identified in 2008 regarding how the Bond Review Report calculates the total value of those financial assurances that are inadequate. To improve its management of hardrock financial assurances, BLM in 2009 issued IM 2009-153, which, among other things, directs periodic review of reclamation cost estimates for all ongoing operations to ensure the current cost estimate and the amount of the required financial assurance continue to meet applicable regulatory requirements. However, we found that only two BLM state offices--Montana and Wyoming--fully implemented IM 2009-153 by conducting timely reviews of financial assurances and ensuring that financial assurances for hardrock operations under their purview were adequate. Although some BLM state offices reported that they had not always succeeded in conducting reviews of financial assurances in a timely manner, or had not always secured adequate financial assurances, they all had submitted a certification that included an action plan for addressing these deficiencies. In addition, in reviewing the Bond Review Report, we found that the implementation of IM 2009-153 has helped BLM reduce the amount of its inadequate financial assurances since 2008 by about $37 million. Regarding the issue with the Bond Review Report that we identified in 2008, BLM has not modified LR2000 to correct how it calculates the value of inadequate financial assurances. Consequently, the Bond Review Report, as currently designed, provides inaccurate summary information by offsetting the shortfalls of some operations' financial assurances with surpluses from the financial assurances of other operations. For example, the Bond Review Report we examined estimated that the total financial assurances in place were about $7 million more than needed to fully guarantee estimated reclamation costs. However, we found that the report's estimated financial assurances were incorrect. By separately assessing the adequacy of financial assurances on an operation-by-operation basis, we determined that BLM's hardrock financial assurances, when aggregated, were about $24 million less than needed. To ensure that BLM's Bond Review Report provides reliable and accurate data on the total value of inadequate financial assurances, we recommend that the Secretary of the Interior direct the Director of BLM to revise LR2000 and its Bond Review Report to calculate and report the value of inadequate hardrock financial assurances on an operation-by-operation basis in order to more accurately represent the adequacy of BLM's hardrock financial assurances. 

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