Sisson Mine review finds company underestimated costs by millions, 50% under actual cost

13 07 2015

Northcliff Resources underestimated costs to build water treatment plant and restore tailings pond: report

By Julianne Hazlewood, CBC News Posted: Jul 13, 2015 6:00 AM AT Last Updated: Jul 13, 2015 6:00 AM AT

President and CEO of Northcliff Resources, Chris Zahovskis, on the Sisson project site, north of Fredericton.

President and CEO of Northcliff Resources, Chris Zahovskis, on the Sisson project site, north of Fredericton.

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The company proposing the open-pit Sisson mine has underestimated the costs to build the water treatment plant and restore the site after the mine shuts down by millions of dollars, according to a third-party review commissioned by the New Brunswick Department of Energy and Mines.

The report by the engineering company Amec Foster Wheeler, which aims to determine whether the costs given by Vancouver-based Northcliff Resources are reasonable, was obtained by CBC News through the Right to Information Act.

“The reclaim water clarification plant capital costs appeared to be underestimated by approximately 50 per cent and the operational costs for post-closure are also considered low,” said the report dated April 2015.

The Sisson mine would be built on 12.5 sq. km of land, north of Fredericton near Napadogan.

The report goes on to say the cost to restore the tailings pond after the mine closes is also low “as a result of apparently low unit rates and the underestimation of some material quantities required for closure.”

The report also said the cost to build and operate the ferric plant, another water filtering plant that would be built on the Sisson site, seems in line with costs of other similar projects.

Northcliff Resources provided cost estimates through the project’s feasibility study and mining and reclamation plan, which were completed by external consulting firms.

The price tag to build the water clarification plant was estimated to be nearly $11 million, but the engineering company hired by the government said the actual cost would be closer to $17 million.

After the mine closes, the open pit would be turned into a permanent lake and the tailings pond would be left as part of the landscape.

The Amec Foster Wheeler report said the mining company hasn’t properly accounted for how much it would cost to haul quarry rock into and around the tailings pond during the restoration.

Northcliff Resource’s environmental impact assessment report states it would cost just over $13 million to produce and place the rock, but according to the government-commissioned report, it would cost in the range of  $40 million.

The engineering company’s report also said Northcliff Resources did not include certain post-closure costs in its estimates, including the construction of a permanent spillway from the open pit lake to Sisson Brook.

Mining company responds

Northcliff Resources has formed The Sisson Partnership with New Zealand company Todd Minerals.

The group declined an interview, saying it is in discussions with the provincial government on the costs and the company would rather not speak publicly until it has something definitive to say.

In a further statement, vice president of public affairs for The Sisson Partnership, Myke Clark, said “Our mining licence application has been made in accordance with government requirements and a third-party review is common.”

“We have not been provided a copy of the third-party report by government and are therefore unable to comment on it. The Sisson Partnership is confident we have drafted a professional, supportable mining licence application and we remain ready to discuss it with the appropriate government department as it makes its way through the permitting process.”

CBC News offered to send a copy of the report to the company.

It’s unclear whether the province will require Northcliff Resources to recalculate the costs outlined in its reports.

Minister of Environment Brian Kenny was not available for an interview with CBC News.

In a statement, Kenny said “The EIA process involves the review of many pieces of information including various reports. In terms of reclamation costs, this is an important aspect of the project that is being considered as part of the overall approval process.”

Underestimate costs, overestimate benefits

Underestimating costs and overestimating benefits is a systematic problem among mining companies, according to Scott Dunbar, associate professor and head of the University of British Columbia mining engineering department.

“Everyone in the mining business is looking for funds, they want their project funded and they want to make it look as good as possible,” Dunbar said.

But even though Dunbar points out it’s common for mining companies to underestimate closure costs, he doesn’t see it as a deliberate or calculating move.

‘If the bond is insufficient, it’s the taxpayer that’s left with it’– Tom Al, University of Ottawa professor

He said average estimates are used to determine the cost for restoring closed mines instead of factoring in the possibility of extreme cases, such as the Mount Polley tailings breach in British Columbia last year.

Tom Al, a professor at the University of Ottawa’s earth and environmental sciences department, said there’s a real danger in Northcliff Resources underestimating Sisson mine costs.

The estimates are used to determine the reclamation bond, which is the amount the mining company provides the provincial government to restore the site after it’s closed.

Al said if the company goes bankrupt and the bond amount isn’t as high as it should be, the province could be left to pay the bill.

“If the bond is insufficient, it’s the taxpayer that’s left with it,” Al said.

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