People like to complain about government mismanagement of money, but a recent report has found that mining companies tend to be terrible at staying within budget. That means companies like Tintina Resources end up having little or no money left for cleanup.
According to Mining Weekly Magazine, Export Development Canada analyzed 78 mining projects worldwide and found that more than a third went over-budget in 2015. That f0llows on a smaller study in 2012 where EDC found that 11 of 12 companies went over-budget.
For the 2015 study, modern projects started between 2005 and 2011 saw the biggest increases in budget overruns. Since 2011, budget overruns have plateaued at 37 percent. But it depends on the metal. Nickel projects returned an average overrun of about 45 percent, while copper and gold projects experienced about 40 percent.
If the study holds true, Tintina Resources is likely to go 37 to 40 percent over budget as it tries to develop the Black Butte mine.
According to the article, EDC Managing Principle Tim Lwin recently told the Canadian Institute of Mining that a comprehensive analysis of a mining company’s feasibility study was vital. “Some companies might call certain studies a ‘feasibility study’ but it’s not,” Lwin said. “You’d be surprised to see how many studies where cost estimates and a lot of other things are not really based on design.”
Some companies might assert they had contingency funds in place. However, Lwin noted this money would be used within project completion at some stage.
Cost overruns increase when inexperienced people are in charge, Lwin said. “In the construction phase [during an upcycle] you also start seeing people doing silly things – basic things that they’re not trained to do,” he cautioned. “That’s when you might find a junior has been doing design work or used someone without proper experience.”
Being the single-project start-up that it is, Tintina Resouces is likely to have a lot of inexperienced people so you can bet they’ll be doing some silly things. And who knows if anyone will go over their feasibility study with a fine-toothed comb? The Montana Department of Environmental Quality won’t – it has barely enough funding to do the bare minimum.
The bottom line is if mining giant Rio Tinto can’t stay within budget, how can tiny Tintina Resources? Australian Mining Magazine writer Cole Latimer says that the mining industry is currently in an era of extreme volatility, where it can experience the swiftest growth in value and one of the sharpest drops, all within a few weeks.
“Up to this point, it has been a tale of decline, of enormous readjustment as the resources industry saw prices whip from unsustainable highs to unsustainable lows, where commodity values could no longer keep afloat many of the smaller to mid-cap players,” Latimer writes.
So once Tintina Resources has dug themselves into a financial hole as deep as their earthen one, what’s to keep them from declaring bankruptcy and leaving Montana with another Superfund site?