ABSTRACT: Hardrock mining companies contribute positively to the U.S. economy. However, they also cause serious degradation to the surrounding environment. According to the Environmental Protection Agency, hardrock mining companies are among the greatest polluters in the United States. Mining companies are responsible for satisfying legal obligations arising under environmental laws that include cleanup and exit costs for all mines shut down. These environmental liabilities are called asset retirement obligations and under FAS No. 143, U.S. mining operators are required to recognize their asset retirement obligations upon acquisition or construction of their mines. In this paper, we examine the financial reporting for asset retirement obligations for gold mining companies. Based on a simple ratio analysis, it appears that top U.S. gold mining operators have sufficient financial resources to meet their future asset retirement obligations. However, when we conducted sensitivity analysis to exclude intangible assets and to adjust the value of the asset retirement obligations, we found that firms are not likely to have sufficient financial resources to meet their obligations. Current financial assurance mechanisms do not consistently and effectively result in firms meeting their asset retirement obligations. As a result, U.S. taxpayers can be left with the costs of cleanup and reclamation.
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1 December 2010
