As a miner, you take on a vital role when it comes to reclaiming the land you disturb during a project. The reclamation standards are agreed upon between you and the governing body. But regardless of your ability to meet your contractual obligations, you need to secure the agreement with a reclamation bond.
Luckily, we are going to reveal everything you need to know about reclamation bonds (including how to get them) in this ultimate guide.
What Is a Reclamation Bond?
A reclamation bond is a performance surety bond usually required by a government body. It ensures that when a mine has reached the end of its purposeful life, the land is restored to its former (or an acceptable) condition, and the monitoring necessary as per the reclamation plan is completed.
Usually, you must acquire the bond before you begin mining or another related activity. With that said, they aren’t restricted to mining-type tasks only. For example, you might need a reclamation bond before carrying out any activity that changes that land to the extent that it won’t recover on its own after the operation (such as waste recycling plants and wastewater disposal units).
Suppose you (i.e., the mining company) do not carry out the reclamation plan. In that case, the government body can claim against your reclamation surety bond to have the company pay for the work to be finished.
Reclamation bonds are an acceptable form of security in many jurisdictions across Canada. However, you also have the option to provide cash or letters of credit as security for the same obligations.
How Do Reclamation Bonds Work?
A reclamation bond is acquired to guarantee the affected land will return to its former glory or an agreed condition once your mining task ends. If you fail to meet the obligations, the surety company will be contacted by the government body to either:
- fund the cost of hiring a new mining company to finish the job.
- manage the land reclamation operation themselves.
Regardless, the surety company will seek reimbursement for the financial expenses incurred. In a nutshell, you are still financially responsible for the reclamation. It’s important to remember that bonds do not operate like insurance coverage.
Here’s a step-by-step guide to provide a clearer illustration of how a reclamation bonds:
- The governing body files a claim against your reclamation bond seeking compensation for the damages caused by you not restoring the land.
- The bond issuer investigates the claims and verifies the information.
- If the surety company finds the claim valid, the governing body receives immediate compensation from the bond provider.
- Once paid, the surety company collects reimbursement from you (i.e., the mine operator liable under the bond agreement).
Who Needs a Reclamation Bond?
Reclamation bonds are primarily required by miners worldwide to ensure they meet the requirements outlined in the reclamation plan.
You should acquire a reclamation bond prior to starting work (i.e., during the development or exploration phase). They tend to start at small bond amounts, but as you continue to disturb the land throughout the project, the costs of reclamation rise, and consequently, the bond amount increases too.
How Do You Secure a Reclamation Bond?
With ConstructionBond, securing a reclamation bond for your project is straightforward. Follow the steps below to get the best deal from Canada’s leading surety companies:
- Begin by completing our simple surety bond quote form.
- Next, our expert team members will review your bond needs.
- Then, we will connect you to one of the country’s best specialist reclamation bond providers.
- Finally, the assigned surety company will contact you to help you acquire the bond you need.
Once the surety company contacts you, they will require a few documents from you to allow them to determine whether they should give you the bond. The required items may include the following:
- A copy of the reclamation plan
- Your mining operation’s financial statements
- The asset class and projections of the mining (This only applies to pre-production and exploration miners.)
- The asset class and operational projects to figure out the margins and future economic solvency (Again, this only applies to pre-production and exploration miners.)
The items above allow the bond provider to determine whether your mining operation is financially healthy and solid enough to receive the bond. A project that isn’t likely to be a profitable endeavour won’t receive reclamation bonds.
How Much Do Reclamation Bonds Cost?
You should expect to pay anywhere between 1% and 2.5% per year of the total bond amount. Your specific percentage rate will depend on a variety of factors, including:
- Your mining company’s credit score — Your business’ credit score impacts your rate. The higher your credit score, the lower your reclamation bond rate and vice versa.
- Your operation’s overall financial strength — You will need to supply your most recent financial statements to the bond company so they can confirm your monetary reliability.
- The project’s viability — If the project stands a high chance of becoming a profitable venture, you are more likely to receive lower reclamation bond rates.
- Your track record of successful reclamation jobs — If you are an experienced mining company and have a clean record (in other words, you have been able to meet your contractual obligations in the past), you’ll typically receive a lower bond rate. Why? Because you are seen as less of a risk by the surety company.
Why Choose ConstructionBond For Your Reclamation Bond Needs?
We help you acquire the reclamation bonds you need from the top surety companies in the country so you can focus on what you do best — mining.
Regardless of your project, we’ve got a bond provider with experience issuing bonds to other companies like yours. We’ve refined our process over the years, saving you time and money.
To get started, all you need to do is fill in our short inquiry form or call our toll-free number.
Frequently Asked Questions
Can Junior Miners in Exploration or Pre-Production Secure a Reclamation Bond?
Yes, junior mining companies can receive surety bonding. We can put you in touch with Canadian experts who specialize in this class of business.
How Long Does It Take to Get a Reclamation Bond in Canada?
Even though underwriting reclamation bonds has proven difficult in recent times, we work with the best surety companies to get you the bond as quickly as possible.
With that in mind, you should expect an average wait time of around 72 hours, provided all the underwriting information and documents are promptly made available.
Why Should You Choose a Surety Bond Over a Letter of Credit?
Most Canadian businesses choose to post surety bond security over a letter of credit due to many reasons, including but not limited to:
- The cost — Surety bonds are far cheaper than letters of credit. Generally speaking, you should anticipate spending anywhere from 1% to 2.5% of the bond’s value per year.
- The security — Surety bonds are based on an unsecured partnership. Depending on your mining company’s financial strength and successful track record, you can secure bonds on one of these bases:
- An indemnity agreement
- An indemnity agreement and an affordable amount of collateral
- The credit capacity — Letters of credit tie up your business’ money. Ultimately, that reduces your ability to gain access to other forms of funding. With surety bonds, however, your money is free, allowing you to easily obtain financing from other sources.
- The defence — Letters of credit can be drawn down at any point, providing zero defence to the company. But with surety bonds, the company requests proof of the default and investigates the situation before approving the claim.
- The handling of claims — With letters of credit, you’re left to handle claims on your own as banks don’t employ claims staff. However, surety companies have dedicated claims teams that deal with disputes and guide the claims process forward.
Who Issues Reclamation Bonds?
Reclamation bonds are issued by licensed specialist insurance providers. We work with Canada’s leading surety companies to ensure you receive the best possible deal and terms.
What Parties Are Involved In a Reclamation Bond?
Like all surety bonds, there are three parties involved. These are as follows:
- The principal (i.e., the mine operator) — You are the principal in this case. You must acquire and retain the bond for as long as needed. Plus, you’re responsible for paying any claims filed against it.
- The obligee (i.e., the governing body) — The relevant Canadian governing body sets the bond’s terms and amount. They hold the right to seek compensation by filing a claim if you fail to restore the land as stated in the contract.
- The surety (i.e., the bond issuer) — The surety company agrees to pay any valid claims made by the obligee. Once they’ve paid, they seek reimbursement from you, the principal. They hold the right to use whatever legal means necessary to receive payment and charge fees or interest.
How Can You Reduce The Cost of Reclamation Bonds?
While you can’t avoid the cost of the bond entirely, there are a couple of ways you can minimize and manage the expense long-term:
- Improve your company’s credit score — Your bond cost will decrease if your company’s credit score increases. To improve your business’ score, try some of the following tips:
- Pay your bills and overhead costs on time
- Continuously use your credit to build strength over time
- Have a credit utilization score of 30% by paying off credit card balances and other debts
- Use a variety of credit types to show financial responsibility in all aspects
- Dispute errors on your credit report
- Only make credit inquiries when necessary
- Avoid claim-triggering behaviours — Prevention is the best method. Make an effort to abide by your contractual obligations. Claims are expensive and can have long-term financial impacts, so avoid doing anything that could trigger a claim.
How Are Claims for Reclamation Bonds Handled?
Before a claim ever arises, you’ll work directly with the bond obligee (i.e., the governing body).
As a professional mining business, you’re well aware of the potential problems and costs involved with land reclamation. Therefore, the obligee only files a claim as a last resort.
When the claim occurs, the surety company will look into it to establish whether it’s valid before compensating the governing body. The bond issuer will then seek to recover the debt through you, the principal.
Which Insurers and Bond Issuers Does ConstructionBond Work With?
We work with a myriad of the country’s best insurers and bond providers, several of which you can find listed below:
- Ace Insured
- AM Fredericks Underwriting Management Ltd.
- Berkley Canada
- CFC Underwriting
- Chubb Insurance
- Chesterfield Canada, Inc.
- Cowan Insurance Brokers
- Chutter Underwriting Services
- Eagle Underwriting Group Inc.
- Elliott Special Risks Ltd.
- First Media
What Other Types of Bonds Does ConstructionBond Offer?
Here at ConstructionBond, we offer a variety of bonds and insurance policies to keep businesses in a multitude of industries thriving.
The bonds and insurance coverage we offer can be split into the categories as follows:
Contractor bonds include a seemingly limitless amount of bond types. These are as follows:
- Payment bonds — Payment bonds are typically used in the construction industry. They are given to contractors to protect everybody who works on a project, including material suppliers, labourers, and subcontractors. By acquiring a payment bond, you’re agreeing to follow through with your responsibility of paying everyone within a reasonable timeframe.
- Construction bid bonds — Bid bonds are financial promises. They tell the project’s owner that you’ve made a bid for the job in good faith and fully intend to enter a contract at the quoted price. In short, they guarantee that you’ll proceed with the job as per your proposed contract. While they are most commonly seen in the construction industry, other sectors are also known to use them.
- Maintenance bonds — Maintenance bonds protect the project owner for a longer time than performance bonds. They’re a lesser-known type of bond in the construction industry and aren’t always required. However, they can be incredibly helpful for better protecting the owner’s investment for a specified duration once the project is complete.
- Site improvement bonds — Site improvement bonds are a type of insurance that contractors must receive when they’re making improvements to a pre-existing structure. For example, if you’re hired to install a new roof on an office block, you’re required to buy a site improvement bond from an insurance company. The bond compensates the project owner if you conduct fraudulent or illegal activity.
- Subdivision bonds — Pay on demand subdivision bonds are becoming more widely accepted by municipalities across the country. They’re used to meet the security requirements under the site plan or subdivision agreement in lieu of a letter of credit. These bonds guarantee that you’ll complete and abide by the obligations listed in the agreement.
- Bad credit bonds — If you have low credit, you often need to approach bad credit surety companies. They have a risk appetite for businesses considered “high risk” based on their credit score, and we can help you access them.
- Labour and materials bonds — Labour and materials bonds are often issued alongside performance bonds (see the end of this list). If you fail to pay for labour and material costs for construction projects, the bond company compensates the participants. The specific costs covered include:
- Surety’s consent or agreement to bond — An agreement bond is a legally binding document that ensures specific aspects of a contract are set in stone. It helps to protect both parties by guaranteeing the following factors can’t be legally altered:
- The sale price
- The conditions of sale
- Interest rates
- Conditions that make it acceptable for the surety’s consent bond to be voided
- Any redemption provisions
- Fiduciary bonds — A fiduciary bond is actually a kind of insurance that protects your business from a range of problems, including embezzlement and fraud. The bond ensures that the individual you put in charge to act on your behalf fulfills their duties ethically, faithfully, and honestly.
- Performance bonds — A performance bond guarantees that you’ll complete the job you were hired to do. It protects private project owners, governing bodies, and municipalities, and guarantees you’ll abide by the obligations outlined in the contract or agreement.
Under this category, we offer various bond types required by Canadian business owners, freight forwards, executors, and more. They are as follows:
- Estate surety bonds — These are utilized when an individual is managing somebody’s property as an appointed guardian or executor. We can help you acquire three types of estate surety bonds, including:
- Guardianship bond — Legal guardians must acquire this bond to protect a minor or incapacitated individual from the mismanagement of their estate.
- Administration bond — Executors need administration bonds to protect the heirs and creditors of the estate against improper asset distribution.
- Foreign executor bond — Executors living outside of the estate’s province must obtain a foreign executor bond to protect the beneficiaries against the mismanagement of the estate.
- License and permit surety bonds — Many government bodies across Canada require businesses to obtain a license or permit before operating. A license and permit bond ensures you stick to the regulations outlined under your license or permit. There are endless kinds of these surety bonds as there are so many industries in the country. However, several sectors commonly needing a bond to operate are listed below:
- Motor vehicle dealers
- Grain dealers
- Electrical contractors
- Real estate brokers
- Direct sellers
- Private investigators
- Highway carriers and bonded warehouses
- Travel agents
- Bonded freight forwarders
- Freight broker bonds — The Federal Motor Carrier Safety Administration in the USA requires freight brokers to obtain a BMC-84 surety bond. The amount must be $75,000, and it guarantees you can legally operate in the United States of America.
- Customs bonds — If you’re temporarily taking goods outside the country, you need to post a bond with the CBSA (i.e., Canada Border Services Agency). Some common types of customs bonds include:
- Carnet bonds
- Non-resident GST/HST bonds
- Customs broker license bonds
- Release of goods prior to payment of duties
- Corporate bonds — Corporate bonds are loans you make to a business when the loan is secured against particular corporate assets. They’re like debentures that require collateral.
- Strip bonds — A strip bond is made when a bond issuer splits the loan principal and the interest payments to sell them separately. It entitles you to one payment when the interest or principal figure is due.
As for developer surety bonds, we help you obtain three main types:
- Tarion marketing and warranty bonds — Tarion bonds are the most cost-effective way of meeting Tarion’s warranty and security requirements. The rates can be as low as 0.5% for experienced condominium developers. Plus, it frees up money to be utilized as project funding.
- Site agreement and subdivision bonds — Subdivision bonds are required by developers to meet the security criteria of the site plan agreement.
- Condominium deposit insurance — The coverage allows developers to use purchasers’ deposits to fund the condominium project. Hard (e.g., labourers, equipment, machinery, etc.) and soft costs (e.g., off-site fees, insurance, land costs, etc.) can be paid for by the buyers’ deposits once the insurance policy is in place. It’s significantly less expensive than other construction financing options.
Otherwise known as general liability insurance for contractors, it’s a policy that provides financial protection to contractors who cause third-party loss, bodily injury, or property damage.
The coverage changes slightly depending on the type of contractor requiring the policy. We help all kinds of contractors across a wide range of sectors find the coverage they need, including: