An opportunity: Private sector investments in abandoned mine land restoration

Working Lands Investment Partners, LLC completed a U.S. Forest Service grant entitled "Private Sector Investments in Abandoned Mine Land Restoration: Identifying Barriers and Opportunities." The results of this comprehensive analysis identified the potential for significant positive returns by restoring post bond-released mine lands using revenue from timber and existing environmental markets and public funding sources. 

Through this analysis, the project team confirmed that public finance, combined with private equity, can provide attractive risk adjusted returns on investments in restoring Southern Appalachian mine lands. 

The results of this investment analysis include not only reclamation of the lands to more productive uses but a suite of economic returns to local communities, including the creation of jobs that provide livelihood for families in the region. 

The analysis was completed over a range of specific properties in southwestern Virginia. The results demonstrate the potential for high investment returns when the full suite of land stewardship alternatives is considered. 

However, a critical component of the return profile is to incorporate public debt financing in the investment vehicle, which is structured to meet the investment criteria of both the public investor and the private investor. This insight inspires a deep dive into the development of a private-public investment vehicle with a focused investment thesis to transition of the Southern Appalachian coal region’s economy. 

Investment Thesis

There are an estimated 1.2 million acres of post-bond release “legacy” mined lands (post-SMCRA (1977 Surface Mining Control and Reclamation Act)) and “abandoned” mine lands (pre-SMCRA).

These lands, which exist in varying degrees of degradation, may represent an opportunity for private investment in reforestation and the creation of a rejuvenated forest based economy with far reaching social, economic, and financial returns. Three principle considerations required for private investment include: 1) sufficient site quality, 2) positive cash flow in the early years of the investment period, and 3) quantifiable and manageable risks leading to an achievable required rate of return. 

The first consideration is supported by the demonstrated accomplishments of the Appalachian Regional Reforestation Initiative (ARRI). Specifically, the Forestry Reclamation Approach (FRA) has been demonstrated to improve site quality enough to support consideration of private investment in reforestation. Developers of the ARRI have clearly communicated that the FRA methodology has been proven through investments in pilot projects and that the methodology is ready to be scaled up to fit the size of the problem. 

Moreover, the FRA, in conjunction with other biophysical criteria, may also be used to rank and target specific properties for reforestation investment. Going forward, this aspect of the proposed work will be accomplished in close coordination with the ARRI experts and Virginia Polytechnic Institute (VT).

The second consideration is cash generation in the early years of the project. Different ecosystem service markets offer opportunities for revenue at different points in the restoration process, some earlier than others. These include market potential for improved water quality driven by the emerging TMDL regulations, water quantity, stream restoration, and carbon sequestration. 

Equally important is the potential for early contributions to the project provided by New Market Tax Credits, or other public debt financing mechanisms. The optimization of the project cash flows will necessarily be a combination of the opportunities described, and others yet to be discerned, depending on the specific property characteristics.

The third principle consideration is the quantification of portfolio specific and broader market risks, including project risks, property risks, regulatory risks, and financial risks. This risk analysis is a key consideration for the private capital investment decision, and also to determine the required rate of return. This “hurdle rate” is critical to the positive investment decision.  Understanding the management of these risks is very important to the potential for a successful public private partnership in the execution of these projects. 

This objective of the original grant proposal was to evaluate the potential for a $60 million dollar investment commitment to reforestation of abandoned minelands.


Working together with experts from Virginia Tech, Working Lands developed a detailed financial model linked to specific properties using Geographic Information System (GIS) satellite imagery and other spatial layers. This approach allowed for the application of the financial model to specific properties as opposed to just a theoretical exercise.  Each property varied in the mix of acreage that may have included forested acres, pasture, wetlands, streams, varied topography, etc. The stewardship plan for the individual properties and resulting revenue / cost models were thus “calibrated to reality.” 

The results of the financial model were presented for this piece in the context of one example property, allowing for each of the activities that may produce revenue to be “switched on” one by one. This approach allowed for site-specific scenario results using the various land use options and the returns projected with multiple combinations. The options evaluated included forest establishment as a baseline, allowing the addition of revenues associated with carbon sequestration, recreation, and wetland and stream restoration. The model also incorporated the option to leverage capital expense, New Market Tax Credits, and other public financing.

The results for the aforementioned example 717-acre property, without the use of public financing, indicate that an Investor IRR approaching 4.8% is expected.  The results projected with the use of public capital together with private capital improve performance to an expected 6.7% Investor IRR with a 10 year payback. The modeling efforts indicate that depending on the project site, Investor IRR can increase up to 11.3%. 

Next Steps

The results of this analysis set the stage for a deep dive into the structure of an investment vehicle that necessitates both public and private participation. The fund can be further improved by using the social discount rate for the public investment and the alternate rate of return (market rate) for the private capital. 

There are several options for how to most effectively structure the fund. For instance, the public equity recovery can be subordinated to the private capital recovery thus reducing the payback period for the private portion of the fund. 

In this case the public capital would also be returned with its preferred rate of return, the social discount rate following the return of the private capital and its preferred return. Moreover, residual income from the fund can be divided as negotiated at the onset, perhaps 50/50. The public financing component could also be entered into a revolving loan fund that could continue to help finance the restoration of these properties. 

The hope with this approach to funding restoration is to attract private capital to the enterprise while using public capital to reduce risk and improve returns. 

In addition to ecological restoration benefits, the public contribution results in myriad social benefits associated with employment that provides living wages for local families. The goal of this investment vehicle is ultimately to help catalyze concrete economic, social and ecological benefits to communities across Southern Appalachia.  


Daniel Spethmann, Ph.D. is a founding member and Managing Partner of Working Lands Investment Partners, LLC.  He has more than 30 years of experience in natural resource management and helping to raise and place institutional and private capital into ecosystem markets. Dan is completing Doctoral research at Georgetown University this year. He holds a Ph.D. in Forest Economics from Stephen F. Austin State University, an MS in Forestry from the University of Wisconsin Madison, and a BS in Biology from the University of Wisconsin. Dan may be contacted at


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