Bonus schemes play a role in tailings dams failures – research

A paper published in the journal Resources Policy states that bonus schemes for middle management employees in mining companies play a role in tailings dams failures.

According to the research article, such compensation packages actively encourage managers to cut costs and increase production, as the material decisions that put into motion such measures lay in their hands and positive results would increase their annual bonuses.

Although most mining companies don’t make public the compensation packages they give their middle management personnel, such incentives are known to be a common practice in the industry. Thus, using the information provided by the two companies that do report them, Newmont Goldcorp (NYSE: NEM, TSX: NGT) and AngloGold Ashanti (JSE:ANG, NYSE:AU), the authors of the study found that some schemes are equivalent, in financial terms, to an equity payment plus a put option.

The number of tailings dam failures has doubled in recent years from 8 in the period 1999–2003 to 16 in 2014–2018

“So the bonus is highly leveraged. Like investment bankers, the person stands to gain a lot if his/her performance is above target, but loses little, if it falls below target,” the study reads. “Year after year, managers keep taking risks with a low probability of occurrence but with potentially catastrophic consequences. These risks are compounded by shortages of experienced staff due to the cyclic nature of the industry and the retirement of the baby-boomer generation.”

Authors Margaret Armstrong, Renato Petterd and Carlos Petterd connected their observations to those in earlier research papers that analyzed certain cases of tailings dams failures and found that either production was increased or costs were significantly reduced in the years leading to the accidents.

The academics report that, for example, prior to the collapse of the tailings facility at the gold and copper Mount Polley mine in British Columbia in August 2014, which resulted in 24 million cubic meters of contaminated sludge and mine waste going into nearby lakes and rivers, Canada’s Imperial Metals (TSX: III) had grown its production by 23% in Q2-2014 from the previous quarter.

Boliden Apirsa, on the other hand, had flat revenues from 1995 to 1997, just before the tailings dam crashed at the Los Frailes lead and zinc mine in Aznalcóllar, Spain, in April 1998. But capital expenditures doubled during this period from $55.4 million to $112.3 million and operating income increased spectacularly from $2.3 million to $84.9 million. “So production costs must have dropped significantly over the period.”

The aftermath of the disaster in Brumardinho following Vale's tailings dam collapse. Photo by Vinícius Mendonça/Ibama, Wikimedia Commons.

In Brazil, production at Vale’s (NYSE:VALE) Samarco iron ore mine had increased by almost 40% in the five quarters just before the accident there in 2015, which killed 19 people and became the country’s worst-ever environmental disaster. Similarly, at the Paraopeba subsection of the Southern System where the Corrego do Feijão dam was located, production was risen by 12% in the five quarters before the Brumardinho catastrophe where almost 300 people died.

“The next question we asked ourselves was: Had an extra tailings dam been constructed to handle this additional quantity of rejects, or was it being pumped into existing tailings facilities? Alternatively, had filter presses or high capacity thickening been introduced to reduce the quantity of water?”, the authors of the paper ask.

After reviewing Vale’s quarterly reports for investors, which list all the major projects in progress, they found that there is no mention of building a new tailings dam or of filter presses. “This means that the existing ones had to cope with the waste from the extra production.”

Off the hook

Except for $42.5 million for the initial clean-up, the paper in Resources Policy highlights the fact that Boliden Apirsa succeeded in avoiding paying for the pollution caused by the tailings dam breach.

“Boliden's legal team and expert witnesses convinced a Spanish court of law that the tailings dam failure was due to geotechnical problems, thereby transferring the responsibility to the companies that had designed and built the dam. An epic legal battle ensued in which the Spanish Ministry of the Environment and the local government of Andalusia attempted to get Boliden to pay for the damage, but failed due to loopholes in the Spanish legal system,” the document reads.

In the case of the Mount Polley mine, Armstrong and her colleagues bring to the forefront the fact that the Independent Expert Engineering Investigation and Review Panel established after the accident found that the failure was caused by the design, which did not take into account the complexity of the sub-glacial and pre-glacial geological environment associated with the Perimeter Embankment foundation.

This has meant that no one has been held responsible for the disaster and, on top of this, the 3-year deadline to lay charges under British Columbia laws passed in 2017, while there is only one year left to lay charges under federal environmental and fisheries law.

The authors of the study refrained from commenting on the legal proceedings involving Vale’s tailings dam failures as they are still in progress.

In their recommendations of what would be needed to stop tailings dam failures, the researchers suggest, besides changes in the processing technology and wider adoption of the Mining Association of Canada’s guidelines issued in 2017, heavier fines and penalties.

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Top 40 miners’ good performance not enough for investors – report

The world’s 40 largest mining companies showed steady growth in 2018 and consolidated the positive performance they had over the past several years, a new report by PwC revealed.

In its Mine 2019: Resourcing the future report, the multinational professional services network states that, as a group, the top 40 mining firms increased revenue by 8% to $683 billion, buoyed by higher commodity prices and a 2% growth in production.

According to PwC, these companies also boosted their cash flows, paid down debt and provided a record dividend of $43 billion to their shareholders.

The firm’s experts highlight the good performance of copper miners such as Freeport-McMoRan, Antofagasta, Jiangxi, First Quantum, KGHM, among others, who comprise over half of the top 40 companies and are responsible for 55% of the global production of the red metal.

As those companies responded to higher copper demand, year-on-year production grew almost 7% and revenue was up 12%. However, 2019 is not looking so good as producers are forecasting a fall in output due to declining grades, higher costs, and the lengthy processes of bringing new projects online in a moment when inventory levels are at ten-year lows.

Coal miners also had a positive 2018, as the black mineral, which supports 38% of the global electricity generation, remained the largest revenue-generating commodity with prices growing by 21% and revenues by 12%.

“Top 40 coal production increased despite the selloff of coal assets by some. Glencore and Yangzhou acquired Rio Tinto’s remaining coal assets in Australia. Coal offtake agreements are often not at spot, explaining the difference between revenue and price growth,” the analysis explains.

PwC predicts that coal demand will continue to rise in the near to medium term due to the above-average economic growth of Asian countries. Past 2023, when renewable energy is expected to reshape the energy mix, coal consumption should plateau.

Also plateauing will be iron ore prices, the report suggests. Following an increase in production in 2018 driven by Australian and Brazilian companies’ expanded mines, demand was fulfilled and prices went down 3%.

The aftermath of the disaster at Vale’s Corrego do Feijão operation in late January, is expected to have a mid-term impact on iron ore prices.

“Forecasts indicate continued steady performance in 2019. Revenue should remain stable, with weaker prices for coal and copper offsetting marginally higher production and higher average prices for iron ore,” Mine 2019 reads.

Climate change and other uncertainties

Despite the generally positive numbers, PwC’s analysis reveals that investors seemed unimpressed last year, judging by market valuations, which fell 18%. “While total market capitalization rose in the first term of this year, it remains 8% down compared to the end of 2017. Over the past 15 years, total shareholders’ return in mining has lagged that of the market as a whole as well as comparable industries such as oil and gas,” the document states.

In the view of PwC’s experts, investors’ reaction indicates that the market, with its perennial focus in the future, has reservations about the mining industry’s ability to respond to the risks and uncertainties of a changing world.

PwC says that when it comes to consumers, miners need to clearly articulate the essential role that they play in meeting their existing and emerging needs

“With strong balance sheets and cash flows, now is the time for the Top 40 to address the issues weighing down market valuations. Climate change, technology and changing consumer sentiment are among the defining business challenges of our age,” the report states. “To restore faith in ‘brand mining’, leading miners need to prove they are keeping up with the pace of change. As an industry, this means transforming their reputation as efficient ‘converters of dirt’ to prominent builders of both economic and societal capital. Prioritising green and customer-centric strategies, enabled by technology, will help earn the trust of stakeholders and enable miners to create sustainable value into the future.”

According to PwC, investors worry about the variety of responses that mining companies give when it comes to climate change and the rising frequency of extreme weather events. While some firms have adopted climate change strategies, others are seemingly indifferent.

In general, the top 40 miners are performing strongly in terms of sustainability reporting but PwC says stakeholders believe that disclosure is not enough and they want direct, measurable and visible progress.

Beyond their reduction in groundwater consumption and targets to decrease greenhouse gas emissions by one digit by 2020, investors seem to want mining giants to invest in green technology and in more environmentally friendly solutions for their respective commodity end uses.

PwC’s document predicts that copper and battery metals stand to gain in this context, as the energy mix moves away from combustion engines to electricity including renewable energy.

“The mining industry will have a window of opportunity over the next few years, created by strong operating fundamentals, to adapt to the growing and changing expectations of stakeholders. By utilising technology to operate safely and more efficiently, addressing global concerns, and maintaining a disciplined strategy to create ongoing value for its stakeholders, the industry can forge a better future for all beneficiaries of mining – industry, consumers, communities and other stakeholders,” the report concludes.

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Minas Gerais signs MoU with tech company to monitor mining tailings dams

Following the collapse of a dam at Vale’s (NYSE:VALE) Corrego do Feijão iron ore mine back in January, the southeastern Brazilian state of Minas Gerais signed a Memorandum of Understanding with tech company Inmarsat to monitor all tailings facilities in the region.

According to Inmarsat, the plan is to provide the state government with a smart monitoring solution which is based on IoT and satellite technology and can provide real-time visibility of conditions at tailings dams.

The technology relies on connected sensors that gather data related to piezometric pressure, pond elevation, local weather conditions and inclinometer readings. These data are aggregated at the ‘edge’ and transferred via a global L-band network to a cloud-based dashboard.

The information in the dashboard then allows companies, auditors and regulators to make decisions related to safety standards.

Under the microscope

Conditions at the over 100 tailings dams that exist in Brazil are being heavily scrutinized after the disaster at Corrego do Feijão, which is located in Minas Gerais and which was not the first one of its kind in the state, as back in 2015 a dam failure at Samarco, BHP and Vale’s joint venture, killed 19 people and became the country’s worst-ever environmental disaster.

In March this year, state authorities placed the Sul Superior dam at Vale’s Gongo Soco mine at level 3 alert, which is the highest classification, as they feared that a landslide at the mine could destabilize the dam. Last week, fragments of the northern slope began to gradually slide into the bottom of the open pit which -according to Vale- reduces the risk of a dam break.

Sul Superior is one of 87 mining dams in Brazil built like the one that failed in January. All but four have been rated by the government as equally vulnerable, or worse. In fact, three months ago, a local court injunction forced Vale to freeze operations at 13 of its tailings facilities. Later on, the world's top iron ore producer was denied stability certificates for at least 17 dams and dikes after their licences expired.

The South American country has also banned the construction of new upstream dams, which are cheaper but less stable than other types of tailings dams, and ordered the decommissioning of existing ones.

Brazilian prosecutors have also conducted a probe in more than 100 high-risk dams across the nation, arguing they doubted the legitimacy of the safety audits carried out at the mines, especially considering that Córrego do Feijão was certified as stable by German consulting group Tüv Süd only days before the accident that killed almost 300 people.

Click here for complete coverage of the dam burst at Vale's Córrego do Feijão mine.

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Wall at Vale’s Gongo Soco pit begins gradual slide; dam holds intact

After months of anticipation, fragments of the northern slope of Vale’s (NYSE:VALE) Gongo Soco mine, in the southeastern Brazilian state of Minas Gerais, has begun to gradually slide into the bottom of the open pit, reducing the risk of a new dam break, the company said on Friday.

“These pieces settled gently at the bottom of the pit with early assessments indicating that the wall is sliding gradually, verifying evaluations that any further slippage should occur without major consequence,” Vale said.

Local authorities had initially feared that a landslide at Gongo Soco could destabilize the nearby Sul Superior dam, causing damages and polluting the nearby town of Barão de Cocais.

Vale said the Sul Superior dam, located just 1.5 km from the mine, remains intact and that it continues to be monitored 24/7 with systems capable of detecting the slightest movements.

Vale, however said the dam, located just 1.5 km from the mine, remains intact and that it continues to be monitored 24/7 via radar, drones and a robotic station capable of detecting the slightest movements.

Sul Superior dam has been at level 3 alert, which is the highest classification, since late March 22. Almost 700 people living close to it were preventively evacuated in early February after monitoring systems detected abnormal movement in the northern slope of the pit.

Though residents of Barão de Cocais later returned to their home, they have been living seen with the possibility of the dam’s rupture and an emergency evacuation.

They have also been living with the recent memory of a dam burst at Vale’s Córrego do Feijão mine, also in the state of Minas Gerais, which killed 42 people and devastated the nearby town of Brumadinho in January.

Under Scrutiny

Brazil has since banned the construction of new upstream dams, which are cheaper but less stable than other types of tailings dams, and ordered the decommissioning of existing ones.

In March, the company was hit by a local court injunction that forced it to freeze operations at 13 of its tailings dams in the South American country. Under pressure from federal and state prosecutors for failing to do enough to prevent the disaster, Vale named company veteran Eduardo Bartolomeo as chief executive to replace Fabio Schvartsman, who stepped down after the incident.

Shortly after, Brazilian prosecutors began probing more than 100 high-risk dams across the country. They say they doubt the legitimacy of the safety audits carried out at the nation’s mines, especially considering that Córrego do Feijão was certified as stable by German consulting group Tüv Süd only days before the deadly accident.

Gongo Soco is one of 87 mining dams in Brazil built like the one that failed in January. All but four have been rated by the government as equally vulnerable, or worse.

The next few hours, experts, will reveal how the Sul Superior dam reacts to the disintegrating debris coming down from the slope, though Vale insists that any further slippage should not have any major consequence.

Click here for complete coverage of the dam burst at Vale's Córrego do Feijão mine.

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Wall at Vale’s Gongo Soco pit begins gradual slide; dam holds intact

After months of anticipation, fragments of the northern slope of Vale’s (NYSE:VALE) Gongo Soco mine, in the southeastern Brazilian state of Minas Gerais, has begun to gradually slide into the bottom of the open pit, reducing the risk of a new dam break, the company said on Friday.

“These pieces settled gently at the bottom of the pit with early assessments indicating that the wall is sliding gradually, verifying evaluations that any further slippage should occur without major consequence,” Vale said.

Local authorities had initially feared that a landslide at Gongo Soco could destabilize the nearby Sul Superior dam, causing damages and polluting the nearby town of Barão de Cocais.

Vale said the Sul Superior dam, located just 1.5 km from the mine, remains intact and that it continues to be monitored 24/7 with systems capable of detecting the slightest movements.

Vale, however said the dam, located just 1.5 km from the mine, remains intact and that it continues to be monitored 24/7 via radar, drones and a robotic station capable of detecting the slightest movements.

Sul Superior dam has been at level 3 alert, which is the highest classification, since late March 22. Almost 700 people living close to it were preventively evacuated in early February after monitoring systems detected abnormal movement in the northern slope of the pit.

Though residents of Barão de Cocais later returned to their home, they have been living seen with the possibility of the dam’s rupture and an emergency evacuation.

They have also been living with the recent memory of a dam burst at Vale’s Córrego do Feijão mine, also in the state of Minas Gerais, which killed 42 people and devastated the nearby town of Brumadinho in January.

Under Scrutiny

Brazil has since banned the construction of new upstream dams, which are cheaper but less stable than other types of tailings dams, and ordered the decommissioning of existing ones.

In March, the company was hit by a local court injunction that forced it to freeze operations at 13 of its tailings dams in the South American country. Under pressure from federal and state prosecutors for failing to do enough to prevent the disaster, Vale named company veteran Eduardo Bartolomeo as chief executive to replace Fabio Schvartsman, who stepped down after the incident.

Shortly after, Brazilian prosecutors began probing more than 100 high-risk dams across the country. They say they doubt the legitimacy of the safety audits carried out at the nation’s mines, especially considering that Córrego do Feijão was certified as stable by German consulting group Tüv Süd only days before the deadly accident.

Gongo Soco is one of 87 mining dams in Brazil built like the one that failed in January. All but four have been rated by the government as equally vulnerable, or worse.

The next few hours, experts, will reveal how the Sul Superior dam reacts to the disintegrating debris coming down from the slope, though Vale insists that any further slippage should not have any major consequence.

Click here for complete coverage of the dam burst at Vale's Córrego do Feijão mine.

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Vale downplays risk of dam break at Gongo Soco mine

Brazil’s mining giant VALE (NYSE: VALE) said Tuesday the risk of a new dam break as a consequence of an unstable embankment at its nearby Gongo Soco open pit, in the southeastern state of Minas Gerais, had decreased.

The miner and emergency services had warned that a section of the now defunct mine had an estimated 10% to 15% chance of disintegrating. If that happened, Vale had said, it would rupture the Sul Superior dam, located only 1.5 kilometers (nearly one mile) away, risking the nearby town of Barão de Cocais.

Vale's Operations Director, Marcelo Barros, said all preventive measures for any possible scenario have been taken. "All the residents of [the potentially affected area] were relocated, we removed more than 3,000 animals and transferred pieces of sacred art to places outside the Self-Rescue Zones (ZAS)," he noted.

Even if  the pit slide doesn't rupture the Sul Superior dam, the emergency level remains at 3, which is the highest classification.

Even if  the pit slide doesn't rupture the Sul Superior dam, the emergency level remains at 3, which is the highest classification.

Almost 700 people living around the dam were evacuated in early February after monitoring systems detected abnormal movement in the northern slope of the pit.

The latest alert comes four months after 242 people were killed when a dam burst at Vale’s Córrego do Feijão mine, also in the state of Minas Gerais.

Brazil has since banned the construction of new upstream dams, which are cheaper but less stable than other types of tailings dams, and ordered the decommissioning of existing ones.

In March, the company was hit by a local court injunction that forced it to freeze operations at 13 of its tailings dams in the South American country. Under pressure from federal and state prosecutors, for failing to do enough to prevent the disaster, Vale named company veteran Eduardo Bartolomeo as chief executive to replace Fabio Schvartsman, who quit after the incident.

Brazilian prosecutors began probing in March more than 100 high-risk dams across the country early. They say they doubt the legitimacy of the safety audits carried out at the nation’s mines, especially considering that Córrego do Feijão was certified as stable by German consulting group Tüv Süd only days before the deadly accident.

Gongo Soco is one of 87 mining dams in Brazil built like the one that failed in January. All but four have been rated by the government as equally vulnerable or worse.

Click here for complete coverage of the dam burst at Vale's Córrego do Feijão mine.

In February, Vale evacuated about 700 people as a “preventive measure” from a tailings dam area of the Gongo Soco mine, near the city of Barão de Cocais. (Image: Google Earth.)

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Iron ore price tops $100 a tonne for the first time in 5 years

Brazil's Vale’s warning  that a tailings dams at its shuttered Gongo Soco mine in Minas Gerais is at risk of rupturing as soon as next week lit a fire under iron ore prices on Friday, sending the steelmaking raw material to a five-year high.

The Chinese import price of 62% Fe content ore jumped 2.5% on Wednesday to trade at $101.71 per dry metric tonne, according to data supplied by Fastmarkets MB. The price of the steelmaking raw material is up 40% year-to-date. The index price for high-grade (65% Fe) Brazilian ore also gained, to reach $115.60 a tonne.

The Gongo Soco mine is around 65kms from the facility in Brumadinho where a dam collapse in January killed more than 230 people. Vale shut Gongo Soco in 2016, and in February this year evacuated 500 people from nearby villages. The dam holds some 6 million cubic meters of tailings, roughly half the volume released in the Brumadinho disaster.

In a note, BMO Capital Markets says while there is minimal risk to human life, "there are still environmental risks and the potential for additional fines and remediation costs should a failure occur":

Certainly, this also raises questions around the stability of Vale’s other nine remaining upstream type dams.

Vale is the world's largest iron ore producer, but due to the curtailments following the Brumadinho dam burst, April shipments from Brazil were about 60% below average levels for the month, according to BMO. At the same time cyclone Veronica hit the Pilbara region, impacting shipments from BHP, Rio Tinto and Fortescue operations in Western Australia.

Record-breaking steel output in China, which imports more than 70% of the world's seaborne iron ore, is also boosting prices, but BMO forecasts prices will drift lower from current levels as domestic Chinese mines increase output and second-tier producers in South Africa, Canada, Mongolia, India and elsewhere pick up the slack.

Port stocks have been drawn down and the investment bank calculates that Chinese domestic ore consumption have jumped to an annualized rate of roughly 210 million tonnes, the highest since 2015 and a whopping 55 million tonnes above average yearly rates recorded in the second half of last year.

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Vale Canada and Terrapure recognized for reclamation efforts

Following the development of a reclamation program that involves the application of treated biosolids to the Central Tailings Area at the Copper Cliff nickel mine in Ontario, Vale Canada and its partner in the project, Terrapure Environmental, received an Environmental Leader Award for Project of the Year.

Instead of incinerating or landfilling nutrient-rich organics, Terrapure worked with Vale to develop a program to apply treated biosolids to its Central Tailings Area for reclamation and revegetation

The awards are presented every year by the Environmental Leader, a Colorado-based trade publication, and they recognize excellence in projects that add significant value to energy, environmental and sustainability management efforts.

In a press release, Terrapure and Vale Canada explained that their work at Copper Cliff allowed the miner to divert over 100,000 tonnes of biosolids from disposal and create a natural habitat on 175 hectares of mine-impacted lands.

The program is also said to have allowed the subsidiary of Brazilian giant Vale to offset conventional reclamation costs and still achieve the results management was looking for.

"Biosolids are a new and innovative approach to tailings reclamation for the mining industry,” Glen Watson, Superintendent of Reclamation and Decommissioning of Vale’s Ontario Operations, said in the media statement. “We’ve had excellent plant growth yield under very challenging conditions where they have been applied in Vale’s Central Tailings Area. The success of this program is something we can all be proud of and learn from in the future.”

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