Big mining can’t afford to delay Brumadinho response

From what we understand the next ICMM council meeting will be held after the annual Bank America Metals, Mining and Steel conference, which is in mid-May in Miami. The original agenda of that meeting has been reduced to one issue. Dams.

Mining bills itself as an industry that puts the safety of its workers and communities as the primary mission. This proposition is patently unsustainable while there remains any doubt over the structural viability of a dam technology that is central to an estimated 50 per cent of all the world’s tailings management systems

This is an industry that promises shared prosperity in return for the environmental disturbance that is inevitable in extractive industries. Who in Brazil could sit comfortable that this covenant has been fulfilled?

As part of the response strategy in preparation, Australia’s big miners are expected to take the opportunity of reporting season to individually offer an informing lens on the way they respectively manage their tailings processes.

Differing views

There is a need to enter the profit season with some level of sectoral alignment on the nature and quality of these disclosures. It has emerged, for example, that there are differing views here on the classifications of dams. At the same time there is a recognition that there needs to be a like-for-like set of disclosures if community confidence is to be buttressed.

It seems sensible to conclude that these individual disclosures will include some level of detail on whether or not those companies use the upstream dam design that is common to both disasters and is so understandably an instant target of discriminatory dictate from the Brazilian government.

To be clear here, the owner of the Fundao tragedy is Samarco, a company owned equally by Vale and BHP but managed as an unincorporated joint venture, meaning that neither company had the final call over the business.

Samarco’s dam breach swept away whole communities, killing 19 people. It is currently the subject of class actions in Australia and the US and of one of the mining world’s most complicated and complete mitigation projects that will cost both companies billions.

In a commercial sense, Brumadinho is Vale’s calamity alone. While the physical footprint of this disaster does not appear to match that triggered by Fundao’s collapse, it has proved more lethal because so many worked or lived within reach of the torrent.

How, four long years after Fundao, Vale employees dined and worked in the shadow of the dam’s plume is something that the company will need to answer. Doubtless Vale and its executives will be asked whether post-Fundao dam risk assessments included studies on the most likely pathways of accidental tailings discharges. And, if so, what efforts were made to contain the risk.

These are questions that mining boards around the globe will be pushing on their executives with ever greater urgency. That two upstream dams have collapsed in apparently similar circumstances within four years of each other would suggest that there is a fatal flaw in this technology.

It is estimated that there are more than 3500 tailings dams dotted around the Western mining world. As we have said, we have seen estimates that suggest half of them are upstream designs.

Fatal flaws

Directors, who retain personal liability for their companies, will want to understand what the fatal flaws are and what concert of events might trip that flaw.

It has always been presumed, for example, that upstream dams were more secure in arid, seismically stable geographies. Does that still hold?

If so, does the obviously changing climate alter that risk? I mean, a dam that might once have been presumed safe in central Queensland might now be made vulnerable by the apparently increasing propensity for sustained cyclonic rains.

Most of all, I suspect, boards will want comfort on just who and what might sit in the path of any potential breach. A starting point for those whose liability stretches to upstream dams must now surely be that they are vulnerable. In which case boards need full disclosure on what or who might sit in the pathway of any possible breach and what measures management has set in train to mitigate the risk of harm.

Now, as anyone who has got this far in this column might already know, the term upstream dam refers to the way the tailing container is constructed. The tailings are originally contained behind a wall built on the bedrock. When the dam fills, new walls are constructed on dried tailings.

The technical review of Fundao’s failure found this design to be flawed when its wet tailings were allowed to accumulate and come into contact with dried material and when any level of seismic activity delivered unmanageable momentum to the wet stuff. At an unpredictable point, this concert of forces can simply liquefy the dam walls.

The technical investigation of Brumadinho will tell us whether or not this failure is the product of the same combination of moisture, mass and velocity. But everyone one in the sector needs to proceed as if it is and act accordingly.

In repeating accidental history and so awfully amplifying its human toll, Vale has evinced a zero-tolerance reaction from shell-shocked governments.

Muted concern

Vale attempted to anticipate government and regulatory intervention in the immediate wake of the dam failure, announcing on January 29 that it would decommission 10 upstream dams and, as a result, some 40 million tonnes a year would be surrendered over the subsequent three years.

But that has not proven enough. Last week the Brazilian courts ordered Vale to stop using eight dams, three of which are upstream dams and five using the more secure but more expensive downstream method. This has unexpectedly suspended production at the 30mtpa Brucutu mine. As a result a global iron ore system that had appeared headed for surplus this year is suddenly in short supply and prices have surged as China Inc returns from its new year break.

Financially this will deliver an unexpected sugar hit to Vale’s competitors. None will be gauche enough to celebrate this unwelcome gift. Outside of the fact that the spike is the product of intolerable human crisis, there is muted concern about the short- to medium-term outcomes should prices stay higher for longer.

A good six months ago the marketing boss of one of the majors complained to me that iron ore prices were too high. But higher prices are good, right? Well, to a point, yes. But when prices sit peaky for too long then new marginal supplies come in and the sector gets back to its classic boom-bust cycle as the weight of raw materials costs becomes an anchor on steel production and economic growth. According to our marketing guru, the whole system would benefit greatly from a period of circa $US60 a tonne.

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