..sometimes when the storm passes and the dust settles you find the path you have been following has left you standing at the edge of a precipice instead of in the middle of the clearing you imagined the path would lead you to. So it is with our work on TSF’s. We have arrived at a precipice of inconvenient truths and almost incomprehensibly difficult and chaotic barriers to acceptable solutions..it is not even clear that there are acceptable solutions only choices among very unacceptable but still essential inerventions …. and then what happens…?
The only way to understand the whole of a problem, and therefore be able to pose meaningful solutions, is to conduct an inquiry that is truly open. Such an inquiry is guided by questions every step of the way that don’t contain some idea of what we think the answer is. That is the process we have applied to our inquiry about the magnitude of public/environmental liabilities in tailings storage facility (TSF) failures and whether that can be pre funded in some way. That was the work we began the day of the Mt. Polley failure.
My 30 year career is in Risk Management/Environmental Risk Management, Finance and Public Policy with a strong theme of multivariate analysis and other forms of systematic thinking applied to “social problems” and to the formation of sound workable solutions. From that framework, I started looking at Mt. Polley as a case study. My aim was to encourage leaders in policy and advocacy here in Maine to take a fresh look at our 2012 statute and the poorly informed rules that thankfully were not accepted by the Maine legislature (1). Sort of saying look at our statute and regs through the prism of Mt. Polley: here’s an example in history; here’s how it happened; here is what has happened; here is what they have in place to respond to it. What about us here in Maine? What does our statute say about TSF’s? Would our statute have prevented this? Would we have been better prepared to deal with the consequences?
A conversation with a leader in the responsible mining movement for whom I have immeasurable respect and admiration, evolved to looking at the issue of “polluter pays” and to exploring the possibility of funding the enormous unfunded and presently unfundable costs . Specifically we were exploring the feasibility of some sort of risk pool since historically “polluter” never pays and except for a few very large miners like Grupo, “polluter” can’t afford to pay without going bankrupt.
I knew from the outset that the established frequency rates of failure, popularly cited by “the industry” as 1.2%/TSF over the past 100 years, and 0.5%/TSF for” the modern era” were way outside the rules and conditions that would normally apply to risk pools. ( Risk pools normally have to follow the same rules as apply to insurance (events of chance, high consequence but not catastrophic at the scale of global war or a tsunami among a very large pool of “insureds/members”). By definition frequencies this high speak to a century of human error as the cause of failure and notables like Mike Davies have said as much. Every dam review committee concludes that. TSF’s fail because of human error not “Acts of God”. TSF’s fail because miners fail to apply known best knowledge and best practice in the design, construction and management of TSF’s.
I knew that the “universe”, claimed by the mining industry to be 3500 TSF’s was too small for efficient pooling even if one liberally applied the same procedures used to price insurance policies to estimating loss from TSF’s and figuring out the per participant costs. I knew that no single state or province was large enough for an efficient risk pool but forged ahead to see how many individual TSF’s it would take to achieve some tolerable level of efficiency.
To evaluate the feasibility of pooling costs first requires estimating how much loss had to be pooled. We put that that very conservatively at $2.5 billion for this decade.. That’s assuming a a conservative average loss of $300 million for a large failure. In the past two deades among 12 large failures we found economic cost data on 6 that totaled $2.4 billion. That’s an average of $400 million per large TSF failure.
Quite apart from the fact that there is no accurate updated profile of TSF’s , it makes no sense to think of loss “per TSF” with such diversity in total TSF capacity among standing TSF’s. Mt Polley was only about 59.6 million cubic meters at failure and obviously would not have the same fair share as a 1 billion cubic meter Freeport McMoran TSF. The failure rate is more appropriately expressed on a failures per million tons of mine production (5) ..
For a miner as small as Imperial, already skating on a thin balance sheet to think about financing such a large loss out of cash flow is virtually impossible. Pre failure they had announced that they could no longer meet their production goals out of cash flow and would be seeking $100 million in credit markets. Their one principal investor took that debt. There was no sign of market confidence. Their stock plummeted and remains on watch. They announced this week that they have spent $47 million already on the Mt. Polley clean up and have budgeted for up to a $100 million total cost. They are expecting to open Red Chris, a much higher risk mine with only $10 million cash on hand and no access to capital markets while Mt Polley remains closed. Even if clean up costs are $100 million as they hope, it is a questionable proposition financially.
Only the very largest miners in the world can absorb the costs of large TSF failure losses. All choices are equally unacceptable. If held to full account at the original estimates of costs ( which are more in line with actual loss history and documented costs in the past two decades) Imperial would obviously have to declare its little subsidiary bankrupt. If a miner is not held to account for natural resources damages cased by negligence then the only atlernative is that tax payers pay..either by just accepting the damage of absorbing essential remediation and clean up costs.
That production cost, $20/ton, is beginning to undermine the “the mining metric” of “growing the resource through large scale production at ever lower ore grade standards. That 30% rise in production costs mainly attributable to higher energy costs is squeezing Chile and driving their huge capital investment in mining infrastructure and their current effort to justify deep ocean dumping of tailings ( instead of refurbishing and making safe their existing TSF’s or building new one,and squeezing even big miners like U.S. steel who just sought credtor protection on all their Canada holdings.
The margins are thin for all primary metals. Small miners just don’t have the cushion or access to capital for the levels of stewardship required for TSF’s and certainly no capacity to self fund any large loss.
We know that the average spill is about 1/3 of total contents ( Rico/Benito/Diez (2011). All significant spills for which we have costs data from court documents have been over $150 million in total public costs and the average has been $400 million. So there’s no question it makes no sense as a matter of public policy to even think about financing losses. The only feasible strategy is to lower the frequency and severity of losses though application by force of law to best knowledge best practice in every phase of a TSF life..design, construction, active life, stand by life, pre closure and closure.
The risk is in standing operating already permitted TSF’s which like Mt. Polley, maybe weren’t “at risk” when they reopened in 2005 but only became at risk accommodating the greatly increased production volumes per year and exponentially greater expansion of its old TSF designed in 1992. Looking at Mt. Polley as a “case study”, looking at their pancake thin 2013 balance sheet now pushed even more by just the costs of repairing the TSF and initial essential clean up and even if facility might need only minor structural improvements to be made safe for continued operations, where does Imperial get the money to do even that much? Where will the money come from to make the fundamental structural corrections needed to make it safe for operations and safe for closure.?(4)
The one thing that seems very very clear is that we need to start by screening and identifying possibly at risk TSF’s, try to get a sense of costs to prevent failure and work it out from there. With a push from EPA Bingham Canyon addressed its at risk south impoundment that had served since inception of the mine almost 100 years ago The same was done at Red Dog in Alaska ( also ith a push from EPA). But how does a little company like Imperial do that? Are their mineralized assets of a quality that would attract a white knight willing to take on those liabilities?
Risk identification and loss prevention is clearly the best strategy but how does that get done without huge market disruptions and some public cost? .
The other thing that is clear is that to identify and repair at risk currently operating TSF’s will be messy, painful and complicated
.——– Footnotes & End Notes ——-
and we looked only at the frequency of large failures which we defined as more than 1 million cubic meters in outflow.
(4) working per ton of ore produced allows for a more reasonable portrayal of costs among all TSF’s of various sizes and dimensions and to look at costs across a more reasonable base not of “all TS’s) but all TSF’s likely to have a consequential loss..iei those larger than ( we included in our analysis only TSF’s greater than 1 million cubic meters in capacity. We estimate that at 38% of all standing TSF;s. In other words a more likely per TSF denominator would be 1330 and the per tsf more like $2.19 million. And that still leaves the problem that a little facility like imperial at 59.6 million cubic meters shouldn’t bear the same amount as a 1 billion million cubic meter facility. Per ton of ore produced solves that problem .
(5) we are not making any judgment here on the structural soundness of the facility, only using Mt. Polley’s spread sheet as perhaps typical of small mines and trying to make the point that at risk facilities are going to cash strapped to take on any additional costs especially for work that may require a temporary interruption in use and therefore a further impairment in revenue.