Finding & Fixing At Risk TSF’s Still Permitted & Still in Operation

TSF Things Aren't Always What They Seem to be

..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 ——-
(1) https://lindsaynewlandbowker.wordpress.com/2014/08/15/lessons-for-maine-mining-statute-regulations-maines-bald-mountain-in-tailings-dam-failues-this-week-at-mt-polley-british-columbia-and-buenavista-del-cobre-on-the-u-s-border-in-mexico/
(2) https://lindsaynewlandbowker.wordpress.com/2014/10/27/the-calculus-of-environmental-risk-we-the-poeple-pay-180ton-of-ore-produced-miners-pay-15/
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.

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About lindsaynewlandbowker

Bowker Associates, Science & Research In The Public Interest, is an independent non profit providing self initiated pro bono analysis on key issues with a potential for massive adverse environmental impact . Bowker Associates has been an internationally recognized and cited voice in analysis of the Samarco failure, its consequence, and the possibilties for recovery. In 2015 Bowker Associates collaborated with globally respected geophysicist David M. Chambers to recompile global authoritative accounts of significant TSF failures in recorded history and to analyze these data in the context of gloal mining economics 1910-2010 ( Risk, Economics and Public Liability of TSF Failures, Bowker/Chambers July 2015) In 2014 Bowker Associates commissioned globally respected geophysicist and hydrogeologist Dr. David Chambers to undertake two technical works: (1) development of technical go no go criteria for vetting mine applications tp://lindsaynewlandbowker.wordpress.com/2014/01/05/a-new-statutory-regulatory-framework-for-responble-sulfide-mining-should-this-mine-be-built/ and (2) a case study of Maine's Bald Mountain, an un mined low grade high risk VMS deposit demonstrating the efficacy and accuracy of two risk assessment tools in vetting mine proposals https://lindsaynewlandbowker.wordpress.com/2014/02/28/mountain-x-would-you-issue-a-permit-to-this-mine/ In Maine, Bowker Associates has deeply engaged and been a public voice in the Searsport DCP LPG Tank, The Cianbro proposal for a Private East West Toll Road, JD Irvings rolling pipeline of Bakken crude to its plant in St. John and review of Phase II plans at The Callahan Superfund site in Brooksville, Maine, and Maine's revisitation of mining in statute and regulation... Our only “client”: is always “the pubic interest”. Our model is to focus on only one or two issues at a time so that we have a substantive command of the relevant field as our foundation for ongoing engagement. Our core work is in envirommental risk management, science and technology as well as bringing any available “best practices” models to the fore. The legal and regulatory history/best models are also a major thrust of our work in building and evaluating public policy. Director/Principal Lindsay Newland Bowker, CPCU, ARM is a recognized expert in Environmental Risk Management., Heavy Construction Risk Management and Marine and Transit Risks and has more than 3 decades of engagement in buiding public policy. Appointed by Governor Mario Cuomo to New York State Banking Board (served 1986-1996); President New York Chapter Chartered Property and Casualty Insurers; Environmental Committee, Risk and Insurance Management Society; Director, Convenor/Co-Chair Bermuda Market Briefing "From Captive to Cats" Hamilton Bermuda. Published Articles of Significance The Risk Economics and Public Liability of Tailings Facility Failures, co-authored with David M. Chambers, July 2015 Beyond. Polarization: Superfund Reform in Perspective, Risk & Insurance Managing Risk For Loss Prevention & Cost Control (Jan. 24, 1997). Lead Hazards and Abatement Technologies in Construction: A Risk Management Approach CPCU Journal 1997 Employee Leasing: Liability in Limbo Risk Management June 1 1997 Environmental Audit Privilege and the Public interest Risk & Insurance Managing Risk For Loss Prevention & Cost Control, April 1997 Asbestos:Holes In Abatement Policies Need To Be Plugged, Lloyd’s Environmental Risk International, May 1993 Editor Published Letters Evironmental Risk Management Beware of Facile Policies Like Fetal Protection Business Insurance 1995(?) High Court Review May Increase Sale of Bank Annuities Business Insurances August 8, 1995 Professional Profiles Protecting the Big Apple’s Core Managing Risk For Loss Prevention & Control December 1996 Major Career Highlights First rigorous analysis showing Relationship Between declining ore grades and TSF Failures of increasing consequence ( July 2015) FIrst Documentation that Gentrification Has Same Impacts as Unassisted Displacement from Urban Renewal Sites Direted Court Ordered EIS of FHA Mortgage Scandal Created Nation's First Homeownership Program for Low Income People (SHIP) Created Earliest Geographic Information Systems Using Defense Technology Developed By IBM Designed and Conducted Parallel Census Count to Show Systematic undercount in minority neighborhoods Documented Bias in ISO Territory Rating Plans for Private Passenger Auto Insurance Using ISO's own Rating Techniques Demonstrated Inherent Bias in Mortgage Policies of Banks With Inner City Branches Demonstrated that NY Telephones Plan for Area Code Split To accommodate anticipated cell phone demand was not efficient and would exhaust in 5 years ( which it did) Undertook First Systematic Evaluation of Child Protective Services Caseload Using Multi Variate Analyic Techniques Developed Child Protective Caseload Management and Tracking System (CANTS) and directed implementation in 4 client states including Illinois, Florida and New York Created and Ran Office of Risk Management for NYC DEP the Nations largest Water & Sewer Authority . Designed, Created and Administered Nation's First Owner Controlled Insurance Program (OCIP)for High Risk Tunneling Education Masters NYU Graduate School of Public Administration BSC New School For Social Research Maine Public Schools Deering High School
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