Brazilian Paper Estadao reported on December 8th that Vale’s use of the failed Fundao has been at least 28% of total and that there is no legal basis for this use. This article follows up on long standing and widespread reports that Vale, a 50% owner of Samarco, had been using the failed Fundao for its own tailings. After first denying any deposition there, Vale later acknowledged that they had contributed “at most 5% of total ” under a contractual agreement wih Samarco. The December 8th Estadao account reveals that the contractual agreement cited is actually with Samitri, original owner of the rights at Germano. The cited date of that agreement predates the design and construction of the Fundao by many years. (Best data suggest the Fundao first received any tailings c. 2009)
It is not clear whether Vale’s July 2014 transfer of mining rights in two mines at its Alegria Complex to Samarco ( and BHP’s transfer of other interests to JV partner figure into the initial and persistent report that Vale had been transferring “large volumes of tailings” to the Fundao. Th e language used by Vale in responding to these charges of shared use of the Fundao is less than clear and neither Samarco nor Vale has offered historical records in support of public statements.
Vale has acknowledged that its use of the Fundao accounts for about 5% of all tailings there as of the date of failure. BHP.,Vale & Samarco all consistently state ( again with no supporting actual records) that the total content of the Fundao was 52 million cubic meters at failure. ( More recent data reported at Folha on December 12 puts that at 55 million ) That would put Vale’s total contribution over the 6 year life of the Fundao at 2.6 -2.8 cubic million cubic meters.
The5, not disputed by Vale, is an interesting an important revelation for many reasons from a risk management, liability point of view, the point of view from which we have been researching and analyzing this largest ever tailings failure in recorded history.
(1) The legal design approval and use of a tailings dam is pursuant to a permit which would customarily stipulate/assume complete management control by the permit holder. Rate of deposition, rate of dam raise, means and methods of deposition, and profile of deposited tailings are all critical to dam stability, especially in an upstream dam, the type of construction at the Fundao.
(2) Unless specifically referenced in the permit or any subsequent amendments, no external or prior agreement can modify or over ride any provisions of the permit. Did the permit allow Vale’s use and under what terms and conditions? Did the design plan for an accommodate both Samarco’s and Vale’s planned use?
(3) How was the actual deposition of Vale’s tailings managed to account for volume, characteristics of materials deposition, and placement in accordance with design guidelines.?
(4) Did the permit for the Fundao make any stipulations viz compliance with all guidance on Fundao’s design?
(5) A contract can’t supersede or contradict law. subsequent changes in law or regulation would nullify any contracts or agreements unless the law foolishly. as most do, applies only to permits issued after the effective date of the new law (ie grandfathers all already permitted mines)
(6) This makes Vale presumptively co responsible for the failure at the Fundao. notwithstanding any language between Vale and Samarco stipulating that Samarco is solely responsible.
Samitri Samarco Vale BHP
Samarco was effectively created out of a 1973 joint venture agreement with Samitri ,original leaseholder which traded a $ 600 million investment by Samitri for Samarco’s promise that proceeds would build a transporation export system that would make Samitri product deliverable to USA markets. Samitri sued Samarco for fraud alleging that Samacro never intended to create access to U.S. Markets and, in fact, hadn’t accomplished that. Samitri sued Samarco for fraud alleging that Samacro never intended to create access to U.S. Markets and, in fact, hadn’t accomplished that.
Under the agreement Samitri was guarantor of all Samarco’s debts and liabilities, allowing Samarco to seek capital in its own name for the project the two planned.
Pursuant to the original Shareholders’ Agreement, the parties executed a number of so-called stock purchase agreements under which Samitri and the Defendants together purchased a total of approximately $400,000,000 of securities in Samarco (the “Stock Purchase Agreements”). On August 16, 1979, the parties executed an agreement whereby Samitri and the Defendants agreed to guaranty Samarco’s debts and liabilities (the “1979 Guaranty Agreement”). And on July 23, 1982, the parties consented to an additional agreement under which Samitri and the Defendants were required to purchase even more securities in Samarco (the “1982 Memorandum of Agreement”). These agreements entered into after 1974 are collectively referred to by the parties as the “Post-1974 Agreements.”
“On December 23, 1982, after learning of the cancellation of certain of Samarco’s major contracts to supply iron ore products to United States purchasers, Samitri sought to withdraw its interest in Samarco and to rescind each of the contracts between itself and the Defendants. Subsequently, on March 22, 1983, Samitri brought this action to obtain, inter alia, a declaratory judgment that it had lawfully rescinded the 1974 and Post-1974 Agreements and a restoration of the status quo ante, including restitution of approximately $200,000,000 which it had paid for securities in Samarco.”
op cit above
BHP Acquires 50% Interest In May 2000
In May of 2000, BHP acquired a 50% interest in Samarco via acquisition of 63% interest in Samitri by CVRD(Vale) from the Arbed Group for $525 million. At the time of this transaction (CVRD of 63% of Samitri) BHP already owned 49% of Samarco dating to 1984 and Samitri owned 51% ( CVRD acquired controlling interest in Samitri). Following the CVRD acquisition, BHP, by previous agreement acquired an additional 1% in Samarco creating the present 50:50 joint venture between Vale ( CVRD) and BHP.
The objective was “to rationalize the Alegria Iron Ore Complex” via the 50:50 joint ownership of Samarco who had already begun that process through its arrangements with and financing from Samitri.
“The agreement between BHP and CVRD will facilitate the restructuring of Samitri and Samarco operations aimed at increased efficiencies, reducing costs and improving Samarco’s product quality.
President BHP Minerals Ron McNeilly welcomed the agreement with CVRD, the world’s largest iron ore producer. ‘It is a practical demonstration of BHP’s portfolio management activities designed to capture synergies in key business areas by partnering with major industry players,’ Mr McNeilly said.
‘Purchase of the additional 1% shareholding in Samarco provides BHP with joint control of a high quality asset which enjoys strong demand for its products. We expect to capture significant operating efficiencies and savings between the neighbouring Samarco and Samitri mines.”
Speaking again in a”claims management litigation support ” voice of a Risk Manager and returning to the Estadao story which points back to arrangements with Samitri, this would seem to suggest that it was BHP’s aim and purpose as well to give two distinct separately permitted mines in the Alegria complex lower costs and better efficiencies through shared infrastructure. Specifically this suggests the possibility that Vales use the Fundao is fully consistent with the intent of the 2000 agreement creating the 50:50 ownership of Samarco.
From a risk management/liability management point of view the question is to what extent the permit conditions provided explicitly for this shared use of infrastructure within the Alegria complex, and whether local permitting officials were aware of these “synergies” and provided appropriately for it in the permitting of each separate mine within the complex.
As a risk manager with considerable expertise in high risk heavy construction, I would say these synergies might make business sense, but they greatly complicate permitting and regulator oversight, as well as complicating proper liability management. It needs much further examination of a great deal more information to assess. Most regulatory and legal frame works would not be set up to take the implications of these “synergies” into account. especially involving high liability elements like tailings dam and waste rock piles.
The Estadao article suggests that what BHP Vale saw as “synergy” was not legal as respects any shared use of the Samarco tailings facility and its permit and that the Government had no “official” knowledge or approval of this particular “synergy”. “Official “here means explicit in the permits and any amendments to them.’
I will be adding more details and structure to this post as new information becomes available.
Lindsay Newland Bowker, CPCU, ARM, Environmental Risk Manager
Bowker Assciates, Science & Research In The Public Interest
15 Cove Meadow Rd Stonington Maine 04681
207 367 5145 email@example.com
December 8, 2015 Cove Meadow