Samitri Samarco & Vales Use Of The Failed Fundao Tailings Dam

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

Managing Director

Bowker Assciates, Science & Research In The Public Interest

15 Cove Meadow Rd Stonington Maine 04681

207 367 5145   lindsaynewlandbowker@gmail.com

December 8, 2015 Cove Meadow

 

 

 

 

 

 

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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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