Investment Research
Metals & Mining Brazil’s Dam Collapse Underscores Need for Improved Safety Standards
Alistair Godrich, Director, Research Analyst Lada Emelianova, Senior Vice President, Research Analyst Jennifer Anderson and Nikita Singhal, Senior Vice Presidents, Co-Heads of Sustainable Investment and ESG
The collapse of a Brazilian dam owned and operated by Vale earlier this year has increased scrutiny of safety standards across the mining sector. The collapse near Brumadinho killed at least 160 people and is the second deadly dam failure in Brazil in the past five years.
Lazard, like other investors, considers self-reported safety statistics and external audits completed by company- selected specialists to determine whether a company’s mining is safe and responsible. We have also had a series of meetings with mining companies since this tragedy. We have concluded that the mining industry needs improved global audit standards, alongside particular acknowledgement of the danger presented by upstream tailings dams. We believe that establishing global standards in mining practices and putting safety performance at the centre of companies’ remuneration policies are critical to prevent humanitarian disasters, address environmental risks, and protect shareholder value, especially over the long term. As we discuss below, our proxy voting and guidance will support efforts to establish an appropriate focus on long-term safety, thereby also enhancing shareholder value creation.
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A Systemic Safety Challenge Establishing Global Standards The dam collapse near the town of Brumadinho, Brazil on 25 The failings of the Samarco and Brumadinho dams highlight January 2019 was caused by the failure of an upstream tailings the specific risks posed by the practice of storing wet mining dam. The Brumadinho disaster marked the second industrial tailings, but the mining industry has faced a number of safety accident involving a tailings dam in Brazil in the last five years. challenges in recent years. In 2017, there were a total of 219 coal In 2015, a burst dam at the Samarco mine killed 17 people, and mine accidents in China, causing 375 deaths.4 In February 2019, Vale, and co-owner BHP, are still in negotiations relating to a Glencore announced that a truck belonging to a contractor was lawsuit of approximately $41.5 billion (155 billion BRL)1. The involved in an accident that caused the death of 20 people.5 incident in Brumadinho resulted in a mudslide that killed at Meanwhile, the collapse at Brumadinho occurred despite Vale least 160 people, including mine workers and local residents.2 stating as recently as December 2018 that all of its dams had Meanwhile, the equivalent of 5,500 Olympic swimming passed a semi annual external audit.6 At the industry level, we pools of mining waste spilled into the surrounding area, the believe a more independent oversight of safety—e.g., for tailings environmental impact of which is yet to be fully understood. dams—and the establishment of a global standard are necessary. Currently, individual countries are responsible for setting their What Is a Tailings Dam? own safety standards. Brazil is now looking to decommission all
More than 80 dams in Brazil are built like those at Samarco and upstream tailings dams, joining Chile and Peru. Vale announced Brumadinho. A tailings dam is an artificial reservoir designed to store wet that it intends to decommission all upstream dams over the by-products of the mining process, i.e., tailings. Tailings are stored as slurries—typically above ground—rather than released to the water table next three years at a cost of $1.3 billion (5 billion BRL), while as they contain metal residues and processing chemicals. ArcelorMittal stated that it aims to halt the construction of new An upstream dam is created by the tailings themselves as their edges mines using wet tailings from 2024. At the industry level, the harden to produce walls. The wall grows in increments, built on top of International Council on Mining & Metals (ICMM)—a body previously hardened tailings. Upstream dams seemingly carry a higher risk of failure, particularly in wet weather areas. The structural integrity tasked with improving sustainable development performance of the wall depends on low moisture content within the tailings that form the wall, placing added importance on the proper removal and in the mining and metals industry—announced plans to review recycling of water in the tailings themselves. As such, an upstream dam global best practices by the end of 2019, following growing calls is deemed to be most suitable for facilities in areas with low rainfall, low seismic activity, and relatively flat terrain.3 from a number of mining companies for the creation of a global independent regulator to monitor the safety of tailings dams. It is Downstream dams grow with the wall being reinforced on the down stream section of the dam. This normally requires more material and is hoped that this review will lead to the creation of a classification therefore costlier than an upstream dam. A centreline dam is a mix of system and independent reviews of tailings dams. both of these methods as it builds the wall up using the tailings in the dam, like it does in upstream dams, but also involves reinforcement of the downstream side of the wall. The centreline therefore rises vertically. Downstream and centreline dams (see Sidebar: What Is a Tailings Dam?) are typically more expensive, which will likely st e m bring extra costs to those companies that need to replace their upstream dams or for those looking at new dams with new mine In e se st e m production. While tighter safety standards would likely increase