Tailings Dams and Due Diligence Series – Part I
Questions for the Board, shareholders and potential investors
A large tailings dam has burst. Its contents; millions of tonnes of sludge, a muddy deluge, have spewed forth and destroyed a local village with tragic loss of life. The tidal wave of man-made misery and despair continues seemingly unstoppable contaminating water ways, destroying the ecology so necessary to the local indigenous people, polluting water sources, on its way downstream. What is the overall impact to the local environment? What is the sociological loss? What is the cost of remediation? What is the consequent legal cost? What is the loss of reputation cost? What is the cost of managing the very public outcry and revolt, the world wide furore, the resultant third party funded litigation? Less selfishly, what is the cost to the industry as a whole?
A tailings dam failure is not an isolated event. Failure and loss of control are potentially every day occurrences. It may not be your dam, it may not be in your country or continent, but they do occur. They should not, but they do. Why, is perhaps a technical question or it may be economic, but the failure is not an Act of God. It was preventable; it should have been prevented; but it was not.
Now, failure and loss of control is what management faces every day. It may not be a tailings dam. It could be a truck rollover, it could be a lost time injury, or it could be simply process loss. But in all cases, a failure to control has occurred and there is a subsequent loss. The loss may be small, it may be catastrophic. It may shut down your business. It may send you to jail!
A Board of Directors needs to be satisfied that the business that it oversees is operating in a manner that adequately manages those risks that can cause significant loss. This raises the question: “How would a Board know that its tailings dams are safe?” A similar question can be raised: “How do I know, really know, that all of the significant risks are being adequately managed?” It is not acceptable for a Board to only have a policy. “We are a socially responsible company.” “We are an industry leader in ESG or sustainable development.” The statement is not enough, nowhere near enough. It has to be supported. It has to be supported by metrics that the Board finds acceptable to satisfy their risk diligence; it has to be supportable through any peer review process; it has to be realized that these metrics may be needed in Court as part of any legal consequence of an incident.
They may be needed to keep you out of jail! But surely the Boards of the major international mining conglomerates have these metrics in place. Surely, all Boards would be happy to state that they are satisfied that their risks are being adequately managed. Well, if they did, and critically, if they are using the right metrics, then preventable major losses would never occur. Other than true Acts of God which cannot be prevented (but it can be very clearly demonstrated that any resultant losses can be mitigated), tailings dam failures are preventable, industry fatalities can be prevented, lost time injury rates should approach zero. Appropriate metrics at the Board level, backed up by diligent management systems and processes are the only answer. A Board that does not have these metrics in place is responsible, and is rightly becoming increasingly held to task on an if-not, why-not basis, to significant loss.
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What about the shareholders? Other than the financial risks to your investment that significant business loss can bring, let’s ask a different question. How do you know that the business you are investing in is doing so in a manner that meets your environmental, sociological or general governance values? What do you look for? Policy statements. Hope that’s not all, but unfortunately, that’s most of what you see. Where are the peer-to-peer comparisons based around real metrics? Where are the public acknowledgements by the world wide focused NGOs of your investments ESG performance? How do you know your ESG values are being met? If you cannot satisfy your value needs from what you see from a business, do you, should you, question your on-going share holding? Food for thought!
The same questions can be used by potential investors when looking for investments that meet their ESG values. The very public movement against negative climate change related businesses may soon be matched with a movement to real scrutiny of effective ESG diligence.
So what are effective ESG metrics for a potential investor, for a shareholder, or for the Board? Well, if you think you know, congratulations. But if you don’t, I will be writing a couple of articles on effective ESG management (and hence the metrics needed) in the near future.
Mr Mackowski is a qualified engineer in mineral processing with over 30 years technical and operational experience in rare earths, uranium, industrial minerals, nickel, kaolin ... <Read more about Steve Mackowski>