than in accordance with accepted industry practices. Rather, we provide this summary as a means of highlighting the potential financial risks that tailings disposal facilities present in modern mining.

The impacts associated with the failure of tailings disposal facilities include the loss of life, contamination of agricultural lands, impacts to natural habitat, and major reclamation of surrounding areas, all of which have high price tags attached. The impacts to the financial prosperity of the mining companies following a tailings impoundment failure emphasizes that the concern extends beyond the cost of business interruption, third party liability, and environmental remediation. Over the last 6 years, there have been several major mine-tailings
failures that have received the focus of the international press. These are tabulated on the back page of this newsletter with the associated commodity, and estimated cost impact to the companies. For most of these companies, the financial impact of the tailings dam failures came at a time when the base and precious metals markets had started to decline.

Massey Coal Slurry Spill, Martin County, Kentucky, October 2000

On October 11, 2000, the fine coal refuse surface impoundment of the Martin County Coal Corporation, owned by A.T. Massey Coal Company, spilled over 250 million gallons of coal waste slurry into the local watersheds of the Big Sandy River, near Inez, Kentucky. The accidental coal slurry discharge occurred from a 2000-acre

Continued **ISSUE NO. 24 — November 2001** 

# Financial Implications in Tailings Dam Management

The management and disposal of tailings resulting from mineral processing presents an environmental concern for mining companies. A primary aspect in addressing these concerns involves the clear definition of corporate environmental management objectives and the establishment of the corporate risk tolerance. Stated objectives can include: meeting the requirements of the host country environmental regulations, meeting “accepted international mining practices,” and complying with World Bank and other international guidelines. Definition of the objectives that a company will strive to meet, needs to be established with a full recognition of the commitment required to meet a high standard, as well as the potential public and investor consequences that occur if a lower standard is established and an accidental tailings release occurs. A discussion of risk management in tailings disposal was addressed by Pincock, Allen & Holt (PAH) in Newsletter No. 11 – October 2000.

This newsletter will focus on the financial
liabilitiesfaced by several companies as the result of failed mine-tailings facilities over the last 6 years. All information used for this article was sourced from corporate annual reports, corporate press releases, and other public domain references. The purpose of this article is to provide information on the resultant financial consequences of failed tailings impoundments. All facilities cited were engineered and operated in compliance with the existing country regulatory requirements in the regions where they were located. PAH does not imply that these facilities were designed, constructed or operated other

Subscription available: one year (12 issues) U.S.$150.00. For multiple copies, address changes, or email subscriptions call 303-986-6950 or email PAH@pincock.com. ANTAMINA COPPER-ZINC
MINE IN PERU ACHIEVES COMMERCIAL PRODUCTION AHEAD OF SCHEDULE

BETHLEHEM STEEL CORP. FILES FOR CHAPTER 11 PROTECTION FROM ITS CREDITORS

BRANCOTE HOLDINGS INCREASES OWNERSHIP TO 74 PERCENT IN ESQUEL GOLD PROJECT, SOUTHERN ARGENTINA

IVANHOE MINES ACQUIRES COPPER-GOLD PROJECTS IN MONGOLIA

CALENDAR PAH NEWS PI 

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Expo-Min America 2001 November 21–25, 2001 Plazoleta del Faro a Colón Santo Domingo, Dominican Republic e-mail: xur@codetel.net.do

New Opportunities Conference Western Investment Conference November 25–26, 2001 San Francisco Marriott San Francisco, California e-mail: johnpanaro@iiconf.com

107th Annual Meeting Northwest Mining Association December 3–7, 2001 Doubletree Hotel, City Center Spokane, Washington e-mail: patb@nwma.org

Gateway to Discoveries Cordilleran Exploration Roundup 2002 January 21–25, 2002 Fairmont Hotel, Vancouver British Columbia, Canada Contact: www.chamberofmines. . bc.ca/rdup20022 surface impoundment, constructed on top of the idled underground mine, after an apparent underground mine collapse. The slurry discharged into two nearby streams, which are watersheds of the Big Sandy
River.

The financial impact of the cleanup costs associated with this spill is estimated to be over $46 million. The company reported that most of the cleanup costs would be covered by insurance; however, an additional approximately $3 million was expended for the cleanup by the company during the last quarter of 2000. For the company, the corporate profit for FY 2000 was $104.9 million, or $42.0 million less than FY 1999, with most of the drop occurring in the fourth quarter.

Aitik Tailings Spill, Sweden, September 2000

On September 9, 2000, production was temporarily suspended at the Aitik open pit copper mine in Northern Sweden following the collapse of a 100-meter
section of the internal containment wall of the tailings dam. The collapse was believed to be due to insufficient perviousness of
the filter drain within the dam. This collapse resulted in the release of water and tailings into the settling pond, and subsequently approximately 1.5 million gallons of excess water containing some residual copper slurry was discharged into the surrounding watershed. The release of excess tailings decant water into the Vassara River watershed during the spring run-off season is common practice, and the release on September 9 was probably within allowable limits according to Boliden.

The mine is owned by Sweden-based, Boliden Limited. Production was stopped at the concentrator until repairs were carried out, and output resumed 3 days later. The company estimated the costs to clean up the spill at around US$500,000 to $1.0
million and announced that the mine would increase production to cover the losses. The financial impact of this incident was minor since the loss of ANTAMINA COPPER-ZINC MINE IN PERU ACHIEVES COMMERCIAL PRODUCTION AHEAD OF SCHEDULE On October 11, 2001, Compania Minera Antamina announced that as of October 1, 2001, the famous Antamina copper-zinc project in northern Peru had achieved commercial production, more than 4 months ahead of schedule. Commercial production is defined as 80 percent of the project’s designed throughput rate, 70,000 tonnes-per-day, over a 90-day period. Compania Minera Antamina (CMA) is owned by BHP Billiton Plc (33.75%), Noranda Inc., (33.75%), Teck Cominco Limited (22.5%) and Mitsubishi Corporation (10%). Commissioning and start-up began in May 2001, and by October 1, the mill had treated more than 6.7 million tonnes of ore. According to the Independent Engineer for the project, Pincock, Allen & Holt, the ramp-up period is continuing on schedule and the project has operated at or above the design capacity for most of the startup period. Antamina will be among the largest and lowest cost copper-zinc producers in the world with annual production of 675 million pounds copper and 625 million pounds zinc.

BETHLEHEM STEEL CORP. FILES FOR CHAPTER 11 PROTECTION FROM ITS CREDITORS At a time in American history when the metals industry is reeling from the uncertain economic climate, it seems all the more poignant to seeone of the metals industries oldest manufacturing companies having to seek protection from its creditors. Established in 1904 in Bethlehem, Pennsylvania, the Bethlehem Steel Corporation grew through its acquisitions of Pacific Coast Steel and Southern California Iron & Steel, and the fabricating business of McClintic-Marshall Construction. During World War II, Bethlehem Steel made one quarter of America’s warship armor plates and one third of the canon forgings shipped with the armed forces. However, since the 1960s, Bethlehem has been at the mercy of the south-east Asian manufacturers, and more recently Eastern European manufacturers, who have been supplying cheaper steel. Under Chapter 11, Bethlehem plans to streamline their production and introduce new technologies.

BRANCOTE HOLDINGS INCREASES OWNERSHIP TO 74 PERCENT IN ESQUEL GOLD PROJECT, SOUTHERN ARGENTINA In the Chubut Province of southern Argentina, a new gold project is taking shape. Minera El Desquite (MED) is the operational vehicle for the joint venture partnership operating the Esquel gold project. MED is owned by Brancote Holdings (74%), Consolidated Press International (Kerry Packer -19%), and a private group of investors (7%). The Esquel gold project covers 433 square kilometers and is 10 kilometers north of the town of Esquel, in the foothills of the Patagonian region. Three major epithermal gold vein structures contain gold and silver, with current resource estimates, at a 1-gram cutoff for gold, at 19.3 million tonnes grading 6.06 grams gold per tonne and 11.1 grams silver per tonne, or 3.8 million contained ounces gold and 6.9 million contained ounces silver. Additional properties, formerly explored by Sunshine Mining, have been acquired in the area. production was only 3 days, and the level of offsite impact was low.

Baia Mare, Romania, January 2000

On January 30, 2000, a tailings dam failure at the Aurul S.A. plant in Baia Mare, Romania resulted in the release of 100,000 cubic meters of cyanide contaminated liquid into a tributary of the Somes/Szamos, Tisza/ Theiss and Danube Rivers, resulting in a fish kill and impacting downstream public water

sources.

The mine is owned by Esmeralda Exploration (Australia 50%) and REMIN S.A. (Romanian registered company 44.8%) and some private Romanian interests (5.2%). The Aurul tailings dam is part of an operation for retreatment of gold tailings from the old Meda tailings pond, and recovery operations were started in May 1999. The tailings dam failure resulted from an overflow of the ponding liquid due to heavy rain and early melting snow. The dam crest was washed away for a length of 25

meters.

On March 15, 2000, the company directors placed Esmeralda into an administration with a Chartered Accounting firm due to lack of cash flow. Operations recommenced on June 13, 2000, but in July 2000, the government of Hungary lodged a compensation claim against Esmeralda for US$179 million in damages for the cyanide spill. In mid 2001, the shares of Esmeralda
were still not relisted on the Australian Stock Exchange.

Los Frailes, Spain, April 1998

On April 25, 1998, a tailings dam failure at the Los Frailes lead-zinc mine at Aznalcollar near Seville, Spain released 1.3 million cubic meters of tailings and 5.5 million cubic meters of tailings water into the nearby Rio Agrio. The tailings material contained sulfur, zinc, copper, iron and lead. Approximately 2,000 hectares were flooded within a 30-kilometer stretch of farmland, however most of the solid material was deposited within 10 kilometers of the mine. 

### Pincock Perspectives**3** 3 The released material was diverted away from Europe’s largest national park, a UN World Heritage Area, the Donana National Park. The tailings release occurred after a 50- meter section of the tailings dam wall ruptured. The mine resumed production in April 1999. Estimated total clean-up costs would be in the order of $120 million plus $12 million to the farmers

The mine is owned by Sweden-Toronto based Boliden Limited. Production began in February 1997, fourteen months prior to the tailings release. In July, 1997, Boliden’s parent company Trellborg International BV,
listed Boliden Limited on the Toronto Stock Exchange and sold Boliden common shares in a public offering in Canada at CDN$16.00 per share. In October 1999, the shares were CDN$4.05. In the yearend results for 2000, Boliden included $150.5 million of write-down and unusual charges
related to the Los Frailes Mine. On September 6, 2001 it was announced that the mine would close, and the share price was CDN$0.255. Earnings per share for Boliden in 1997 were US$0.82 and in 1998 it was a loss of $0.71.

Marcopper Tailings Spill, Philippines,
March 1996

Open pit mining on this copper deposit
had commenced in 1969 from the old Tapian Pit and had continued until 1991. To drain rainwater from the pit, a tunnel was built to the Makulapnit River. When mining of the new San Antonio pit began on March 4, 1992, the tailings were stored in the old Tapian pit, originally on a temporary basis, since no environmental risk assessment study had been carried out. On March 24, 1996, a plug in the rainwater drainage tunnel at theMarcopper copper mine failed. Approximately 1.6 million cubic meters of nontoxic tailing was discharged, with the bulk of the discharge occurring in the first 3 days. The discharge flowed into the Boac River system, on Marinduque Island in the Philippines, and inundated the river with sediment along a length of 18
kilometers of the river channel. This caused flooding as well as loss of access along the river. No lives were lost nor were there any identified adverse health risks.

The Marcopper Mine was owned by Marcopper Mining Corporation (MMC), a Philippine publicly listed company, of which Placer Dome Inc. owned 39.9 percent at the time of the disaster. The major shareholder was the Philippine Government with no financial compensation ability. Even though it was a minority shareholder, Placer Dome accepted responsibility for 100 percent of the costs of plugging the tunnel, for cleanup and rehabilitation of the river, and for compensating those who were affected. Placer has also created a sustainable development program for the community. Three Marcopper senior managers were charged with breaches of the Mining code and Water Pollution Act. This tailings release had a profound effect on Placer Dome, which subsequently divested itself of its ownership in March 1997. The spill created immediate and substantial hard and soft costs, with the final cost estimated at US$80
million.

The financial fallout was that for the first 6 months of 1996, Placer recorded a net loss of $24 million compared with net earnings of $12 million during the same period in 1995. This loss included a US$40 million second quarter 1996 after-tax provision against earnings for the impact of the Marcopper tailings spill.

Omai, Guyana, August 1995

On August 19, 1995, a breach of a tailings pond at the Omai Gold Mines Ltd. (OGML) allowed an estimated 4.5 million cubic meters of cyanide-bearing mill process solution to flow into the Omai and Essequibo Rivers. OGML is a joint venture between Cambior Inc. (65%), Golden Star Resources (30%) and the Government of Guyana (5%). Operations were shutdown from August 20, 1995, to February 4, 1996, and only allowed to resume after a new tailings pond was completed and measures
were taken to ensure safe and environmentally sound operations. IVANHOE MINES ACQUIRES COPPERGOLD PROJECTS IN MONGOLIA Ivanhoe Mines has acquired 100-percent ownership in four new copper-gold porphyry-associated exploration projects in Mongolia. The properties occur within the same copper-rich belt in south-eastern Mongolia, in the southern Gobi region, asIvanhoe’s recent porphyry copper-goldmolybdenum discovery, Turquoise Hill. Current field programs are aimed at defining targets for an extensive drill program in Spring 2002. Their current program of drilling at the Discovery Zone of the Turquoise Hill property has defined a resource covering an area of 315 by 350 meters areally with a vertical depth extension of at least 500 meters. Ivanhoe can acquire a 100-percent interest in Turquoise Hill by spending US $6 million on exploration and paying US $5 million to BHP Billiton.

The World Gold Council and the gold mining industry recently announced a major gold marketing plan that is hoped will encourage an increase in the demand for gold jewelry. The plan is supported by both senior and junior gold producers from around the globe.

The plan will result in the leveraging of the current marketing campaign of the World Gold Council, and the new effort will be known as the Gold Marketing Initiative (GMI). The GMI will be chaired by the President of Barrick Gold Corporation. The plan calls for a sustained and focused commitment, more elaborate than any marketing effort that the gold mining industry has ever undertaken. This marketing campaign, with a proposed $200 million annual investment, could have the potential to increase the demand for gold jewelry by as much as 400 tonnes of gold annually by 2005.

The GMI will be monitored against measurable performance benchmarks, including retail jewelry sales, as well as consumer and retail marketing trends. The plan will undertake first stage initiations into the major gold sales markets in 2002. Individual gold producers will contribute $4 per ounce of gold production to sustain the annual $200 million marketing investment. (Reference: World Gold Council). 

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INDUSTRY UPDATE

— World Gold Council to Spur Gold Sales by New Marketing Campaign

New Location for PAH New Jersey Office: Pincock, Allen & Holt 150 Warren Street, 2nd Floor Jersey City, NJ 07302-6443 Tel: 201-985-0100
Fax: 201-985-8182**4** 4 The failure of the tailings dam at Omai is believed to have occurred due to internal piping of seepage leading to erosion of the embankment dam. The result was the collapse of a sand filter into the void space of the rockfill shell of the embankment. OGML rapidly took steps, under their OMAI emergency response plan, to divert the flow from the impoundment into a pit at site, and within 100 hours the contaminated flow
was stemmed. OGML also worked to rehabilitate the site and clean up the Omai River, and in conjunction with the government of Guyana, established a Commission of Inquiry with the result that “the spill did not pose a hazard to
the health of the workers or riverine residents.” OGML has been served with a that the dam be designed, and its construction supervised by experienced and competent professionals. It also requires that the borrower adopt and implement certain dam safety measures for the design, bid tendering, construction operation and maintenance of the dam and associated works. The World Bank has specific guidelines included in Operational Directive 4.37, “Safety of Dams” which has been applied to the review of tailings impoundments.

This month’s article was provided by Darrel L. Buffington, P.E., Principal Geotechnical Engineer,darrel.buffington@pincock.com

, and Toni L. Wallis, Research Geologist, toni.wallis@pincock.com

.



## COMING NEXT MONTH:

**• Platinum and Palladium: Update on New Supply!** 

Pincock, Allen & Holt is a consulting and engineering firm serving the international mineral resource industry. Your comments and suggestions are always welcome. Contact Pincock, Allen & Holt • 274 Union Blvd., Suite. 200, Lakewood, Colorado 80228 • TEL 303.986.6950 • FAX 303.987.8907 • www.pincock.com 

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Class Action Suit filed in Guyana claiming US $100 million in damages. Direct damages and standby costs totaled $12.1 million dollars. In 1996, writedowns of approximately $8.0 million were allowed for the new tailings dam and repairs.



### Summary

As can be seen from the descriptions above, the financial burden of a failed tailings dam subsequently falls back to the owner(s). In recent years there has been an increased emphasis imposed by lending institutions on the safety of a tailings dam, so that when construction of a new project requires the construction of a dam, the lending institution requires

MINE NAME COMMODITY OWNERSHIP DATE VOLUME OF ESTIMATED COST MATERIAL RELEASED BEFORE AFTER BEFORE AFTER OF CLEANUP

1999 2000 (Millions) Massey, Martin Cty Coal Massey Coal 11-Oct-00 250 million gallons 146.90 $ 104.90

$ $46 million Coal Prep Plant liquified coal waste

Aitik Copper Boliden Ltd. 9-Sep-00 1.5 million gallons of N/A N/A $0.5 - 1.0 million liquid released

Baie Mare Gold Esmeralda Jan-00 100,000 cubic meters N/A N/A $110 million Aurul S.A. of cyanide contaminated material
1997 1998 Los Frailes Lead-zinc Boliden Ltd. 25-Apr-98 6.8 million cubic meters $0.82 ($0.71) $135.7 million

1995 1996 Marcopper Copper Placer (39.9%) Mar-96 1.6 million cubic meters $0.31 ($0.27) $75 - 80 million Other (60.1%) tailings discharged
1994 1995 Omai Gold Cambior Inc. 65% 19-Aug-95 4.5 million cubic meters C$0.05 C$(0.18) G$426 million Golden Star Res.30% cyanide bearing process ($0.42) ($0.54) Guyana Govt. 5% solution

Sources of Information: • Corporate Annual Reports • Papers presented at Tailings Dam Conferences • Papers published in mining industry journals • All costs are in US$ unless otherwise noted

TAILINGS IMPOUNDMENT FAILURES - FINANCIAL IMPLICATIONS

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