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

liabilities faced 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

Delivering Smarter Solutions

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/rdup2002
2

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 see

one 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
33

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 the

Marcopper 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, as

Ivanhoe’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).

Delivering Smarter Solutions

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

Pincock Perspectives Delivering Smarter Solutions

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

NET EARNINGS / SHARE CORPORATE PROFIT (LOSS)