Tailings dams – used by mining companies to house waste rock and other materials created as a result of extracting the resource they are mining – have posed significant environmental, social and governance (ESG) risks in recent years.
If a positive can be taken from recent dam failure disasters, it would be that investors are engaging with global mining companies to ensure the risk of a dam failure is appropriately assessed, publicly disclosed and actions taken to minimize the risk, especially for new tailings dam facilities.
The risks of tailings dams
Mines use tailings dams when they can’t return the waste rock back underground or back into the void it originally came from, in the case of an open-cut mine.
One of the challenges with this type of waste is that sometimes the processing of it changes its chemistry, and that can mean that these dams contain material that may not be as benign as it might have been when in the mine itself. This type of waste, and the integrity of its enclosure, needs continuous monitoring.
But sadly, there have been a number of circumstances where tailings dams have failed, causing multiple fatalities, environmental damage, and damage to nearby communities.
In 2015, a mine dam near Bento Rodrigues collapsed in Brazil, killing 19 people and also causing significant environmental damage and serious problems for the communities downstream of the dam. And in January 2019, the Córrego de Feijão dam failed, also in Brazil, killing over 240 workers.
As a result of these events, communities, the environment and the livelihoods of local populations have been significantly impacted, and the disasters have cost the companies involved, and their shareholders, significant amounts of money in terms of rectification and restoration.
In some cases that has meant moving whole villages to new locations, restoring polluted water supplies and paying compensation. On top of that, there have been additional costs in the form of fines payable by the companies involved, losses from halting mine production and time and energy costs in managing the situation.
How have investors responded?
Investors have become very concerned about the risks posed by poorly-managed tailings dams. Headed by large European pension funds, investors have come together to ask mining companies for additional disclosures on their tailings dam risks and how they are managing them, and are lobbying for the creation of an international independent global safety classification system for tailings dams.
Alongside this initiative, the International Council on Mining & Metals, the United Nations Environment Program and the Principles for Responsible Investment – of which AMP Capital is a signatory – announced in March that they will co-convene an independent review to establish an international standard on tailings dams.
Progress toward a globally-accepted standard for the appropriate design, operation and maintenance of tailings dams is important and AMP Capital has been part of these engagement efforts which are resulting in improved disclosure. This, in turn, is allowing investors to better understand and form their own view on the risks posed by the tailings dams associated with individual mining operations.
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