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Perspective

Time to Re-evaluate Downtimes for Failures of Tailings Dams

May 09, 2017| Von Gavin Rowatt | Property | English

Estimating business interruption losses is never straightforward. But accurately forecasting the financial consequences of a large tailings dam failure can be a real challenge, as recent events have shown.

Tailings dams store waste products of mining operations after separating the valuable minerals from the rock. The facility is filled and raised throughout the life of the mine, sometimes to a great height. The largest tailings dams can be taller than the 221-meter (727-foot) Hoover Dam.

Among the loss estimates that we’ve seen for failures, the downtimes range from three to six months. For example, a recent mining risk submission for a large iron ore mine suggests that after a tailings incident, the mine could be operating on a limited basis within two months, and the Maximum Foreseeable Loss (MFL) was based on an estimated downtime of three and a half months.

 We contend that a downtime of at least 12 months should be used in calculating a tailings breach loss scenario, and a case can be made that a worst-case scenario should be even longer.

Insurance companies should assume worst-case possibilities when calculating MFLs, and insurance buyers should do the same when considering how much insurance protection they need against the possibility of a large tailings dam failure.

Two relatively recent events are good examples of worst-case scenarios: Imperial Metals’ Mount Polley mine in British Columbia, Canada and the Samarco iron ore mine located in Minas Gerais State, Brazil. It’s worth looking at what happened to get a better handle on the potential consequences of future loss incidents.

In August 2014 a massive tailings breach occurred at the Mount Polley copper/gold mine, releasing into downstream lakes approximately 17 million cubic meters of water and 8 million cubic meters of tailings and other materials.

In November 2015 Samarco’s Fundão iron ore tailings dam failed, releasing 32.4 million cubic meters of tailings downstream. It overtopped the downstream Santarem water control dam; it inundated Bento Rodrigues, a small town nearby where 19 people were killed; and it entered the Rio Doce river where the tailings plume ran downstream, eventually entering the Atlantic Ocean 18 days later.

In both instances, this event affected the mines’ operations for longer than 12 months. At Mount Polley, the interruption was almost 23 months. Samarco has been completely shut down for 16 months and, at the time ofpublishing this blog, was still not in operation.

These examples reinforce our belief that when insurers and reinsurers calculate MFL scenarios for tailings facilities, they should assume a minimum downtime scenario of 12 months. Arguably, a longer period would be recommended if the terms and conditions of the insurance policy, such as the Period of Indemnity, allow it.

For a timeline on the Mount Polley and Samarco disasters, see Property Matters, March 2017.

 

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