Footing The Bill

January 31, 2020 | Sam Rook


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Who pays when things go wrong?

On January 25, 2019, the dam of a tailings pond at the Córrego do Feijão iron ore mine in Brumadinho, Brazil, burst. The dam failure spilled over 12 million cubic meters of polluted sludge and water which washed through the mining facility and into nearby towns and rivers. Over 250 people were killed in the dam collapse but the environmental damage from the mine sludge entering a river system will take years to determine. The water reached the Paraopeba River which supplies water to about 2 million people in the Belo Horizonte region. The mine was operated by Brazilian mining giant Vale, which also had a similar incident in 2015 at a mine jointly owned with BHP Inc.

 

Disasters like the Brumadinho dam collapse have lots of complicated causes and even more complicated effects. The lawsuits and government investigations are still ongoing from the 2015 dam collapse. The environmental impact will last much longer still.

 

As a Canadian, Brazil can seem so far away. Many people view it as a developing country that would be likely to have difficulty implementing environmental policies and laws. That couldn’t happen in Canada, could it? It can, and it happened as recently as 2014 with the Mount Polley dam leak that hit central British Columbia.

 

Worse, Mount Polley was a minnow compared to the tailings ponds in Alberta around the oil sands fields. I came across this video by Alberta School of Economics professor, Andrew Leach and felt ill. You can also read his tweet-storm that supplies a lot more detail about the issue here.

 

Syncrude is an oil sands joint venture between two Canadian companies, Suncor and Imperial Oil, and two Chinese state-owned oil companies. Syncrude is using an idea called water-capping to rehabilitate their tailings ponds. What that means is they will fill an empty pond will the sludge and waste water taken from their oil production and then add a layer of fresh water from nearby clean lakes to act as a barrier. “Oil and water don’t mix” is the apparent idea behind this plan. It is a tactic they have been using since 2012 at Base Mine Lake, their pilot site for water capping.

 

Whether water capping works is the real question, and based on the Alberta Energy Regulator report noted in Andrew Leach’s work, the answer is no. Oil sheen and bitumen is seeping to the surface and the shoreline of Base Mine Lake. Even worse, Syncrude’s environmental estimate for another operation, North Mine Lake, expects chloride to remain at 10 times the natural levels in nearby lakes 120 years later. Chloride in very small parts is natural but at these levels it has a severe impact on the natural ecology of the area. We will have essentially created whole lakes that will not be able to sustain the local flora and fauna for multiple generations.

 

The really scary thought is what happens if we have a tailing pond failure like what happened at Brumadinho or, more close to home, Mount Polley? The Athabasca River is very close to the Syncrude oil sands area. What happens if a tailing lake fails and drains millions of cubic meters of sludge into the river?

 

I bring this up not to just highlight the potential environmental impact here but also the potential financial impact. To give you a sense of scale, Syncrude estimates that at the end of their Mildred Lake mine’s life, the treatment cost of its tailings will be approximately $600 million.  So who pays the substantial bill if Base Mine or the future Mildred Lake tailings pond empties into the Athabasca River? I think this is one question that has a lot of potential answers.

 

This is also a really important question to answer when you consider whether to invest in a company like Vale or Suncor. The Brumadinho dam collapse is a really good window into your risk as a shareholder. On January 25, shares of Vale traded on US markets closed at $13.66. When the news of the disaster hit and details began to emerge, Vale dropped over 10% the following week. Would the same happen to the shares of Suncor and Imperial Oil if something similar happened in Canada? I don’t know the answer to that question, but I do know that someone eventually pays the bill.

 

I do have an idea that would help make these costs a lot clearer and better understood. Make it absolutely clear in any approved project who the responsible parties are for environmental cleanup. Is it the corporations or the government? That would allow all of us to better judge the potential risk and reward of these investments. For example, if it was clear that Suncor would be responsible for their share of cleanup for any environmental disasters, wouldn’t that impact how we evaluate their merits as an investment? I think it’s a good start.