Experts: Oversight to Blame for Vale’s Disaster

Experts approached by INN said that banning upstream tailings facilities was missing the point when it came to avoiding disasters like Brumadinho and Samarco — with design and oversight the primary concern.

On January 25 2019, over 300 people went missing when an upstream tailings dam near Brumadinho in Brazil collapsed, releasing 12 million cubic metres of iron-ore mining byproduct that buried nearby mining facilities.

Since then, its operator, Vale’s (NYSE:VALE) share price on the New York and Sao Paulo stock exchanges has been well down — and rival companies have been going out of their way to declare their own facilities safe, and their oversight robust.

In response, the Agência Nacional de Mineração (ANM) announced that upstream tailings dams — which was the design of the dam that collapsed — are now banned in Brazil.

The new regulation published in the national gazette requires that all upstream dams in Brazil be decommissioned — or transitioned to alternative designs — by August 15, 2021, with technical plans for the decommissioning or alterations ready by August this year.

What are upstream tailings dams?

Gavin Mudd, associate professor of environmental engineering at RMIT University in Melbourne, explained to the Investing News Network (INN) what ‘upstream’ tailings facilities were.

“Upstream tailings dams basically use tailings to keep expanding the height of the wall — you’re putting tailings on top of old tailings and that way you keep moving it inside the dam — upstream of the original starting wall,” so the slurry held in the dam is used to support part of the dam itself as it’s expanded.

Of tailings dam designs, Mudd said that upstream dams were the cheapest.

“(It is) absolutely the cheapest method — that’s why it’s used.”

He said that despite the price, upstream dams can be perfectly safe.

“Upstream can be done properly, but you’ve got to be vigorous about the design… and you also then have to decommission it properly and make sure that it’s stable.”

Alternatives to upstream — ‘downstream’ and ‘centreline’, which also refer to the direction the dam wall moves in as it’s added to, are “typically considered to be safer,” said Mudd.

Mudd added that upstream was not inherently more dangerous,“the question is not just upstream versus downstream — it’s how it’s being managed.”

Is banning upstream tailings the way to go?

On the Brazilian government’s move to ban the use of upstream dams, Mudd said it was an “oversimplification” of the issue that doesn’t allow for the condition that even downstream dams can still fail if you don’t design, build, operate and decommission them properly.

“Another big thing in Brazil — and this isn’t unique to Brazil — is that the regulatory infrastructure is not being resourced properly.”

Speaking to INN, Lobo Tiggre of Louis James LLC said that the ban was an “entirely predictable — and predictably stupid — government response.”

His focus on regulators was one of corruption, rather than resources available though.

“Banning a type of dam won’t help if the problem is corruption. Inspectors of different types of waste disposal facilities can be bribed or pressured as well. Contractors can cut corners, building inspectors can take bribes.”

A result of the disaster, said Tiggre, was that mining in Brazil and around the world would become more expensive.

“In time, this won’t just make mining more expensive in Brazil, it will do so everywhere. Just as regulators and operators of nuclear power plants all around the world reviewed their practices in the wake of the Fukushima disaster, we should expect the same here.

“If miners are smart, they’ll get in front of that and raise standards (and hence costs) in a rational and useful way,” which he noted was already happening, with the International Council of Mining and Metals announcing on Tuesday (February 26) that it would be pushing to create an “international standard” for tailings dams, which Tiggre called “a good start.”

At the end of the day, any publicly traded company that doesn’t take this very seriously is a huge risk for shareholders — and if such a company has a disaster that kills people, I would expect bankruptcy to be only the beginning of management’s problems.”

Mudd had mixed feelings on the Brazilian government’s reaction to the disaster, saying that moves to crack down on the industry was expected.

“That’s all politics – we get that. But by that same token, why wasn’t this done years ago with Samarco? There is a risk that they’re overreacting now to try and compensate for the fact that they failed to react promptly last time.

“It shouldn’t just be about punitive damages and compensation and all that — it should be about making sure the engineering is done well, the regulatory oversight is there and well resourced and have the right expertise.”

What are miners doing to avoid this happening again?

Since the disaster — and before the ban on upstream tailings was announced by the government — Vale said it would be decommissioning its 10 remaining upstream dams by 2022 at a cost of 5 billion real.

Rival company Freeport McMoRan’s (NYSE:FCX) CEO Richard Adkerson was quoted by Reuters saying that his company has “invested significantly” in its own tailings facilities, and that Freeport’s inspection system in place was robust enough to “mitigate the risk of catastrophic tailings failures.”

BHP (ASX:BHP,NYSE:BHP,LSE:BLT) — which was Vale’s joint-venture partner in the Samarco disaster — has also said this month that it has an “extreme focus on the safe management of tailings facilities.”

CEO Andrew Mackenzie said that “[the company] will review all the lessons of this failure as they emerge and apply them to further upgrade the construction and operation of our dams.”

Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) sought to get out ahead of questions, opening its books on its own tailings facilities — which include 21 upstream dams — to highlight its management programs.

The company’s CEO, J-S Jacques, said that while it had already implemented a global standard for ‘management of tailings and water storage facilities’, it was again reviewing its processes and “assessing how we can further strengthen the existing external audit of facilities.”

Mudd said that companies talking up their own management programs was well and good, but repeated that strong regulatory oversight was needed.

“There’s a whole bunch of areas where we have large sectors with regulators that are well resourced and have lots of expertise…we just haven’t done that for mining, we’ve largely let it be self-regulated.

What will happen to iron ore in 2019?

To start with, analysts predict that the banning of upstream facilities, the new regulations and the halting of mining operations at various Vale assets across Brazil in response to the disaster will be an immediate hit of 50 million tonnes of iron ore that’s taken off the markets in 2019.

Analysts at Wood Mackenzie said that the new regulations in Brazil banning upstream facilities will affect more than just Vale — and more than just Vale’s output.

“Our analysis indicates that, excluding Vale, close to 8 million tonnes of seaborne supply is at risk in 2019 with the new regulation.”

For prices, iron ore would be staying at around US$85 a tonne — with room to go higher.

“Vale’s losses of 50 million tonnes indicates an incentive price of US$85/tonne. A further 8 million tonnes of losses shifts the cost curve further to the left and suggests an incentive price of US$90 per tonne.”

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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Catch up and get informed with this week's content highlights from Charlotte McLeod, our editorial director.

Top Stories This Week: Powell Gets Fed Nomination, Using Gold in a Market Correction youtu.be

We're back after a break last week with quite a bit to cover in the gold space.

After running up past the US$1,860 per ounce mark midway through November, the yellow metal has taken a tumble. At the time of this writing on Friday (November 26) afternoon, it was sitting just under US$1,790.

Gold's losses this week have been attributed to elements like a stronger US dollar and better Treasury yields, although Jerome Powell's US Federal Reserve chair renomination has pulled other factors into play — some market watchers believe he may move to taper and raise interest rates faster than anticipated.


If the Fed follows its previously laid out timeline for tapering, it will wrap up in mid-2022; the central bank has said it won't raise rates until after that. It has also emphasized that its roadmap may change if necessary.

Looking at the larger picture for gold, I heard recently from Nick Barisheff of BMG Group, who believes the stock market is due for a major correction.

"The market is due for a major correction. What will cause it and when it will happen is anybody's guess — it could be tomorrow, it could be six months from now" — Nick Barisheff, BMG Group

It's impossible to know when this correction will happen, but Nick emphasized the importance of acting before it's too late. He pointed out that investors are typically slow to get out of the market once a crash actually begins — they wait for a turnaround, and by the time it's clear there won't be one, they've experienced big losses.

In his opinion, the solution is to get out of the stock market early and transfer money into gold.

Here's how Nick explained it:

"Instead of taking your money off the table and going into cash … you go to gold (because cash is devaluing daily). Gold will at least hold its own and probably appreciate … so by sitting it out in gold you can wait until the market finishes correcting and then buy back in" — Nick Barisheff, BMG Group

With gold's future in mind, we asked our Twitter followers this week what price they think the metal will be at the end of 2021. By the time the poll closed, most respondents had voted for the US$1,800 to US$1,900 range.

We'll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

Finally, in the cannabis space, INN's Bryan Mc Govern spoke with Dan Ahrens of AdvisorShares to get his thoughts on 2021 trends and what's ahead in 2022.

Dan was candid, and said if he had to choose one word to describe the cannabis market in 2021, it would be "painful." Like many others, he's been disappointed in the industry's performance — while positivity initially ran high due to excitement about potential federal changes in the US, ultimately progress has been slow.

"Cannabis started with a big run-up in January and February ... and things dragged from there" — Dan Ahrens, AdvisorShares

Still, Dan has hope for 2022 and said it will be a "huge year" for cannabis. He believes US reforms will come sooner rather than later, and in his opinion those widely anticipated changes will bring a wave of M&A activity.

Specifically, he expects to see alcohol, tobacco and other consumer packaged goods companies making deals with cannabis players, not just cannabis entities doing transactions with each other.

"Those big alcohol companies, tobacco companies, other consumer packaged goods product companies — they're waiting. They're waiting on the US" — Dan Ahrens, AdvisorShares

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there's someone you'd like to see us interview, please send an email to cmcleod@investingnews.com.

And don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

cannabis plant layered with German flag graphic
Dmytro Tyshchenko / Shutterstock

Catch up on some of the biggest news of the week for the cannabis investment world.

Three political parties have formed a coalition in Germany, leading to a new government, and it has promised cannabis reform in the European nation.

Meanwhile, a popular cannabis retailer confirmed consumers will now find its products available for delivery on the Uber Eats mobile application in Ontario.

Keep reading to find out more cannabis highlights from the past five days.


Coalition of parties promises forward-looking cannabis policy

Germany, a country with comprehensive and elaborate medicinal rules for cannabis, is in a time of transition as a new government is set to begin to take over after 16 years of Angela Merkel.

Olaf Scholz, the proposed next chancellor of Germany, leads a three party coalition that will become the country's governing body. As part of its promises, talk of adult-use cannabis regulation has now gained even more momentum. A report from MJBizDaily quotes a German policy document that shows the coalition's stance:

"We are introducing the controlled distribution of cannabis to adults for consumption purposes in licensed shops. This controls the quality, prevents the transfer of contaminated substances and guarantees the protection of minors."

However, despite the promise and excitement, it remains to be seen how these ideas will be applied since no formal regulations have been drafted or approved yet.

Canadian cannabis retailer partners with popular delivery app

Tokyo Smoke, a cannabis retail operator in Canada owned by Canopy Growth (NASDAQ:CGC,TSX:WEED), announced a collaboration agreement with Uber Canada (NYSE:UBER) whereby cannabis consumers will be able to use the Uber Eats app to order products before they visit stores.

While the app won't let consumers get cannabis delivered to them, this new method opens the doors to more dynamic ways of buying cannabis.

"As a market leader in innovation and a platform used by so many Canadians, we believe this is the ideal next offering that can be done safely and conveniently on the Uber Eats app," Mark Hillard, vice president of operations with Tokyo Smoke, said in a press release.

A report from the Canadian Press indicates Ontario is considering allowing dispensaries to have delivery and pickup options made available to consumers permanently. The province allowed some of these purchasing options at the outset of the COVID-19 pandemic, but then removed them.

Lola Kassim, general manager of Uber Eats Canada, said this new end-to-end experience will provide consumers with responsible access to legal cannabis products.

Cannabis company news

  • Organigram Holdings (NASDAQ:OGI,TSX:OGI) issued financial results for its Q4 2021 period. In its report, the company notes a net loss of C$26 million despite a 22 percent uptick in net revenue to C$24.9 million. Beena Goldenberg, the newly appointed CEO of the firm, is encouraged by the market share position earned by the company, which said it became the fourth biggest producer in Canada during the reporting period.
  • Halo Collective (NEO:HALO,OTCQB:HCANF) confirmed the decision for Akanda, its spinoff company focused on international cannabis opportunities, to begin trading on a US exchange. "The number of shares to be offered and the price range for the proposed offering have not yet been determined," the company told investors in a press release.
  • High Tide (NASDAQ:HITI,TSXV:HITI) announced the acquisition of 80 percent of NuLeaf Naturals, a CBD product wellness developer, for an estimated US$31.24 million. The deal includes a three year option clause for High Tide to complete a total acquisition. "As international markets open up and as export regulations evolve, NuLeaf's cGMP-certified facility positions us to take advantage of the global CBD business opportunity," Raj Grover, president and CEO of High Tide, said.
  • Humble & Fume (CSE:HMBL,OTC Pink:HUMBF) released the financial report for its first 2022 fiscal quarter to shareholders and the market. "As the legal cannabis market in North America continues to mature, Humble remains agile and focused on providing a leading solution for brands to scale quickly and retailers to focus on their customers," Joel Toguri, CEO of Humble, said.

Don't forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

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