The possibility of tailings dam failure, highlighted by the recent Jagersfontein tragedy, highlights the need for particular care when assessing the risks of a transaction in the mining and minerals processing sectors.
In South Africa, a different regulatory regime applies to tailings facilities that are part of a producing or recently closed mine (on-mine tailings facilities) and those that have become separated from recent mining operations (off-mine tailings facilities) as discussed in detail in this article.
Because of this, it is easy for the regulation of such a facility to ‘fall through the cracks’ and operate in an unregulated or partially regulated context. A transactional risk assessment should focus on whether the off-mine or on-mine facility has the necessary authorisations, which may include an Environmental Management Programme (EMPr), a water use licence, a dam with a safety risk registration, a waste management licence (or exemption) and a Mandatory Code of Good Practice for Mine Residue Deposits under the MHSA.
If the facility is not located on an operating mine, consideration should be given to whether a closure certificate should have been sought before the facility was ‘severed’ from the operating mine.
Careful consideration must also be given to all mandatory and recommended monitoring and reporting to the relevant authorities to ensure the integrity of the facility and that it has historically been operated and maintained to the highest safety standard.
If such a facility has faced compliance notices or directives in the past, the steps taken to bring the facility into compliance and maintain compliance should be carefully assessed.
While warranties and indemnities regarding these issues could be considered, the reputational and other risks associated with tailings dam failure would make them cold comfort should it be necessary to enforce them.
Unfortunately, South Africa is not alone in experiencing such dam failures. Similar dam failures, such as the Mariana dam failure in 2015 and Brumadinho dam failure in 2019, both in Brazil, killed scores of people and left thousands of others displaced and homeless.
These high-profile disasters resulted in states and regulators all over the world reconsidering and reviewing the statutory regimes governing the authorisation, design and operation of tailings. The United Nations Environment Programme (UNEP), the Principles for Responsible Investment (PRI) and the International Council on Mining and Metals (ICMM) instituted Global Tailings Reviews, which saw the publication of the Global Industry Standard on Tailings Management (GISTM).
The GISTM provides a framework for safe tailings facility management and is amongst the most prevalent standards applied to manage tailings globally. Members of the ICMM commit to implementing the GISTM within three years for high-risk classification tailings and five years in other classifications.
In a transactional context, it is likely that lenders to a transaction will look for assurance that any tailings facilities that are part of a cross-border acquisition meet these international standards.
Read the original publication at Bowmans.