Review of Environmental Legal Obligations of North American Mining Companies Scott Shock, P.E. Willis Towers Watson

North American Mining ConferenceNovember 10, 2016Toronto

Discussion Topics• Changing landscape of environmental regulation

• Increasing regulation of air, land, and water

• Emerging environmental risks

• Managing/minimizing environmental damages liability

Changing Landscape of Environmental Legislation in North America• Increased potential for environmental

liabilities • Recent developments in

environmental legislation in Mexico–Ley Federal de Responsibilidad Ambiental,

LFRA, 2013• Similar to:

–Natural Resource Damage Assessment (NRDA) in the U.S.

–Environmental Liability Directive (ELD) in the EU

High Profile Incidents

Mexico Environmental Liability Act: A Watershed Event?• Patterned after NRDA in USA and

ELD in EU (joint and several liability)• Assessment of environmental injury

–Individual organism–Community of organisms–Habitat or ecosystem

• Restoration of the injury• Restoration of ecosystem

(human and ecological) services• Local inhabitants and government

agencies can sue

Buenavista del Cobre Copper Mine, Mexico• August 2014—40,000 m3 of copper sulphite

released from tailings dam• Cause of release not yet established• Mine owner liable for at least USD $3.4M in fines

for environmental violations• Required to establish a fund for clean-up,

restoration and compensation ~$150M• Impact to owner’s reputation and potentially to

social licence to operateBuenavista del Cobre –The spill affected seven different municipalities, turning the 420-kilometer-long waterway orangehttp://mexiconewsdaily.com/news/on-spills-anniversary-many-concerns-remain/

Increasing Regulation of Air, Land, and Water in the United States• Clean Air Act and Climate Change

–Expansion to regulate carbon dioxide as a pollutant and greenhouse gas

• Clean Water Act–Updated to expand what constitutes “navigable water”

• “Stream Protection Rule” from U.S. Office of Surface Mining Reclamation and Enforcement” (OSMRE) –In relation to coal mining

• Endangered Species Act–Designation of additional species as threatened or endangered–Broadening what is critical habitat for other species

Increasing Regulation of Air, Land, and Water in the United States (continued)

• 2008 EPA/Corps Compensatory Mitigation Rule–Created preference for mitigation banks and “in-lieu fee” programs–Advance mitigation, monitoring, watershed scale, financial assurance,

perpetual protection• 2015 President’s Memorandum on Mitigating Impacts to NR

–Directs “no net loss goal” for “important, scarce, or sensitive” NR–Recommends advance identification and compensation – natural resources

values–Encourages NRD trustees to develop criteria for restoration banking or

advance restoration projects• 2015 BLM Landscape–scale Mitigation Policy• 2016 FS revised mitigation policies; USFWS proposed revisions

Historical Environmental Legacies—Gold King Mine, Colorado• Environmental liabilities from historic mining

activity throughout the Animas and San Juan watersheds

• A several thousand year history of acidic drainage is recorded in surficial deposits in the Animas

• Over 300 mines thought to have been worked in the Animas alone

http://pubs.usgs.gov/pp/1651/

Images from - http://www.usbr.gov/docs/goldkingminereport.pdf

Long History of Environmental Concern

Gold King Mine Incident• On August 5, 2015 reclamation

activities at Gold King Mine, Silverton by U.S. EPA triggered release of 3 million gallons Acid Mine Drainage into Cement Creek, tributary of the Animas River

• The plume continued to the San Juan River, reaching Lake Powell, Utah on August 15

San Juan River Basin

https://abcnews.go.com/US/million-gallons-contaminated-water-turns-river-orange-colorado/

6th August

https://www.epa.gov/goldkingmine

14th August

Canadian Environmental Regulation, Litigation, and Other Developments• Cap and Trade and Climate Risk

–Ontario cap and trade program expected to launch January 1, 2017–Will require certain emitters obtain allowances for total emissions

• Extractive Sector Transparency Measures Act–Encourage proper support for development associated with mining–Discourage illicit payments–First annual report by May 30, 2017

• Free Prior and Informed Consent (FPIC)–Boreal Leadership Council working group framework for aboriginal

engagement–Partnership vs. project veto?–FPIC will likely take years to be fully defined and implemented

Mt. Polley Mine Tailings Dam Failure• August 4, 2014 – Catastrophic

failure of tailings dam• 2016 – MiningWatch Canada

launches a private prosecution against the BC government and Mount Polley Mining Corp.–Alleges violations of the federal Fisheries Act–Claims the spill was caused by the negligence of both the province and the

company, which is owned by Imperial Metals• Independent Expert Engineering Panel concluded the dam failed

because the strength and location of a layer of clay underneath the dam was not considered in original design

Updated Requirements for Tailings Storage Facilities (TSFs) in British Colombia• New guidelines for site characterization for tailings dams

–Association of Professional Engineers and Geoscientists of BC–Geological, geomorphological, hydrogeological, seismotectonic

• Implementation of the seven recommendations from the Independent Expert Engineering Panel, including –TSF design requirements for steepness of downstream slopes–Minimum static factor of safety –New seismic and flood design criteria

• BC Mining Code revised per panel recommendations–New design and operations criteria for TSFs–Required water balance and water management plans for TSFs – Independent Tailings Review Boards required for mines with TSFs

New Transparency and Reporting Requirements for Mines in BC• Ministry of Energy and Mines new web-based records system for

mines in BC, including: –Permit information–Inspection reports and other details–Annual reports (required from each mine)

–Overview of Independent Tailings Review Board’s activities

• The revised mining code and requirements for TSFs being referred to as a new “international standard”

Emerging Environmental Risks and Risk Management Strategies

Emerging Environmental Risks• Environmental risks associated with mining are well recognized,

–e.g. International Finance Corporation - EHS Guidelines for Mining (2007)

• Additional risks are emerging or becoming more important–Greenhouse gas emissions and regulatory controls–Air quality and human health impacts –Water use, quality, scarcity and climate change–Tailings dam management and failure–Social license to operate

http://www.ifc.org/wps/wcm/connect/1f4dc28048855af4879cd76a6515bb18/Final++Mining.pdf?MOD=AJPERES

Mitigating the Risks• Proactive steps an operator could take to minimize liability:

–Assess facilities and operations to identify areas of greatest risk with regard to environmental damage

–Design risk mitigation measures–Collect data to establish baseline conditions –Evaluate and understand causation–Integrate sustainability and risk management approaches–Consider insurance coverage

Social License to Operate• Significant area of risk • Newmont Mining – $5B Conga copper and gold

project shelved due to community protests

• Community support–Must be earned at the outset–Must be maintained on an ongoing basis–Requires effective community engagement–Requires addressing concerns regarding

real and perceived risks–Requires delivering on promises

http://www.mining.com/community-opposition-forces-newmont-abandon-conga-project-peru/

Output from Conga was supposed to replace production from the nearby Yanacocha mine (pictured below), which is running out of gold

Disclosure Requirements and Best Practices• Are risks being properly disclosed?• SEC Rule 10b – Shareholders can sue for economic losses as a

result of fraud• Recent examples:

–Barrick Gold suit – $140M preliminary settlement May 2016–Vale/BHP – Samarco dam failure related claims

• New SEC Mining Disclosure Rule – December 2016• Best practices (e.g., next generation ASTM standards):

–ASTM E2137 – Environmental Liability Estimation–ASTM E2173 – Environmental Liability Disclosure

Disclosure Requirements and Risks (continued)• Barrick Gold – Pascua Lama

copper and gold project suspended by Chilean government due in part to major regulatory compliance challenges–April 2013 court injunction and

$10.2M in prospective fines–May 2013 suspension of project

• Loss of ~$10B in market capitalization (33%) in one week of April 2013

• Questions:–Was the necessary emphasis

placed on rigorous, proactive environmental management?

–On proactive risk management? –On proactive stakeholder

engagement?–Were disclosures sufficiently

complete re: compliance with permits and regulations?

Risk Management Framework –Alaska Lead/Zinc Mine Example• Public concern over fugitive dust emissions (2001)• Nearby native communities’ subsistence hunting and

harvesting• Transport road nearly was closed over concerns• Implemented comprehensive characterization and risk

assessment• Established a risk management program with systematic

stakeholder involvement and continuous review and improvement

Exponent-developed Dust Forecast Systems• Minera Escondida

–Largest copper mine in the world –Two open-pits located in the Atacama

Desert in Chile

• Teck Carmen de Andacollo–Gold and copper mine in Chile–Automatic 3-day forecasts delivered

twice-daily

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Baseline, Background and Causation• Fundamental concepts upon which the extent of liability is defined

–Can afford protection from claims where all/portion of damages may be a result of something other than the covered event

–“Restoration to baseline condition” — understanding methods for determining the scale of that restoration is critical to managing the liability

–Baseline refers to the condition of a resource “but for” a release

–Background is the chemical baseline (e.g., naturally occurring mineral concentrations)

Baseline Must Consider Natural Variation

Some Causal Relationships are Relatively StraightforwardFish kills from chemical releases Bird mortalities from oil spills

Causation Not Always Easily Defined

WadiWadiDesert vegetationDesert vegetation

Flare pitsFlare pits

Well headWell head

Baseline and Causation Summary• Insureds must collect the right kind of information so that baseline conditions

are well defined• This may include history of resource use, other sources of potential

contaminants and collection of chemical and biological data and assessment• Cost of restoration is a significant proportion of total liability so appropriate

scaling is critical• Restoration scaling requires determination of actual liability based on proper

analysis of baseline and causation• Environmental forensics can assist in determination of baseline, background

causation, sudden and accidental, allocation and apportionment, assessment of insured time periods

Conclusions• Landscape of environmental risk in the mining sector is evolving

and complex–Increasing regulation and a willingness to enforce it –Stricter standards being applied–Requirement to obtain/maintain social licence to operate –Public awareness, empowerment and willingness to act

• These potential liabilities can be managed through–Holistic and integrated approach to environmental risk management,

including effective stakeholder engagement–Use of current best practices–Appropriate insurance coverage

Thank you… Questions?

Scott Shock, M.S., P.E.Senior Managing Engineer, Exponent425-519-8722 | ssshock@exponent.com