Antofagasta at Caimanes: questions remain about safety and heritage

Caimanes

On 21 May, London-listed Chilean mining company Antofagasta plc held its Annual General Meeting in London, at which it presented its annual report.

The report is interesting for what it does NOT say as well as for what it does. The company’s subsidiary Minera Los Pelambres stands accused of massive damage to Chile’s archaeological heritage and of endangering communities downstream from its huge El Mauro tailings dam, constructed to store waste from the Los Pelambres copper mine.

The following analysis is by Patricio Bustamante, researcher in archaeoastronomy.

EL MAURO AND ANTOFAGASTA PLC ANNUAL REPORT

Los Pelambres has underestimated the risks of the El Mauro tailings dam.

The company has been negligent in constructing one of the largest tailings dams in the world in the region of highest seismicity in the world, without complying with the international safety standard that states that the tailings dam must resist the area’s maximum credible earthquake, in this case the 9.5º Richter 1960 Valdivia earthquake.  The dam has been designed to resist a 7.5º Richter earthquake in a zone that there is a 10% probability in 50 years of suffering 7.3º Richter quakes. There is a significant probability of a dam’s collapse in case of a major earthquake, risking the lives of 2,000-people at Los Caimanes village and 15,000-people at Los Vilos town and seriously damaging the valley’s environment.

Management has withheld this crucial information from its shareholders:

  • It has not disclosed that the dam does not comply with ICOLD seismic standards that require tailings dams to resist the area’s Maximum Credible Earthquake in the highest seismic zone on the planet.
  • It has not disclosed the 2013 Supreme Court of Chile ruling, stating that the company will not be able to invoke force majeure if a 7.5º-9.5º earthquake causes the dam’s collapse.
  • It states that Los Pelambres complies with Chilean laws and regulations when in fact it was recently fined due to irregularities in regard to Chilean Environmental Laws.
  • It states that it has a fully operating Crime Prevention Model but some Chilean government officials have failed to fulfil their duties in such a way that allegations have been made that Los Pelambres personnel may be involved in bribery schemes which benefit the company.

1. Antofagasta PLC Annual Report 2013:  Notes 28 and 37 to the Financial Statements

The company annual report’s Note 37 states: “the plaintiffs are seeking demolition of the dam on the basis of the risk that its collapse would pose to the community. This case is still before the Court of first instance of Los Vilos. In considering its judgement, the Court is taking into account reports prepared by an independent expert 
at the request of the Court, reports prepared by experts commissioned by Minera Los Pelambres and several reports issued by the Chilean Mining Safety Authority (SERNAGEOMIN).”

Although the Annual Report mentions a 2013 ruling by the Supreme Court of Chile, it only discloses the following:

“Legal Update – El Mauro tailings dam

“The El Mauro tailings dam began operating in 2008 and has always complied with all applicable laws, regulations and controls.  During 2013, the Supreme Court of Chile ruled that the responsible authorities should install an early warning system and evacuation plan for the dam to ensure the safety of the local population in the case of an earthquake.  Los Pelambres is working with the authorities to assist them to fulfil their obligations.  The Supreme Court has not required any changes to the existing operations of the tailings dam or to Los Pelambres’ operations.

“Los Pelambres has defended a series of unsuccessful legal claims filed by some members of Los Caimanes community since 2008 relating to the dam’s operation.  Two of these claims are currently before the Courts in Chile.  Details of these claims are set out in Note 37 to the financial statements.”

Note 37 does not reveal that on July 4, 2013, the Chilean Supreme Court ruled that the precautionary principle applies.  It states that the company has been admonished about the risks of a dam collapse if a major event occurs and that Los Pelambres will not be able argue that such event was unexpected and impossible to resist.

The Supreme Court ruling means that the company may not invoke force majeure if the tailings dam collapses as a result of an earthquake greater than 7.5º Richter, the maximum intensity the dam has been built to withstand, since this is not the Maximum Credible Earthquake for the area.  Force majeure could only be invoked if the dam collapses as a result of earthquakes exceeding 9.5º Richter, which is the Maximum Credible Earthquake for Zone 3 (see Seismic Hazard below).

IAS 37 regulates treatment of contingent liabilities and provisions under IFRS.  IAS 37 states that an entity must recognise a provision if, and only if:
a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),
payment is probable (‘more likely than not’), and
the amount can be estimated reliably.

Antofagasta PLC’s Note 37 regards claims on the El Mauro tailings dam as a contingent liability.  But it must be noted that the company also recognizes decommissioning and restoration costs related to mining operations.  Specifically, Note 28 a) states that “costs are estimated on the basis of a formal closure plan and are subject to regular independent formal reviews.  It is estimated that the provision will be utilized over a period of up to 46 years based on current mine plans.” During the year ended 31 December 2013 the decommissioning and restoration provisions were increased by a net total of $99.2 million, a 26% increment, which the company says mainly reflects the impact of increased cost estimates resulting from detailed updated reviews at Los Pelambres and Michilla.

After analysing Notes 37 and 28, the following questions arise:
a) Why did the company not reveal the full extent of the Chilean Supreme Court July 4, 2013 ruling?
b) Is the 26% increment on decommissioning and restoration provisions based on the expected impact of a major earthquake on El Mauro tailings dam?
c) If so, what where the criteria and parameters employed by the independent appraisal? Who was the independent appraiser?

Seismic Hazard

The risk of exceeding 7.5º Richter is high. The US Geological Survey (USGS) Earthquake Hazard Maps show a 10% chance in 50 years for earthquakes with acceleration of 500 gal.  Such earthquake accelerations are consistent with a 7.3º Richter quake, very close to the tailings dam´s 7.5º Richter design intensity.

Just recently, on April 1, 2014, an 8.2º Richter earthquake hit Arica and Iquique, north of El Mauro.  The major earthquake was followed on April 2, 2014 by 7.6º and 7.7º Richter aftershocks, all above El Mauro design intensities.

On March 28, 1965, a 7.4º Richter earthquake struck La Ligua region, 65 km south of El Mauro.   The mining village of El Cobre completely disappeared after the shock shattered a 70-metre tailings dam, cascading 2 million tons of water and mud into the town and burying 200 people.

The El Mauro tailings dam will reach a height of 300 metres after completion, leaving 2,000 people in Los Caimanes village and 15,000 people Los Vilos town within the danger area defined by the company.

Reservoir – Induced Seismicity and according to USGS

USGS research shows that tailings dams over 100 metres high can produce tremors in an area 30 km from the wall axis, due to the phenomenon called Reservoir-Induced Seismicity.  El Mauro dam will be 300-metres high, one of the highest in the world, and is of a sand structure, a novel technique not tried before.

The induced earthquakes occur because of the tailings column pressure and water lubrication of faults.  Induced seismicity is to be expected due to El Mauro tailings dam’s sheer size and the existence of various faults in and around El Mauro area.

El Mauro faults

a) Challenger Fault and Juan Fernández Crest
To the south of El Mauro tailings dams there are two major faults, which were not mentioned in the mining company’s geological study:

  • Challenger Fault, which generates large earthquakes as the 1965 La Ligua 7.4º Richter earthquake.
  • Juan Fernández Crest

Figure 1 shows the geological characteristics of El Mauro area

figure 1
b) Quebrada del Horno Fault
Minera Los Pelambres’ report on Geological Hazards (REP-2507 -GE- 03) states that the most important geologic structure is the Quebrada del Horno Fault, 1-km to the west of the tailing dam’s wall.
Figure 2 shows the geological fault described in the mining company’s report.  It poses a substantial risk due to induced seismicity, which can have an undesirable impact on the dam’s wall.

Figure 2 The Quebrada del Horno geological fault as Los Pelambres .

figure 2
c) Geological Fault in the El Mauro area
The Geological Map of Chile shows different geological faults in the region. One of these faults is located in the El Mauro tailings dam.  It follows the Pupío stream and crosses the dam wall by the middle. This fault is also not mentioned in the mining company reports. As in the previous case, induced seismicity can trigger an earthquake under the dam.

Figure 3. El Mauro Geological fault

figure 3
Chile’s Seismic Zones

Chile is the most seismic country of the world. In the USCG Largest earthquakes in the world ranking since 1900, it can be seen that Chile ranks first place with the 1960, 9.5º Richter, Valdivia earthquake; sixth place with the 2010, 8.8º Richter offshore Maule earthquake, and 16th place with the 1922, 8.5º Richter Chile Argentina border earthquake.  It should be noted that the 1922 earthquake had its epicentre 378 km to the north of El Mauro.

NCH ​​Chilean Standard 433 – 2009, describes Chile’s Seismic Zones. El Mauro is located in Zone 3, as does the Valdivia and Maule earthquake.  The maximum credible earthquake for zone 3 is the 9.5º Richter 1960 Valdivia earthquake.

Figure 4 shows Chile’s seismic zones. Zone 3 is the most active and has the highest magnitude earthquakes. El Mauro tailings dam is in Zone 3, as shown in Fig 4.
figure 4
Figure 4 Chile’s Seismic Zones and El Mauro location.

Nazca plate seismicity
Figure 5 shows a summary of Nazca plate +7.5º earthquakes. The yellow box shows the last earthquake in zone 3 that struck Iquique on April 2014.  It was a 8.2º Richter tremor with and +7.5º aftershocks.
figure 5
Figure 5 Earthquakes in Chile, Nazca Plate.

It must be noted that ICOLD international standards requires tailings dams to be designed to last 10,000 years and should therefore resist the area’s “Maximum Credible Earthquake”. Antofagasta PLC did not follow these rules.  The dam was designed to resist 7.5º Richter earthquakes and not the 9.5º Richter Maximum Credible Earthquake for Zone 3.

This was the National Service of Geology and Mining (Sernageomin) civil engineer, Mr. Nelson Ramirez Morandé, deposition on which the Supreme Court ruled that Los Pelambres will not be able to invoke force majeure if the dam collapses if its damaged by a 7.5º – 9.5º Richter earthquake.

To the area’s inherent seismic risk, the dam design characteristics must be taken into account, specifically the fact that sand walls over 100 metres high are a recent experiment that has not been evaluated in long-term and has a high risk of failure by liquefaction, which implies that the tailing dam’s toxic waste and the sand walls could become mud and cascade towards the valley at speed over 100 km/hr.

It must be stressed that none of these factors was discussed in detail in the reports submitted by the company in the Environmental Impact Studies.

To appreciate the comparative energy release from a 7.5º and a 9.5º Richter earthquake, see the video Perspective: a graphical comparison of earthquake energy release.

2  Antofagasta PLC Annual Report 2013:  Legal Update – El Mauro tailings dam

The company states “The El Mauro tailings dam began operating in 2008 and has always complied with all applicable laws, regulations and controls.”   If this is so, then why was Los Pelambres fined USD 2.3 million, the largest fine in Chilean history, due to damage to the archaeological heritage?

Environmental Qualification Resolution 038 (RCA 038 2004) imposed on Minera Los Pelambres precise requirements to approve the construction of El Mauro tailings dam. 148 archaeological sites and over 500 rock art carriers with 2,000 petroglyphs where found in the area to be buried under the mining waste tailings.

The company was required to build in nearby Monte Aranda a rock park, showrooms and warehouses to keep the archaeological material and petroglyphs found at El Mauro.  The company agreed to build the required infrastructure prior to disturbing the archaeological sites, to ensure the proper handling and safe keeping of the material. Chilean law also requires that archaeological research be done to retrieve all possible data from an area to increase scientific understanding the cultures of ancient indigenous people who inhabited the area.

On February 7, 2014, the Superintendence of the Environment established that 10 years after the removal of the archaeological material, the mining company had not complied with any of the regulatory requirements it had agreed upon to attain the governmental permits to build the dam, infringing Chilean law.

Superintendence of the Environment investigators found that archaeologists had stored the excavated archaeological material at their homes due to lack of warehouses and that petroglyphs removed from the area remained stored at inadequate facilities until 2013, as the agreed infrastructure at Monte Aranda was nonexistent.  They also determined that the mining company never delivered the final report on the El Mauro archaeological sites, as required by law.  Investigators established that there are no photographs or plans with archaeological pieces and petroglyphs’ location.  Of 148 archaeological sites, Minera Los Pelambres was only able to present incomplete information on 40 sites.  The faulty procedures employed at El Mauro may imply significant data loss.

The Comptroller General of the Republic has initiated proceedings at the Council of Monuments, which is the Governmental agency that oversees regulations on archaeological sites, to determine administrative responsibilities by its officials.   The Comptroller has established that, contrary to declarations by Council of Monuments’ personnel to Congress, the Ministry of Education and the SMA, the Final Report required by law was never delivered by Minera Los Pelambres.

Local prosecutors at the Los Vilos Court have dismissed complaints by the Superintendence of the Environment and the community about heritage damage by the Mining Company or possible antiquities trafficking.  Chilean Law requires a court order for police to begin investigations on these matters, so they remain unresolved.  In the ensuing legal battle between the mining company and complainants, the La Serena Appeals Court has overturned rulings by the Los Vilos court against complainants.

Furthermore, the Chilean Society of Archaeology has consistently refused to investigate complaints.

The Superintendence of the Environment findings prove the allegations by the community are real.  The company infringed Chilean law and damaged El Mauro’s archaeological heritage. Government agencies and archaeologists failed in their duty to protect it. The USD 2.3 million fine is the largest of its kind in Chilean history, but the damage is done and is irreparable. It is expected that the company will appeal to lower the fine’s amount.

The “rock art park” that Minera Los Pelambres is currently building with a 10 year delay in Monte Aranda will be forever a monument to the folly of destroying ancient, 4,000 years old sites.

Some questions
a) Why did the company not reveal in the Annual Report the fact that on February 2014 was fined because on infringements to Chilean Environmental Law and declares that “has always complied with all applicable laws, regulations and controls”?
b) The Annual Report, Risk Management section (pp 24-27) states that “the Group has developed a Crime Prevention Model in accordance with anti-bribery and anti-corruption laws in the United Kingdom and in Chile”.  It also states that it has received certification of the model, under Chilean law.  The Chief Financial Officer is responsible for setting, operating and monitoring the Crime Prevention Model.   As it has been proven that certain Chilean government officials have failed to fulfil their duties in the benefit of Los Pelambres, what has the Audit and Risk Committee done to investigate if those officials had received bribes from any Los Pelambres personnel?

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