Operational control lesson from Samarco

THE key lesson from the Samarco iron ore mine tragedy in Brazil is that companies such as BHP Billiton and Vale need to reconsider joint venture management structures and should not rely on local regulations to gauge community expectations, Vale Australia's former general counsel Robert Milbourne said.
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Anthony Barich

Milbourne, now a partner at K&L Gates in Brisbane, told MiningMonthly.com that the mining industry was fraught with risk and danger, and industry professionals often comforted themselves that they had exercised their due diligence and due care to minimise social and environmental risks to the lowest acceptable level.

When a disaster occured, such as Pike River, the Soma mine disaster last year or the Samarco disaster this month, he said industry professionals would be wise to reflect on any early lessons learned and rapidly implement appropriate changes in management or planning.

Perhaps the greatest lesson to come out of Samarco to date, Milbourne said, was one of operational control.

“In a 50-50 JV, if neither partner assumes direct managerial responsibility, both may ultimately be held equally responsible even when professional and responsible independent managers have been hired and appointed,” Milbourne, who is also Adjunct Professor at the University of Queensland’s TC Beirne School of Law, said.  

“In a worse-case scenario – not proven in the case of Samarco – a ‘no-man's land’ void of direct oversight could result in both JV parties being held to be negligent in supervision and management.”

Milbourne said companies needed to consider their operational control structures in more detail in the future – and should question whether a 50-50 arrangement with independent management was an acceptable arrangement.

BHP Billiton and others have already acknowledged a preference to ensure one owner bear direct operational responsibility in their JVs.

It was also important, Milbourne said, to recognise the evolution of legal expectations.

“Regulations are in effect lag indicators of community expectations and experience,” he said.

“Events such as the Samarco tailings disaster immediately impact on community sentiment, which will ultimately translate into regulatory change.  

“Boards and management must ensure that their operational health and safety plans are regularly updated against changing community expectations – rather than solely looking to regulatory standards at any point in time.”

Milbourne said it would have been very helpful if BHP and Vale could have said "we instructed Samarco mine management to benchmark their operational standards against world best practices".
 Unfortunately, these do not yet readily exist.

Fairfax yesterday quoted BHP as saying "it is important to note that BHP Billiton tailings dams are operated, monitored and assessed to manage material risks and the majority are governed by regulatory requirements which can vary between states.

“Our existing processes include risk reviews and audits, which are done at regular intervals,” BHP said, adding that it was “too soon to comment” on whether the tragedy would lead to other reviews across the business, beyond the tailings dam checks.

Milbourne said boards would do well to seek out evidence that their operations were benchmarked against best in class standards in the world. 

“Now more than ever it is incumbent on the major mining houses to seek the development of consensus around acceptable international best practice standards,” he said.

“Equally importantly, such firms should consider conducting audits against such standards, under legal professional privilege, so that boards and management may freely consider audit failures without fear that such audits would necessarily go into the public domain before management had the chance to rectify any deficiencies.”

Milbourne said boards should also review emergency response teams to ensure they were adequate for any probable disaster that could impact on operational facilities.

“Rapid response teams can only help mitigate in the event of a disaster,” he said.

Such businesses also needed to consider how their annual report might retrospectively look in the aftermath of a disaster.

Samarco's most recent annual report claimed low lost time injury – despite a contractor fatality on site – and a high priority for community and environment.

However, Milbourne said those statements would be scrutinised now by “a thousand different stakeholders”, including governments, non-governmental organisations, investors and insurers. 

“It is timely to consider that an annual report that focuses on profits and increased production can look very different in the aftermath of such an event, than an annual report that focuses on safety, environment and community,” he said.

“Many lessons will emerge from Samarco – and as a global mining community we should be grateful for any opportunity to learn and improve.

“The agony of the families who face such horrific losses should not be in vain.

“Mining is a powerful instrument for good in the world – and the Samarco community indeed is eager for the mine to reopen operations as soon as possible – but disasters such as this must be immediately used as opportunities for the collective community to reflect, learn and grow.”