When an earthen dam for a tailings pond at the Mount Polley copper mine burst August 4, it did more than just send a wall of water and silt into fish-bearing lakes and rivers. It pushed Imperial Metals (TSX:III) stock over a cliff, raised questions about how the company will finance its flagship Red Chris mine project to completion and may have dealt a blow to other mine projects in B.C.
“Aside from the environmental damage, which is a huge issue, financially it raises some questions as to how they proceed now with funding Red Chris debt obligations and getting Red Chris off the ground,” said Stefan Ioannou, a Haywood Securities Inc. mining analyst. “And for the mining industry, I think anyone trying to develop a large open-pit mining project anywhere in Western Canada, or Canada at all – but especially B.C.-Yukon – it opens up a whole new can of worms.”
Imperial's stock lost 40% of its value in the first day of trading after the disaster, plummeting to $10.19 from $16.80.
Two days after the incident, Sutts, Strosberg LLP, a firm that represents investors in securities class-action lawsuits, announced it was investigating Imperial Metals, and the B.C. Ministry of Environment issued a pollution abatement order.
Raymond Goldie, a mining analyst for Salman Partners, points to the Boliden mine disaster in Spain in 1998 as a potential yardstick for what could happen with Imperial.
“At their worst point [which came 10 months after the spill], Boliden's shares had lost 83% of their relative value and 88% of their absolute value,” Goldie said in a briefing note.
“We note also that, in [the] subsequent 10 months, Boliden's share price rebounded 313%.”
Goldie said Boliden's cleanup costs were estimated at $530 million – about the total capital cost of the Red Chris mine.
Imperial has placed Mount Polley under care and maintenance, and analysts expect it could take months before the mine restarts.
Goldie suspects Imperial might also have to delay the commissioning of its $500 million Red Chris mine for about a year.
“I find it difficult to imagine Red Chris being allowed to start up before the government had assured itself what the cause was of Mount Polley and assured itself that this wouldn't happen at Red Chris,” Goldie told Business in Vancouver.
Imperial has already begun digging ore from the ground, and the mine was due to be commissioned in the coming months.
In addition to Mount Polley, Imperial owns 50% of the Huckleberry copper mine in Houston, B.C., and the Sterling gold mine in Nevada.
But Mount Polley is the company's most important producer. Goldie said it was expected to generate 72% of Imperial's copper production this year.
Ioannou added that it could prove difficult for Imperial to pay debt on Red Chris with its most productive mine shut down.
“They raised a fair bit of debt to build Red Chris,” Ioannou said. “Some of that debt is going to start to require servicing as early as this fall.
“The company was relying at least in part [on funding] that debt servicing through cash flow from Mount Polley and Mount Huckleberry. Now you've turned off one of their mines, effectively.”
He said the disaster could also make it more challenging for other metals mines projects in B.C.
For example, Seabridge Gold Inc. (TSX:SEA) received an environmental assessment permit on July 31 for its $5.3 billion KSM mega-mine project near the Alaska Panhandle.
Environmentalists and First Nations on both sides of the B.C.-Alaska border have already raised red flags over the potential impact on fish-bearing rivers from acid-producing waste rock.
“It couldn't be worse timing for them,” Ioannou said. “[Two weeks] ago they announced that basically the permit was in hand, a done deal, and now this has happened.
“I wouldn't be surprised if the government says, ‘Hold on a second, maybe we should take another look at that one too.'”
Angela Waterman, vice-president of the Mining Association of BC, hopes investors and the public will wait for a report on what caused the breach before tarring all mine projects with the same brush.
“I think we need to focus on the fact that these events are not common and have confidence in both the provincial and national guidelines and regulatory systems, which are amongst the most rigorous on the planet,” she said.
But B.C. First Nations are already pointing to the Mount Polley disaster as an example of why they are opposed to mine projects in their traditional territories.
The Tsilhqot'in Nation said the tailings pond and dam at Mount Polley were the same kind proposed for the New Prosperity mine, which the Tsilhqot'in have vigorously opposed.
In a statement last week, the Tsilhqot'in said: “This is proof of the faults and extreme risks within this model of tailings storage facility.”
The case for reconsidering tailings ponds in B.C.
As the Mount Polley disaster underscores, one of the problems with storing mine waste in large manmade lakes behind earthen dams is that the dams can burst. They can also leak.
That's a problem in B.C., where it's virtually impossible to site a mine that isn't within a stone's throw of a fish-bearing river or lake, which can become polluted in the event of a tailings pond breach. There are also concerns over the vast amounts of fresh water used to create tailings ponds.
So what's the alternative? Dry stacking eliminates tailings ponds, although it's more expensive because it requires costly dewatering technology and increases transportation costs.
But cleaning up after a tailings pond breach can also be expensive.
Moreover, tailings ponds are the No. 1 environmental concern in mining and can mean the difference between a project being certified or not.
For example, Taseko's (TSX:TKO) New Prosperity mine failed a federal environmental assessment because of concerns over its tailings pond and its impact on Fish Lake.
Waste rock from mines is typically stored underwater in ponds to prevent acid rock drainage. Sulphides in the tailings will oxidize when exposed to air to create sulphuric acid, which is harmful to aquatic life.
When the mine shuts down, the water can be treated chemically and released, and the tailings covered. Dry stacking eliminates the need for tailings ponds.
Extracting gold, silver, copper or any other metal typically involves grinding rock into a fine, wet powder.
Adding water not only helps lift the precious metals out, it also makes the leftover slurry easy to transport, because it can be pumped into a tailings pond.
Dry stacking requires removing the moisture from the slurry, then spreading it out in layers. The layers might have membranes between them, so only the top layer is exposed.
Any acid drainage is minimal and can be collected in small holding ponds.
Removing the water from the slurry typically involves a “dewatering” process. Compression is commonly used to squeeze the water out of the slurry.
Vancouver-based CEC Mining Systems has been testing a new process that it believes will lower the cost of dry stacking. It uses a ceramic membrane to filter out the water from the slurry. The water can be reused.
The company recently completed a demonstration project of its vacuum disc filtration system at the Metalex Beneficiation Plant in Peru for Montreal-based Dynacor Gold Mines Inc. (TSX:DNG).
According to a paper based on that project, the annual operating costs would be 422% higher, but, overall, dry stacking using CEC's vacuum disc filtration would be US$1.5 million less than the construction and expansion of tailings ponds.
Ben Raps, a CEC mining engineer, said the economics of dry stacking work best in arid regions where water scarcity and high power costs are an issue. In other words, it doesn't stack up well with tailings ponds on a simple cost basis in B.C.
Even so, Raps said Canadian companies are now starting to take a second look at dry stacking, because the alternative may be that their mine project never gets approved.
“Because of disasters like this, they know that the industry is headed in that direction,” Raps said, “and it all eventually is going to be dry stacking, even though it's more expensive.”