MAC: Mines and Communities

London Calling scents something rotten in the North Woods - and even worse in Armenia

Published by MAC on 2007-03-03

London Calling scents something rotten in the North Woods - and even worse in Armenia

by Nostromo Research

3rd March 2007

It all seems a bit peculiar. But a distinct whiff of corruption is in the air as Michigan's Department of Environmental Quality (DEQ) withdraws initial approval for Rio Tinto/Kennecott's nickel-copper mine project in the state. [see BusinessWeek article below].

The significance of this project shouldn't be under-estimated. It marks the first new nickel mine promulgated for years in the USA (Norilsk's Stillwater is the only current producer). It's also Michigan's first sulphide-based one. The neighbouring state of Wisconsin has already effectively banned such mining because of the dangers of uncontrollable acid drainage.

Unusually, it's not Rio Tinto that's currently in the firing-line. Rather, the Michigan state environment agency now finds itself under scrutiny for what - at best - seems woeful negligence and at worst could be the result of a criminal act.

The evidence is that two independent reports on Rio Tinto's proposal were last year "inadequately" vetted (a euphemism for being buried) by the DEQ before conditional approval for the mine was granted in January this year. One of these reports examined the critical question of whether the "crown pillar" (bedrock above the underground excavations) might not collapse once mining was underway.

It determined that the company's design proposal did "not reflect industry best practice", while "the hydrologic stability of the crown pillar has not been considered. Therefore, the conclusions made within the ... application regarding crown pillar subsidence are not considered to be defensible."

Now that's a pretty damning conclusion and one which ought to have sent the company instantly back to the drawing board - if not had the entire proposal being thrown out of court. Mysteriously, however, the report's author later recommended that the mining should proceed while "further analysis is conducted".

Which is rather like sending a boat into the ocean while still caulking its bottom.

No wonder a spokesperson for the National Wildlife Association has demanded to know "What other reports are out there that were not to the staff's liking that have been buried?"

In fact, if the conclusions of a September 2006 report by Earthworks had not been so widely ignored within the US the validity of all pre-mine studies conducted by mining companies should now be strongly doubted.

That report, carried out by an expert team, revealed that almost every appraisal of likely water contamination at around two dozen major mines had underestimated the actual impacts.

Among the mines studied was Rio Tinto/Kennecott's Flambeau mine in Wisconsin which closed in 1997. This is perhaps the closest example to which Michigan's guardians of the environment might have come, in terms of a sulphide operation by the same company in a compatible ecological setting.

The Earthworks’ experts obtained monitoring and compliance data for the period 2000-2003 from the company's Annual Report on Groundwater and Surface Water Trends

This noted that four monitoring wells in the backfilled pit showed "exceedences [sic] of drinking water MCLs or secondary standards for iron (up to 12 mg/l), manganese (up to 37 mg/l), pH (as low as 6.1), sulfate (up to 1,700 mg/l) and total dissolved solids (up to 3,400 mg/l).”

One in-pit well “showed continued increasing or elevated concentrations of iron, sulfate, TDS and manganese”, though other wells showed decreasing concentrations. Groundwater elevations were higher in the backfilled pit than they were between the pit and the river, so water was potentially flowing from the pit to the river.” After groundwater elevations returned to pre-mining levels, concentrations of iron, manganese, sulfate and TDS increased and pH decreased." (In other words, acidity increased).

"Values for pH before pumping began were quite variable (5.8 - ~8.3). Concentrations appeared to peak in 2000 and were slowly decreasing for manganese (from a high of over 5,000 µg/l), sulfate (from a high of almost 700 mg/l) and TDS (from a high of ~1,300 mg/l).” Disturbingly, however, they were "continuing to increase for iron (up to ~6 mg/l).”, while zinc concentrations were variable and (as of 2003) still around 700 µg/l.

"Although concentrations in surface water up and down gradient of the mine showed no temporal water quality trends, a report from the Great Lakes Indian Fish and Wildlife Commission stated that water parameters measured have changed from those measured during mine operation, and that the change makes it impossible to compare during- and post-mining water quality

"The concentrations of copper, iron, manganese and sulfate in the backfilled pit were predicted using geochemical modeling in the EIS. The modeling apparently used concentrations from short-term leach tests, but the details of modeling were not provided in the EIS. Predictions were also made in 1996 and 1997 as part of the mine’s backfill plan. Concentrations predicted in 1997 for copper, manganese, and iron were substantially higher than those predicted in the EIS. For example, copper concentrations predicted in 1997 were 0.18 to 0.56 mg/l, and concentrations in the EIS were 0.014 mg/l."

If that all sounds a little obscure, then consider this: "Compared to EIS-predicted post-mining concentrations in the pit backfill, post-mining concentrations in the backfill were higher by up to 45 times for copper, 70 times for manganese, 30 times for iron, and 1.25 times for sulfate."

"Therefore", concludes the Earthworks report, "modeling underestimated actual concentrations of metals and other contaminants in the pit backfill leachate. "

All things considered, that seems a pretty big under-statement.

Mich. reconsiders Kennecott application

by JOHN FLESHER, Business Week

2nd March 2007

A company's plan to drill for nickel and copper in the Upper Peninsula was thrown off track as state regulators acknowledged they hadn't adequately considered reports questioning whether the mine's roof would hold up.

The Michigan Department of Environmental Quality said Thursday it was withdrawing tentative approval of Kennecott Minerals Co.'s application to operate the mine, which was awarded in January.

The DEQ had planned to make a final ruling as early as May, following public hearings this month in Marquette and Lansing. Instead, Director Steven Chester canceled the hearings. He promised a thorough study of the reports and an investigation of why department staffers apparently downplayed them and excluded them from the public record.

"This department has committed itself to making this process as open and transparent as possible," Chester said in a statement. "In light of this information, we must allow the needed time for ourselves, as well as the public, to give it the appropriate review."

DEQ spokesman Robert McCann said the agency wasn't necessarily changing its mind about whether the mine should be allowed, but was reconsidering how it made the preliminary decision.

The DEQ's move "is not due to any action or inaction on Kennecott's part," said David Salisbury, the project's president. "This is an MDEQ internal issue they must address themselves."

Jon Cherry, the Kennecott project manager, said the mine's stability was among many questions the company had answered to the DEQ's satisfaction.

"We stand behind our design and our application," Cherry said. "We think we have a proposal that's safe, stable, protects the environment and meets all the requirements and we look forward to the process getting back on track."

McCann said there was no timetable for when the department would issue another tentative ruling on the Kennecott application.

Environmentalists who have fought the proposed mine said the developments cast doubt on the objectivity of DEQ regulators involved with the project, although they praised top-level managers' response.

"The DEQ's actions today confirm that their entire decision-making process on this mine has been corrupted," said Michelle Halley, a Marquette-based attorney with the National Wildlife Federation. "What other reports are out there that were not to the staff's liking that have been buried?"

Marvin Roberson, a Sierra Club spokesman, said Michigan had a good law and regulations for the type of mining Kennecott proposes. "But none of that matters if there's incompetence or malfeasance on the part of the people who apply those rules," he said.

DEQ staff members who received the reports and didn't handle them properly are being reassigned during the investigation, McCann said. But he insisted there was no evidence anyone had deliberately suppressed the documents, saying the likely explanation was "just mistakes." He would not identify the staffers.

The company is targeting a six-acre underground deposit expected to yield 250 million to 300 million pounds of nickel and about 200 million pounds of copper. It is located in the isolated Yellow Dog Plains region of northwestern Marquette County.

Despite the Upper Peninsula's long mining history, the Kennecott operation would be the first to extract minerals from sulfide ores through a process that critics say could cause acid to leach into the groundwater and nearby Salmon Trout River, a Lake Superior tributary.

Announcing tentative approval in January, the DEQ said extensive steps would be taken to avoid sulfide pollution, including moving the ores from underground directly to enclosed buildings, then to covered trucks and finally rail cars for transport to a processing facility in Canada.

The two reports that prompted the DEQ's backpedaling were written in May 2006 by David Sainsbury, a Minneapolis mining and geotechnical engineer. He was a subcontractor for an outside consulting company the DEQ hired to help analyze Kennecott's application, McCann said.

Sainsbury focused on the "crown pillar" -- the bedrock atop the underground mining area. A layer of soil 40-80 feet thick lies between the earth's surface and the crown pillar, Cherry said.

Sainsbury called for more extensive analysis of whether the crown pillar would hold up under Kennecott's proposed design.

In one report, he wrote that techniques used to assess the stability "do not reflect industry best practice. In addition, the hydrologic stability of the crown pillar has not been considered. Therefore, the conclusions made within the ... application regarding crown pillar subsidence are not considered to be defensible."

However, in a one-page memo dated Nov. 9, Sainsbury recommended allowing Kennecott to develop the mine while further analysis was conducted, as long as the area being mined remained a safe distance down.

"He's saying that if they do this in phases, which is what they are proposing, and keep the mining below that elevation, then his concerns of those other two documents are allayed," McCann said.

Cherry said Sainsbury's earlier concerns were based on company data that didn't include its plans for ensuring stability, such as backfilling the mine section by section as the minerals are removed.

Dirty Zod

That triple-A rogue (the Appalling Anil Agarwal) seems to have done it again. Not content with brushing aside the allegations of fraud made against his company, Sterlite Gold, by the Armenian government last year, he's allegedly committed fresh violations at his Zod gold operations.

In a report issued last week, the country's ministry of Natural Resources accused Sterlite Gold of mining more gold than permitted (essentially "high grading" the ore), deliberately under-valuing the reserves, and - critically - of failing to contain the appropriate amount of mine wastes.

Sterlite Gold has been running at a loss for some time, despite Agarwal's attempts to circumvent the company's problems. His promise to raise a minimum of US$80 million for a new mill close to the minesite has gone nowhere. That's hardly surprising considering that investors would not be enamoured about pouring new money into a failing venture close to the fractious Azerbaijan border. Or that Agarwal has made it clear he needs to site a refinery on the ecologically protected Lake Sevan, in the lea of Mount Ararat .

It now seems considerably more likely than it did a year ago, that Agarwal will face criminal charges in Armenia, but we doubt he will lose much sleep over the prospect.

When he "backwarded" Sterlite Gold into Vedanta Resources plc in 2006, it was he and his family who pocketed more than half the US$60 million that his UK company shelled out to purchase the Armenian enterprise. That was a scandalous piece of quasi-insider trading which merited not a single adverse comment from the UK financial press. Worse, the deal received the approval of that "responsible" accountancy firm, Ernst & Young.

One possible option for the Indian mining magnate is simply to cut and run from Armenia. After all, his initial partner in the Zod mine venture was none other than Robert Friedland who did precisely that in 1992 after his notorious Summitville Gold mine in Colorado began spewing masses of toxic wastes from its leaking cyanide heap leach pads.

Friedland was indicted for his criminal negligence, but never served a day in court, let alone in jail.

Sources: on Rio Tinto’s Flambeau mine: "Comparison of Predicted and Actual Water Quality at Hardrock Mines; The reliability of predictions in Environmental Impact Statements, by Buka and Kuipers & Environmental Associates, Earthworks, San Francisco, September 2006, section "ACTUAL WATER QUALITY CONDITIONS", and section "COMPARISON OF PREDICTED AND ACTUAL WATER QUALITY"; on allegations against Agarwal’s Sterlite Gold, see: “Armenia may start prosecution of Vedanta-controlled Zod gold mine”, by John Helmer, Minewebm 28 February 2007.

[London Calling is published by Nostromo Research, London. The views expressed here do not necessarily represent those of the Mines and Community editorial group. Reproduction is welcomed, with full acknowledgment of the sources.]


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