Why have so many tailings dams failed in recent years?

Margaret Armstrong, Renato Petter and Carlos Petter

Resources Policy, 2019, vol. 63, issue C, -

Abstract: The number of tailings dam failures has doubled in the past 20 years. Advances in mining technology have made it possible to exploit lower grade deposits despite decreasing commodity prices, which means disposing of more rejects and putting more pressure on tailings facilities. Our analysis of four recent tailings dam failures in countries with a strong mining tradition (Los Frailes in Spain, Mt Polley in Canada, Samarco and Brumadinho in Brazil), showed that production had been increased and/or cost cutting measures had been put in place before the accidents. In this paper, we postulate that the compensation packages offered to middle management which actively encourage managers to cut costs and increase production so as to increase their annual bonuses are a key factor in the rising number of serious accidents. Newmont Mining's compensation package contains a component that is equivalent to the options in traders' bonuses. As is well known, this led to excessive risk-taking in banks and hence to the subprime crisis and the global financial crisis. We argue that year after year managers keep taking risks with a low probability of occurrence but with potentially catastrophic consequences. These risks are compounded by shortages of experienced staff due to the cyclic nature of the industry and the retirement of the baby-boomer generation.

Keywords: Management compensation packages; Bonus system; Put options; Los Frailes; Mt Polley; Samarco; Brumadinho; Mining association of Canada guidelines (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:63:y:2019:i:c:40

DOI: 10.1016/j.resourpol.2019.101412

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