Zijin: Emblematic of China’s Mining Industry?

By Chris Nolan 29 July, 2010

Chris Nolan, extractions expert at Business for Social Responsibility investigates …

In the wake of Zijin Mining Group Co.’s acid-laced waste spill in Shanghang, Fujian province on 3 July, investors, industry observers and non-governmental organizations may rightly ask, “Is this emblematic of a larger trend in the Chinese mining industry?” While this disaster was one of the industry’s worst spill in two years, it may be helpful to examine this accident within the context of the industry’s global environmental management trends to tease out its root causes.

Are environmental mining disasters becoming a thing of the past?

From exploration to mine closure, the global mining industry has no doubt come a long way over the past 20 years. International practices have evolved to reflect stakeholder concerns around environmental impacts and respond to increasingly stringent regulatory requirements in many countries. Environmental impact assessments (EIA) have become a feature process for companies and an increasing number of host countries require them to be completed before projects are approved– from Canada and Australia to the Philippines and Papua New Guinea. EIAs have also been enshrined in the Equator Principles, a voluntary set of standards for private sector banks to assess environmental risk in project financing.

Though vastly improved, the picture internationally remains mixed. Even when we look at some of the largest companies. It was only eight years ago, for example, when BHP Billiton, severed ties with Ok Tedi Mining Ltd, which was responsible for a tailings spill that cost Papua New Guinea tens of billions of dollars in environmental damage.

While clearly the industry in China is by no means alone in its environmental challenges, the global mining industry has at least taken and is continuing to take steps in the right direction. From a regulatory standpoint, the August 2007 “Circular on Environmental Protection Verification of Highly Polluting Industries to Further Standardize the Production and Management of Companies Applying for Public Listing or Refinancing” issued by China’s Ministry of Environmental Protection (MEP) and the 2003 law on environmental impact assessment were positive developments. However the industry has yet to demonstrate broad-based commitment to meeting and exceeding the standards put forth.

What are we to make of tailings management these days?

Though details of the disaster are still becoming known, one problem, in addition to apparent shortcomings in core environmental management systems, was a systematic failure with the tailings damn at Zijin’s Shanghang site. According to Leading Practice Sustainable Development Program, Tailings Management, a working group of experts from the Australian mining industry, a basic requirement of a tailings storage facility is to provide safe, stable and economical storage of tailings that present negligible public health and safety risks and low environmental impacts during operations. Best practice in tailings management requires a systematic, risk-based approach. Basic requirements and best practice were clearly not met on 3 July, despite the available knowledge of such practices and numerous downside risks that previous tailings failures painfully illustrate.

Tailings management only part of the picture

Internationally, responsible tailings management is only one part of what the global mining industry is slowly continuing to embrace, which is a more sustainable approach to mining. Though poor tailings management has a clear impact on a company’s bottom-line (see Zijin and the quest for materiality), the impetus for quality management is also tied to a company’s need for a social license to operate – something mining companies in China are simply not accustomed to seeking. To date, the global industry has taken some of the above mentioned steps because it was pushed to by external stakeholders. Such drivers of the growing commitment to sustainable mining are largely absent in China or not serious enough to ‘move’ the industry in a significant way.

Paired with operational shortcomings is the issue of ‘resource governance’. Resource governance – the administration of applicable laws and regulations that safeguard the public and the environment against negative impacts and maximize positive national benefits from resource development – establishes a baseline for minimum performance even in well regulated markets such as Australia. Companies must then go beyond this minimum baseline to achieve best practice.  In China, the regulatory authorities at the provincial and national levels appear to have failed to even enforce such a clear baseline for minimum performance.

The challenges clearly go beyond poor tailings management. The tailings damn failure in Shanghang does in fact point to a certain stagnation in the mining industry in China in relation to sustainability and responsible business practice. Some of the driving issues include:

• The lack of a well-enforced regulatory baseline for the industry,
• Company environmental management systems that have yet to embrace best practice and;
• The lack of external incentives (e.g. need for social license to operate) that pressure companies to adopt more sustainable approaches to mining

Better disclosure will help investors map the risks, but much more must be done before the bar is raised on performance standards in China’s mining industry. And if the above issues go unaddressed, the recent disaster will not be the last of its kind.