Mining safety in focus worldwide after Chile rescue

18th October 2010

Seb Beloe, Head of SRI Research at Henderson Global Investors, says questions over how the 33 Chilean miners came to be trapped 700 metres underground at the Copiapó mine "are largely being overlooked".   

He notes that the accident at Copiapó was not the first at the mine and that, in fact, the mine had a poor safety record.  

While questions still need to be answered as to the events leading up to the latest near-disaster at the Copiapó mine, the extraordinary rescue operation has at least led to the Chilean government announcing a full review of safety standards at all mines in Chile.

The impact of the Chilean incident is having repercussions worldwide, with pressure growing on mining companies to improve safety standards.

A few days ago AFP reported that Rupiah Banda, president of Zambia, has urged investors to ensure worker safety to avoid mining accidents similar to the one in Chile. Zambia is one of the world's biggest producers of copper.

2010 overall was not a good year for the global mining industry, hit as it was with plenty of "bad press".

There was, for instance, the Upper Big Branch Mine disaster in the US in April which killed 29 miners, and further accidents in Kentucky which killed year more miners.

Beloe adds: "The picture has been even worse in China where, statistically speaking, eight people will lose their lives today – and every day – in Chinese coal mines."

Mining is recognised as being highly dangerous, with miners pretty much at the mercy of the regulatory system that governs how safely their mines are operated. The regulations can vary greatly from country to country.

Beloe says coal mines in China, where safety standards have been famously lax, are significantly more dangerous than mines operated in the US or even India with 0.89 deaths per million tonnes produced in China, compared to 0.02 and 0.06 in the US and India respectively: "Of course the geology is different in these different countries but nonetheless the regulatory system clearly matters."  

Beloe says the approach taken by individual mining companies also matters enormously, with those committed to operating safely and providing the policy and systems to support that commitment able significantly to reduce their injury and fatality rates.

In China, the worst performing companies kill almost four people for every million tonnes mined, while the best rival their Western peers on safety standards.

And companies are capable of making progress with safety whether it through their own internal standards or external pressure, including from investors, after a fall from grace. Beloe cites the case of Anglo-American, one of the world's largest miners, which suffered a spate of accidents in 2007 when nearly 40 miners lost their lives in Anglo mines.

"Since then, the fatal injury frequency rate has been nearly halved – though clearly with 20 miners still losing their lives there is still a considerable distance to go."

Beloe notes the "rich and unpleasant irony" of a China now pushing very hard to improve mine safety: it has instituted nothing less than the death penalty for mine managers found to be providing unsafe working conditions in their mines.

Aside from the obvious tragedy that mining accidents represent for the families and communities of the miners, Beloe says it is also self-evident that these accidents are bad news for investors: "The financial costs associated with compensation payments and/or legal fees, production delays, additional capital expenditure, higher insurance costs and other associated costs mean that mine accidents are increasingly expensive."

Massey Energy Company, implicated in the Upper Big Branch disaster in April, lost over half of its share price following the accident and is now only back to 2/3rds of its pre-accident highs.

"For a high impact industry like mining, understanding safety risk should now be a core skill for anyone investing in the sector," says Beloe.

My-Linh Ngo, Associate Director SRI Research at Henderson, says there is "a clear positive correlation" between progressive corporate health and safety practice and financial success: "We see an engaged and motivated workforce as one that is likely to be more effective and more productive."

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