Waste can be found wherever there are mining operations. Non-solid waste is collected in basins called tailings ponds, which are contained by dams. The failure of such a dam can have catastrophic consequences. If structures like these are to remain insurable, their individual risk situation must be analysed.

In contrast to water reservoirs, the retention structures  for tailings disposals are either made from  crushed rocks or, in the worst case, from dried waste  residue. In order to seal the dams, they are given a  core made from clay and in some cases plastic liners  as well. Since the mine life of many operations is  longer than originally planned because of increasing  raw material prices, the dams may also need to be  raised. Depending on the extraction method used, this  can be done with either waste rock or dried tailings,  which sometimes contain toxic chemicals from the  treatment process.

Unlike reservoirs, which can be drained for maintenance,  tailings dams must remain reliable over their  entire operational life. In principle, they are built to  last for ever, and ideally will be revegetated after a  mine has closed down. While the mine is in operation,  they must be stable enough to withstand the pressure  from the tailings they hold. Unfortunately, this is not  always the case. Canada‘s Mount Polley dam burst in  2013 and in 2015 the Samarco dam in Brazil failed.

The most frequent causes for incidents in tailings  storage facilities (TSF) are earthquakes, overflow and  landslides. In the case of quakes, either the dam itself  can become unstable, or it can fail as a result of what  is known as liquefaction. The maximum volume of a  TSF can be exceeded by high precipitation, with the  result that tailings escape from the basin. The dam  itself is often damaged in the process. If the slopes of  tailings dams are not flat enough, or not sufficiently  compacted during construction, landslides occur that  significantly compromise the stability of the dams.

The more expensive alternative technique is “dry  stacking”, in which the processing residue is completely  dried before being deposited. The material is  piled up and compacted. This removes the need to  construct large dams.

The highest dams today are up to 240 metres tall, and  will grow even higher in the future. By way of comparison,  the Hoover dam in the south-west of the USA  measures 221 metres in height. TSFs are therefore  among the largest man-made structures in the world.  In the light of this trend and the aforementioned incidents,  the mining industry has recognised the need  for action. In December 2015, the International Council  on Mining and Metals, a consortium of the world‘s  23 largest mining and metal companies, announced  that it intended to review standards for the storage of  tailings.

A rethink has also begun in the insurance industry  after dam failures over the last few years triggered  several major losses. The objective is to be able to  estimate the risks more accurately, to ensure that tailings  dams remain insurable in the future. It would be  sensible in this context to separate the insurance of  mining, and the special risks it involves, from standard  property insurance. Munich Re has already  adopted this approach in its Corporate Insurance  Partner (CIP) unit. Unlike with the oil and gas sectors,  there has traditionally been no separate line of business  for mining in the insurance industry. Insurance  policies are simply adapted from the policy forms for  “standard” property risks in other industries by adding  specific amendments for mining. As a result, product  development has failed to keep pace with the industry’s  needs and risks.

The shortcomings become apparent in the area of  business interruption. Loss of revenue due to business  interruption is only covered if triggered by an  insured property-damage loss. But tailings from mining  operations are a product of no value, and thus  cannot be covered under generic property insurance.  This means that mining companies actually have no  way to insure against business interruption if the dam  on a sludge basin fails. On the other hand, it is impossible  to operate a mine without a functioning TSF,  since operations would have to close down if the  processing residue cannot be disposed of.

Mining companies were assisted in their search for a  solution to this dilemma by the soft market conditions  of the last few years. This made it possible for them to  conclude lump-sum agreements with insurers which  also covered losses from business interruption without  property damage triggers. The limits for these  have steadily increased as market conditions have  become softer.

What is needed, however, is a different approach:  risks must be correctly assessed if they are to be  insured commensurately. This requires experts in the  field of mining who can work closely together with  the respective clients. Munich Re has developed a  questionnaire for this purpose, which forms the basis  for the individual risk assessment. This should help  calculate the critical risk scenarios, based on which  the scope of cover and limits of indemnity can then be  determined. The relevant factors include the age of  the TSF, its probable service life, and the expected  output of the operations. One exclusion criterion, for  example, would be if the level of the sludge in the  retention basin was just below the top of the dam.  That would pose a substantial risk of the dam overflowing  in the next heavy rain event.

If the questionnaire produces no exclusion criteria,  the next step is for the underwriters to individually  determine the stability of the tailings dams based on  geotechnical reports. This is because each of these  structures is different due to the varying geological conditions. Some of the important factors here are  the material the dams are made from, the method in  which they have been raised, and the properties of the  soil on which they were built. In this evaluation process,  Munich Re has the advantage that it has been  supporting individual mining projects for decades  and can draw on the expertise gained in this area.

Lump-sum covers for risks emanating from tailings  dams harbour substantial risks for insurers because  clients are requesting ever-larger sums insured.  Insurers will have no option but to separate mining  from general property insurance, and to find individual  solutions in the same way as is customary in oil  and gas business. In Corporate Insurance Partner,  Munich Re has already adopted this approach with an  experienced team of experts for various industries,  and has also created a successful model for technical  underwriting with its experienced mining team.

In order to get at valuable minerals, mining  companies extract large quantities of rock.  This first has to be ground down, and is then  generally processed with the addition of  chemical solutions. The lower the concentration  of valuable materials, the higher the  proportion of waste sludge that accrues.  These tailings, as they are called, are sometimes  contaminated with chemicals and are  pumped into large sludge basins. The basins  are generally contained by earthworks.  Since the period during which a mine can  be operated at a profit is usually extended  by increases in raw material prices, the  sludge basin frequently needs to be  expanded. The companies manage this  problem by successively raising the retaining  dam.

Tailings dams are of varying stability,  depending on their design. With the popular  upstream design, the upper layer of  wash residue is dried and used as the foundation  for the next-higher earth barrage  (see the diagram on the left). This variant  has the advantage that the dam can be  erected with little effort and therefore at a  low cost. However, earthworks like these  are the least stable, particularly if raised too  quickly, i.e. before the top layer of waste has  dried sufficiently. Much more solid structures  are obtained if the original dam is  raised centreline (2) or downstream (3).