Mining the filings at Newmont, Massey & more…
Six days ago, near the small town of Winnemucca, Nevada, a mine employee was carrying his lunchbox. Another employee maneuvered a large front-end loader around the mine’s maintenance shop.
Corporate filings don’t normally include this kind of you-are-there detail. But these vignettes are now permanently enshrined in the database of the Securities and Exchange Commission thanks to a 174-word provision in the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act. Or perhaps they’re there because Newmont Mining (NEM) has nervous lawyers — or wants to make a point about congressional meddling.
The catch is that the two workers at Newmont’s Twin Creeks Mine weren’t doing these things the way they were supposed to under mine-safety rules: The man with the lunchbox was supposed to have it attached to him as he approached a particular piece of mining equipment; the one on the front-end loader’s decking lacked “fall protective devices,” according to this 8-K filed by Newmont.
We’ll kill the suspense: Both workers are fine. Mine operations weren’t disrupted. In fact, these events were non-events. Yet both wound up in Newmont’s “The loader was stopped and the employee immediately exited without incident,” the filing noted. “The employee attached the box to his body without incident…”
So why the SEC filing? Newmont blames section 1503(b)(1) of the Dodd-Frank act, which, sure enough, requires that
“each issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine shall file a current report with the Commission on Form 8-K … disclosing the following regarding each coal or other mine of which the issuer or subsidiary is an operator:
(1) The receipt of an imminent danger order issued under section 107(a) of the Federal Mine Safety and Health Act of 1977 (30 U.S.C. 817(a)).”
Mind you, in Newmont’s case, these imminent danger orders seem to have lasted mere moments — until the one man strapped on his lunchbox, and the other employee stopped and exited the front-end loader. While we don’t know all the details, we can only assume that a company or government inspector happened to see this behavior and intervened — in formal terms, issuing an imminent danger order — and then “terminated the order” when all was set right in short order. Still, the issuance of the order must have triggered the 8-K.
Newmont is hardly alone in this meticulous documentation of safety slip-ups. Other mining companies have been doing it since the Dodd-Frank act was signed into law in late July.
Peabody Energy (BTU) filed an 8-K on Tuesday noting a vague citation for “violating fall protection rules” that was “immediately corrected.” Massey Energy (MEE) filed an 8-K on August 23 reporting a citation for “the improper underground storage of a locked box containing explosives” (which actually sounds pretty serious to us); the problem was fixed when the box was brought to the surface, and the explosives were later disposed of. Arch Coal (ACI) disclosed that the operator of a “diesel manlift” at the Sufco mine in Utah failed to wear a safety belt or use tie-off lines, according to an 8-K filed on August 19. As with the others, Arch Coal’s problem was fixed without incident.
None of this should be read to suggest that mine-safety is trivial. The events at Massey’s Upper Big Branch Mine, where 29 people were killed in an April explosion, and the drama unfolding in slow motion in Chile serve to underscore quite the opposite. (Massey went so far in its 8-K on August 23 as to say that the improperly secured explosives “did not relate to the April 2010 Upper Big Branch tragic accident.”)
In any case, expect to see more references to mining infractions in the filings. The Dodd-Frank bill also includes other mine-safety provisions, requiring publicly traded mining companies to disclose in their regular filings the number of health or safety violations at each of their mines, along with the aggregate dollar value of proposed penalties and total fatalities, as well as other safety statistics.
If the additional attention brought on by these imminent-danger 8-Ks prevents another disaster like Upper Big Branch, it’s hard to get too upset. But if the new rule only serves to elevate all infractions, however brief, to the same level, it could wind up doing more harm than good.
Image source: Canadian Design Resource
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Posted in Tags: 8K, Congress |
 6 Comments » |
September 3rd, 2010 at 9:56 am
Alas, but our regulators are fixated on committed errors, and yell, “This must never, never, happen again!” They rarely think of Hippocrates, and think “First do no harm,” which would reduce overreaction errors.
September 3rd, 2010 at 9:59 am
Sorry, should have included this in the last post. So this will clog the news stream with a bunch of non-news. It will make 8Ks less useful, because there will be a lot of low value ones.
Score one for the hedge funds that will use automated methods to score 8Ks for real news.
September 3rd, 2010 at 3:19 pm
Depending on what happens at the Supreme Court, SEC filings may also be loaded with adverse event reports at pharma companies. And if certain Congressmen have their way, SEC filings could also be padded with line-by-line disclosures of political contribtions. This whole “sunlight is the best disinfectant” mentality is being taken to its logical extreme. Sunlight also has a way of bleaching things beyond recognition, dehyrating things to death, and starting forrest fires.
September 3rd, 2010 at 4:27 pm
Recall that a few years ago, a miner was killed at Newmont’s Midas operations due to the grossly negligent conduct of Newmont’s own managers who knew of the existing hazardous ground conditions that ultimately resulted in the miner’s unfortunate death. Newmont focuses on holding its people accountable, yet in this article, it says Newmont blames the regulation for having to report this safety violation. Does “accountability” only apply then to just Newmont’s employees? It looks like Newmont’s managers may be trying to blame everyone but themselves for their “lack-luster” performance that triggered the 8K.
What I derive from the 8K is that the detailed facts are lacking probably for a reason, as the reporting is done internally, so there is every incentive for Newmont to downplay or omit facts that may harm their reputation with investors (this wouldn’t be the first time in reference to their securities fruad issue awhile back).
Looking at the facts that were provided, it does not seem like the lack of protective equipment on the loader was the operator’s doing, as they were likely not in a position to order the part, or ensure the equipment was purchased with the part. Rather, it seems more plausible that it was the duty of the managers to not allow the equipment to be operated until it was safe, and/or the supply chain managers’ duty to ensure the equipment was ordered and installed prior to operation.
So, why did the managers require the operator to operate the equipment? And furthermore, why did the operator not refuse to operate the equipment if it was unsafe? Is there an environment that exists out there that may be retaliatory in nature? Was the operator just not aware that it was unsafe? If so, did the managers not know it was unsafe, and then, if that is the case, are those managers competent enough and intouch with the operation enough to be operating a mine funded with my capital?
In light of the analysis above, I would question why such protective equipment was not in place, and it casts doubts, in my mind as a potential investor, on Newmont’s selection of managers, and moreover their business practices. Thus, being that the lack of protective equipment is something the managers should have been aware of, and assuming they are competent, it is likely that they were aware of the safety hazard, but yet it is clear apparent the operator’s manager still required this operator (and possible other operators) to operate the equipment in an unsafe condition (why?).
Apparently, it is questionable if Newmont has learned their lesson following the safety issues that resulted in the death mentioned earlier. In the alternative, Newmont may be willfully taking on those risks: What would the opportunity cost be if the equipment was idle vs. risking a fine, but saving money by not buying the required equipment, and still being able to move ore when gold is over $1k an ounce? What are the chances of an employee being injured or killed, and how much would that cost Newmont (or would such unfortunate accident be covered by their insurance policy)?
If you couple the ongoing disregard to safety, in addition to Newmont’s aggressive cost savings strategy (which was reflected in their 2009 10-k and by statements from the CEO himself), it seems that Newmont may be more likely to risk the lives and safety of their employees to help keep their strong financial indicators stable. In light of how great their performance was in 2009, is it feasible to make those levels year after year? I think not, unless they start cutting corners or implementing tactics that may be questionable (note that Newmont was being looked into for Securities Fraud awhile back).
It furthermore seems that if gold production is supposed to be decreasing due to lack of supply, how can Newmont continue to produce more gold, and continue to drive down costs more than what they did in a prior years? That being said, in light of the 8K, it seems that Newmont (NEM) may be squeezing as much as it can in order to stay their levels, and in doing so, it seems it may be at the cost to safety and health of the employees. This information provided in the 8k, from my perspective, tells me quite a bit, or at least gives me a reason to investigate further before I invest in that company and downplay the significance of the safety violations. I’m curious if Barrick reported the recent incidents out there that resulted in the deaths of two miners as well?
September 4th, 2010 at 1:34 pm
MOD,
I think you bring up an interesting point regarding the significance of the Act in relation to teh reporting requirements, and I’d like to expand on it further because I think you are headed in the right direction; if these safety violations were limited only to those that were noticed by the M.S.H.A. inspector on just that property, who knows how many other M.S.H.A. violations and other safety hazards exist out there? (Great analysis BTW). M.S.H.A. seems to be stretched pretty thin in terms of inspectors as it is, so there may be a number of other violations that exists, but that have just not been discovered yet. Sure, the employees (miners) could address those issues proactively, but it’s also unlikely (as I’ll explain below) why employees would want to proactively identify such safety concerns.
I believe it is assumed that the miners are supposed to be allowed an avenue to report safety violations to M.S.H.A. as “inspectors on the ground,” but in light of the fact that these mines will now have to report safety violations on their 8k, I am willing to bet that the miners will be less encourage to talk to M.S.H.A. than what they already are, and furthermore, it is likely that there will be more of a retaliatory environment that is created in order to dissuade miners from identifying safety concerns. The question then becomes; if the miners are being encouraged NOT to speak, or omit important safety concerns to M.S.H.A. inspectors, in order to limit the exposure of adverse reporting on an 8k, could the mines then be committing securities fraud?
What furthermore frustrates this reporting purpose, is the fact that a miner is given only 60 days to gather evidence, find legal counsel (in teh middle of Norther Nevada BTW), and file actually file an adequate complaint with M.S.H.A.. Furthermore, if a miner fears retaliation (which it seems like they do), and/or in light of the 12+ hour work days (60-100 hour work weeks) they are required to work, it seems that it is even more difficult to file a complaint under M.S.H.A. without it being time barred (60 day window).
If the mine managers know that safety violations will be reported on an 8k, and if they know they can get away with retaliatory actions due to the problems inherent in the M.S.H.A. itself, it encourages the mine managers to constructively threaten “ M.S.H.A. compliant miners” with the loss of their jobs, and/or the managers will be inticed to makie their jobs more difficult, or more dangerous (by placing them in unsafe work environments) if they speak to an M.S.H.A. inspector (it hints of constructive termination). Thus, it seems that the effect of this the Dodd-Frank Act on reporting purposes may actually have an adverse effect than what was initially intended, and unless there are changes to M.S.H.A., or some provisions in the Dodd-Frank act that give it some teeth (e.g. securities fraud violations for those corporations who encourage their miners not to speak to M.S.H.A. inspectors, etc.), and without any enforcement, and lack of people to enforce the provisions, there might be more harm done than good.
BTW, I looked into the death you were talking about that occurred at Newmont’s Midas operation, and you are correct, the Newmont’s managers knew that the unsafe condition existed, and if those managers spend the bulk of their time in meetings and knew about it, it must have been pretty apparent to the miners who were actually working underground. So logically, the next question seems to be, why did the miners not report it to M.S.H.A.? I think it is clear based on other supporting evidence (links below) that it was most likely due to fear of retaliation, which appears to exist at Newmont, and moreover, may continue to lead to mining tragedies.
However, M.S.H.A. appears to sit on their hands unless there is a fatality, and even then, they do not address the retaliatory environment. http://www.lvrj.com/news/18841494.html. Unfortunately, M.S.H.A. is drafted in a way that apparently not only makes it very difficult to assert a retaliation claim, but it also seems to favor the notion that parties settle, as was evident in the case involving a Newmont employee, Justin Nagel, and retaliatory actions from managers at Newmont’s Leeville operation. http://www.fmshrc.gov/decisions/alj/Ws2010-18o.htm (unable to have job reinstated due to settlement for retaliation claim); also see http://www.msha.gov/MEDIA/PRESS/2009/NR090707.asp; http://www.msha.gov/MEDIA/CONGRESS/2010/20100427JoeMainTestimony.pdf; http://www.beyondthemine.com/2007/pdf/CRR_Final_Global_Summary_Report_Appendices_March_2009.pdf; http://www.fmshrc.gov/decisions/alj/ws98115.txt (unsuccessful b/c inadequate legal counsel);
Nonetheless, those incidents that do get reported do have value as you pointed out, so long as you do some homework and analyze the facts. I would think that the typical investor is hardly going to know what a front-end loader is, and what fall protection equipment is required, but if you look at it in terms of Newmont’s managers’ responsibilities, the relative low cost of “fall protection equipment,” compared to how much revenue Newmont brings in, I’m curious why Newmont’s executive officers would allow those managers (either the operator’s manager, or like you said, the supply chain manager who neglected to order the part) to make such mistakes? Could it be that there is an unhealthy corporate environment as well?
Nonetheless, it seems like there is an apparent lack of accountability for these managers, and possibly the “talent scouts” who bring them into the company. If Newmont continues down this road, it may result in a lot of unwelcoming press and reporting, which may also have an adverse effect on the stock (good or bad depending on your strategy).
That being said, it may be time for Newmont to have a “changing of the guards,” and who knows how they will handle that change, or even if it would happen? Regardless of what the future of this Act may bring for Newmont, and other mining companies for that matter, I have to agree with you; there can be a lot said about the implementation of the Dodd-Frank requirements on the 8k concerning safety concerns with mining companies – so long as you do analyze the report, do some homeowrk, and recognize the significance of the report itself. Cheers. TJS II.
September 8th, 2010 at 12:40 pm
There is an additional factor which no one is mentioning here: the year end safety bonus.
If you consider the size of the year end safety bonus, you start to understand why accidents that don’t result in lost time go as unreported as possible.