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Mining Companies Must Disclose Safety Violations Under New US Law

Platts
Workplace safety records for companies with US mining operations, in the spotlight since the Upper Big Branch blast, will be more visible to investors, as federal regulators prepare to enforce a law requiring them to detail violations and fines meted out by the Mine Safety and Health Administration in their financial disclosure forms.

WASHINGTON – Workplace safety records for companies with US mining operations, in the spotlight since the Upper Big Branch blast, will be more visible to investors, as federal regulators prepare to enforce a law requiring them to detail violations and fines meted out by the Mine Safety and Health Administration in their financial disclosure forms.

The new provision, a little-noticed amendment folded into the 2,300-page Dodd-Frank financial reform law signed by President Barack Obama in July, will require mining companies to disclose "significant and substantial" citations, more serious violations known as unwarrantable failures, and fines accrued at individual mines over the course of a quarter. Such information is already available through online MSHA databases, but the new requirements will centralize the data and make it much more accessible and visible.

That was the goal of Senator John Rockefeller and the late Senator Robert Byrd, the West Virginia Democrats who authored the amendment in response to the April blast that killed 29 workers at Massey Energy's Upper Big Branch mine in the state. Massey, Arch Coal, Cloud Peak Energy, Consol Energy, Peabody Energy, Patriot Coal and Alpha Natural Resources were among the major coal companies that began including the data in their second quarter financial disclosures to the Securities and Exchange Commission, though the law does not go into effect until later this month.

The disclosures show that several companies had multiple mines that racked up dozens of significant and substantial violations in the second quarter. The disclosures also show 22 mines with proposed fines exceeding $100,000 during the quarter; 13 of those mines are owned by Massey. Lucy Stark, an attorney with Holland and Hart, a Denver-based law firm, said the safety disclosure provision in Dodd-Frank is unique to the mining industry.

"There are lots of dangerous industries out there -- mining is near the top or [at] the top -- but there's lots of dangerous industries that don't have to [disclose] safety violations," said Stark, who advises companies on financial reporting requirements.

While the law does not specifically call for the SEC to issue guidance or rules on the safety disclosures, Stark expects it to do so as it sorts through the provision's requirements. An SEC spokesman said Friday that no timetable had been set for rulemaking, though the agency has set up a website to collect comments on the disclosure provision and other parts of the Dodd-Frank bill in anticipation of promulgating rules.

The safety rules for coal and other mines were not the only energy- and natural resource-related disclosure provisions contained in the financial reform law. Oil, natural gas and other mineral companies are required to detail payments related to resource extraction to the US or foreign governments. The law also requires detailing so-called "conflict minerals" that can be traced back to the Democratic Republic of Congo. Such minerals include columbite-tantalite, cassiterite, gold, wolframite, or their derivatives.

Earlier this year, the SEC published rules that require companies to detail the risks associated with climate change. The move was cheered by the environmental community and advocates of so-called socially responsible investing, but criticized by some in the business community as a way to score political points.

NMA OPPOSED, BUT INVESTOR GROUPS SEE BENEFIT

Luke Popovich, a spokesman for the National Mining Association, called the safety disclosure requirements "impractical" and "burdensome," adding that, if anything, they would distract resources and attention from making mines safer. Publicly traded companies also balked when the amendment was introduced in part because it did not cover their privately held peers.

"We didn't think those were helpful to mine safety nor necessary due to the publicly available data that is already available on mine safety," Popovich said. But public pension funds and other institutional investors such as the California Public Retirement Employees Retirement System, known as CalPERS, applauded the measure as another step toward making the mining industry more transparent in its operations.

"When you have an issue that's fundamental to an industry ... that clearly has financial effects, investors are looking for that information in an efficient format in the place where they look for all the risk factors for companies," said Jim Coburn, a senior manager for Ceres, which represents CalPERS and other groups seeking more responsible corporate management. "I don't see how a company could credibly argue that these financial risks don't belong in an SEC filing," Coburn said.

In addition to listing citations and fines, the law requires companies to disclose the number of legal challenges they make to the Mine Safety and Health Review Commission, which handles appeals of MSHA decisions. Companies also must immediately notify investors through SEC filings when mines are placed on pattern of violation status, or are notified by MSHA that mines are in danger of being placed on such a status, which is reserved for operators who regulators find repeatedly flout safety standards. Companies also must immediately disclose when they receive "imminent danger" orders, issued when regulators find potentially deadly conditions.

"The practical effect for coal company operations will likely be minimal," Stark said. What it may do is bring more attention to safety issues in parts of the business structure that in the past had been shielded from them, or focused on other matters. "It's not going to require anything new, other than centralized reporting for them to a new location in the organization about these regulations," Stark said.

"Whoever in the organization is in charge of SEC reporting is now going to have to get that information and get it regularly, because the last thing you want to do is be scrambling around at the end of the quarter trying to ... pull that information together," she said.

Companies will likely spend the next few months evaluating what their peers have done to disclose the safety information as they evaluate how to proceed in future quarters, she added.

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