NEWMONT TO PAY DEARLY FOR CHEMICAL SPILL

UNCLAS SECTION 01 OF 03 ACCRA 000084

DEPARTMENT FOR AF/W AND OES/PCI
COMMERCE FOR ANESA/CHRISTIAN REED AND MAC/HOLLY VINEYARD

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: SENV EMIN EIND EINV ECON GH
SUBJECT: NEWMONT TO PAY DEARLY FOR CHEMICAL SPILL

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY. NOT FOR INTERNET DISTRIBUTION.


1. (SBU) SUMMARY: U.S. corporation Newmont Mining's Ghanaian
subsidiary has agreed to pay $5 million in compensation to the
Government of Ghana (GOG) for a chemical spill that occurred in
October 2009 at the company's Ahafo gold mine. The GOG commission
that investigated the incident determined the amount of the payment
and concluded that Newmont behaved negligently and initially
attempted to "cover-up" the spill, because of a two-day delay in
notifying Ghanaian authorities of the incident. The huge
compensation payment for an environmental accident is unprecedented
by Ghanaian standards and sends a strong deterrent message that the
GOG expects high safety standards and strong environmental
compliance from extractive industry participants. While disputing
that there was an attempt to conceal the incident from regulators or
the local community, Newmont executives told us the company does not
intend to appeal the hefty payment proposed by the commission. The
company wants to maintain good relations with the GOG and not
jeopardize its greater than $500 million investment in Ghana,
especially with several key permits and licenses currently subject
to government approval. END SUMMARY.

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Mishandled Chemical Spill at Ahafo Gold Mine
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2. (SBU) On October 8, 2009, gold ore processing solution containing
sodium cyanide spilled out of a processing pond in Newmont's Ahafo
gold mine. Initially, Newmont managers at the mine believed that
the chemical solution had not escaped from Newmont's property, but
over the next two days, it became clear that the solution had
migrated from Newmont's site to neighboring properties, probably
because of heavy rains in the area at that time. The solution
entered nearby bodies of water used by about 30 rural Ghanaian
residents for fishing and for washing laundry. Several hundred fish
in these ponds were killed, although it is not clear whether the
fish died from the cyanide solution or from a bleaching agent that
Newmont applied to neutralize the original solution (both bleach and
cyanide are toxic to fish).


3. (SBU) In discussions of the incident with GOG officials and with
Embassy Officers, Newmont's senior executives in Ghana acknowledge
that the mining managers made a number of blunders in handling and
responding to the incident. These missteps included:

-- Using an overflow "event pond" to store cyanide solution while
the mine was temporarily shut down for three days. This was an
inherently unsafe practice that is inconsistent with both Newmont's
own internal controls and with standard international mining
practices. Compounding this error, there was no mineworker assigned
to monitor the water level in the event pond, and an electronic
water level sensor malfunctioned and failed to send out an alarm
signal when the pond overflowed.

-- Mine managers failed to immediately notify Newmont's management
in Accra, the local community, and the Ghanaian mining and
environmental regulators of the incident. Newmont's management in
Accra only learned of the incident 24 hours later on October 9, and
no one notified the local community or GOG authorities until nearly
48 hours later on October 10.

-- The company failed to properly trace and contain the spill after
it escaped from the event pond. Mine workers successfully blocked
one drainage area around the event pool, but failed to block off a
second catchment area from which the solution ultimately appears to
have made its way off of Newmont's property and into neighboring
lands and bodies of water.


4. (U) Once Newmont learned about fish being killed in neighboring
ponds, the company immediately began supplying those households with
potable water, and has continued to do so ever since, because of the
local community's lingering concerns about the safety of the water
supply around the mine. The company also issued press releases
apologizing for the incident, assured the public that it would be
supplying fresh water to affected communities and not jeopardize
their safety, and that it would cooperate fully with Ghanaian
authorities in investigating the incident. Subsequent testing by
Newmont and GOG authorities has not revealed any trace elements of
cyanide or bleach that would pose a danger to either humans or
wildlife in the area.

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Investigation of the Incident
--------------


5. (SBU) A GOG commission tasked with investigating the incident

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concluded that Newmont behaved negligently in responding to the
spill. In addition, given the two-day delay in notifying
authorities about the incident, the commission concluded that the
company initially attempted to "cover up" the fact that a spill had
occurred. The commission concluded that Newmont should pay 7
million cedis (equivalent to about $5 million) in compensation for
the incident, with 45 percent of the proceeds to be used for the
benefit of local communities living around the mine, 40 percent for
the Ghana Environmental Protection Agency (EPA),and 15 percent to
be shared by inspection divisions of the Ghana Minerals Commission
and the EPA.


6. (SBU) The acting director of the EPA's Mining Section shared his
views of the incident in a meeting with embassy officers on January

21. He stated that Newmont should have notified the EPA immediately
of the incident, instead of nearly two days after the spill had
occurred, which would have allowed company and regulatory officials
to conduct joint monitoring of the spill. Prior to this incident,
he noted that Newmont had always notified the EPA of significant
environmental accidents the same day that they occurred. Thus, it
was difficult to comprehend why the company had behaved "so
unprofessionally" and delayed notifying the regulator in this case.
He also noted that the company had poor internal safety controls in
place at the mine at the time of the incident, and had not
effectively disseminated information about the spill within the
company itself, or communicated with the local community about the
potential danger.


7. (SBU) The EPA official noted that Ghana does not currently have a
regulatory framework governing the scale of fines and compensation
in the event of environmental accidents at mines, and the commission
had recommended that the government establish a detailed regulatory
framework to cover future accidents. He stated that EPA, mining and
environmental officials would be working in the coming months to
establish specific fines and compensation in consultation with
industry participants and other stakeholders, before submitting a
proposal to the government and legislature.


8. (SBU) The lack of specific regulations meant that the Commission
was free to take any reasonable action in determining remedial
action and compensation for the spill. He explained that it had
been difficult to assign any precise monetary figures regarding the
amount of environmental damage, the extent of the spill, and the
potential loss of biodiversity in the region, largely because of
Newmont's delay in notifying the regulator of the incident. He was
at pains to stress that the $5 million award was not a "fine," but
rather "compensation" for the incident, considering all of the
government manpower and resources that had been deployed to respond
to the incident and conduct a lengthy investigation.

9. (SBU) In his public comments on the incident, Deputy Minister of
Environment, Science and Technology Edward Omane Boamah, who served
as chairman of the investigatory commission, said that the proceeds
of the compensation award against Newmont would be used to improve
infrastructure in local communities around the Ahafo mine, and to
strengthen the capacity and expertise of the institutions charged
with regulating the mining industry. (NOTE: Newmont Ghana
executives told us that many senior officials in the Ministry of
Environment, Science and Technology feel that the EPA has
historically been "soft" on the mining industry. In Newmont's view,
the hefty compensation award may reflect a new desire within the GOG
to implement a tougher environmental enforcement policy at the EPA.
Newmont representatives also told us that the Deputy Minister has
close ties to WACAM, a Western Ghanaian association of communities
affected by mining that has been a vocal opponent of many
international gold mining operations in Ghana. END NOTE)

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Newmont's View of the Incident
--------------


10. (SBU) Newmont's Ghana executives do not dispute that there was
negligence in this instance, or that the mine operators bungled the
response to the chemical spill. They do, however, object to the
commission's finding that the company appeared to have engaged in a
"cover-up." Instead, they argue that the delay in notifying the
local community and regulators resulted from a mistaken but honest
initial belief that the spillage had not escaped from Newmont's
property.


11. (SBU) In its discussions with GOG regulators, Newmont had
proposed paying compensation in the amount of $1 million. They
thought that the much higher $5 million compensation award that the
GOG commission determined was meant to serve as a deterrent for
Newmont and other mining companies. (NOTE: Regulators do not
disagree with this assessment, and the head of the EPA's Mining
Section also told us that the size of the fine would have a
deterrent effect on industry participants and lead to safer mining

ACCRA 00000084 003 OF 003


practices from both Newmont and other gold producers. END NOTE.)
Newmont executives also noted that the hefty fine would help shore
up the government's budget deficit.


12. (SBU) Newmont executives told us that the company would not be
appealing the $5 million penalty determined by the commission, even
though it was five times higher than the compensation package that
the company had proposed. Senior managers explained that the
company wants to maintain good relations with the GOG and not
jeopardize its greater than $500 million investment in Ghana,
especially with several key permits and licenses currently subject
to government approval. They also stated that that they are more
concerned about the damage to the company's reputation in Ghana from
the way the incident was handled -- and the allegations of a
"cover-up" -- than they are about the hefty fine.


13. (SBU) Based on discussions with GOG regulators and the
commission findings, Newmont is taking several corrective actions to
prevent a similar accident from occurring in the future at its Ghana
mines, including improving the safety controls at event pools and
flood control dams, improving and speeding up communications to
relevant stakeholders after environmental incidents (including both
regulators and local communities),and implementing enhanced safety
procedures and protocols at mine sites.

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COMMENT
--------------


14. (SBU) Despite the initially bungled response to the chemical
spill, it is clear that Newmont is now taking prompt action to
improve the safety of its operations in Ghana and restore its
damaged reputation. Moreover, the company is clearly concerned
about good corporate citizenship in its local operations, and
Newmont Ghana's chief management officer in Ghana sits on the AmCham
Board. We believe that the hefty monetary penalty levied in this
case will not only serve to chastise Newmont, but also send a strong
message to other extractive industry participants that the GOG is
getting tough on environmental issues. That said, the size of the
fine in this case also raises the possibility that the GOG may begin
looking for other opportunities to extract the maximum amount of
revenue from well-heeled foreign firms when they violate domestic
regulations. It is also far from clear that the GOG will be as
tough on domestic firms on environmental and safety issues -- for
instance, the Tema Oil Refinery's recent deadly fire (to be reported
septel) -- as it will be on the wealthy foreign companies doing
business in Ghana.

TEITELBAUM