On the Pike River inquiry

The Royal Commission of inquiry into Pike River disaster has an open slate to identify the cause of the tragedy at this one mine, and the safety conditions in general for underground mining in New Zealand. In practice, the core questions will be as simple as they were with the Erebus inquiry. There, the reasons why the plane hit the mountain came down to whether the cause was (a) pilot error or (b) the faulty flight co-ordinates supplied by Air New Zealand. For good reason, Royal Commissioner Justice Peter Mahon went with (b).

In this case, the core issues are similarly straightforward. The explosions at Pike River occurred either because the operators did not have adequate systems on site to detect and disseminate methane before it reached its critical combustion ratio – or if they did, it was not being monitored properly. As with Erebus, the issue is going to come down either to operator error, or to faulty settings by the company.

In this respect, Prime Minister John Key has been admirably clear about the issue. As he told TVNZ’s Q & A programme last weekend:

We know there’s been a build-up of methane in the mine; we don’t know how that’s occurred or why it’s occurred. We don’t know why the ventilation systems which were in place to take that methane out of the mine didn’t work. But we know from scientific evidence it has to build up to a level above 5% to be combustible, so clearly it’s done that, and clearly somewhere along the line there’s been an ignition source. Now, whose responsibility that is is something I wouldn’t want to speculate on.

Was there a gradual buildup of methane that was not detected – either manually or automatically, and without triggering an alarm – or was it a sudden rise in methane to combustion levels, caused by the mining operation exposing a gas pocket? If the latter, the mine was inherently unsafe. Key again, raised that prospect on Q&A:

“So at the end of the day the company may well be right, it may well be a sudden surge, there may be some act of nature that I’m not aware of. I don’t have any information on that, no one does, really. We haven’t got in the mine yet and we don’t have all the data.

Obviously, if sudden surges in methane can’t be detected until after they have exploded, the working conditions for underground mining – at least for the gaseous coal that this seam was known to contain – pose an unacceptable level of risk. Key again :

….In the end, the future of Pike River and actually underground coal mining in New Zealand rests on this. We can’t put people into environments that are dangerous. We can put people into an environment where there is an element of risk – at the end of the day, lots of jobs in New Zealand have an element of risk. If you’re a builder or an electrician you have an element of risk in your job. But there’s a difference between risk which is managed and mitigated and a dangerous environment. Now, if this is a dangerous environment we need to understand that.

Logically, that means the Pike River mine will have to stay closed until the safety – or otherwise – of its operating systems are assessed by the Royal Commission and via parallel inquiries by Police, the Labour department and coroners. At the very least, this would mean the mine being closed for a year or more. Yet at yesterday’s press conference, Key fudged this issue and made it sound as if the decision to re-open rested with the Pike River operators alone:

Asked whether the mine could potentially reopen before the commission had reported, Key said he did not know “whether Pike River intends to stay closed till the end of the inquiry.”

The market expectation – as expressed in this report from Bloomberg news in Sydney – is that the mine will be shut for at least six to 12 months. In the opinion of one industry analyst based in Melbourne : “If I were a Pike River shareholder I’d be saying the shareholder investment was gone, unfortunately.” Andrew Harrington, a Sydney-based analyst was more upbeat to Bloomberg: “There’s so much capital invested, and its such an employment opportunity in the era that , if the mine is recoverable, despite the history, there’s plenty of income and salaries to be made, that people will go back in.”

The same Bloomberg data showed that Pike River Coal had a market value of NZ$357 million, with $NZ21 million in cash and near-cash items and $NZ43 million in debt as at June 30, 2010. It was forecasting a net income of $NZ3.1 million this fiscal year, rising to $NZ80 million in fiscal 2012. In the interim will need to refinance a $25 million loan originally due before December 15, but now extended by its secured creditors for a 90 day period. The main shareholders set to take a hit are New Zealand Oil and Gas, which owns a 29 percent stake in Pike River Coal (for which it paid $NZ82 million). India’s Gujarat NRE Coke owns a 7.1 % stake, and Saurashtra Fuels (another Indian company) owns 5.5 %.

In the wake of the disaster some commentators have raised a question as to whether a trade-off occurred between environmental protection and mine safety. The implication again, is that the Pike River mine in its current configuration cannot be safely operated – and that an old-fashioned open cast mine would have avoided the risks of a deep drilling methane explosion. Yet given the difficult terrain though, it is hard to see how an open cast mine – which on US precedents, would have entailed knocking the top off the relevant mountains to get at the coal – would have ever been physically or economically feasible, even if open cast permits for that part of the Pike River mine that falls within Paparoa National Park could ever have cleared the consent process.

Instead of blaming the greenies, perhaps shareholders should have listened more closely to them. From the outset, the Green Party tried in vain to convince the Advertising Standards Authority that the Pike River Coal prospectus had oversold the operation. With hindsight, it is poignant to re-read that prospectus document, and note its jaunty air of confidence. For instance, there’s this passage at 3.5.7:

Gas in the Brunner Seam is generally at low to moderate levels, giving Pike River confidence it can safely and efficiently mine this seam. The Mine Plan incorporates a high level of ventilation and other safety measures to guard against any seam gas and ventilation issues. In areas of low to moderate gas, the gas will flow under natural pressure and be vented into the Mine’s return air ventilation system. In the isolated areas, where seam gas contents are at greater levels, it may be necessary to drain the gas using a negative pressure pump from the tunnel entrance area and either exhaust the gas into the atmosphere or burn it in an enclosed flare….

Pike River has had studies undertaken that show that Pike River coal has a low inherent propensity to spontaneously combust meaning the coal itself has a low likelihood of self heating in normal atmospheric conditions. All quantities of ventilating air within the sections of the Mine will be sufficient to dilute gas emissions to levels below statutory permissible limits and maintain comfortable conditions for operating diesel powered equipment.

The prospectus for the Titanic was probably just as upbeat. One can only hope the Royal Commission panel treats any subsequent statements by the Pike River mine operators with the healthy skepticism that their assurances deserve.


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