Corporations as Custodians of the Public Good? by Thérèse Rudebeck

Author:Thérèse Rudebeck
Language: eng
Format: epub
ISBN: 9783030132255
Publisher: Springer International Publishing

4.4.2 Water Risk

The industry relies on water access: “no water, no mining” (Interview 33, 2016, unpublished). However, changing water availability and quality is increasingly a challenge for the industry (Deloitte 2015; CDP 2013). A study carried out by Moody’s (2013) estimates7 that 70% of the mines of the ‘Big Six’ global diversified mining companies8 are located in countries where water stress is considered a high (56%) or moderate (14%) risk. Furthermore, 66% of their development projects are located in water-stressed countries. However, given the nature of mining, it can be hard to avoid operating in these ‘high-risk’ areas. WWF (2014: 27) writes: “[m]ining…operations cannot be relocated since they are dependent on the specific location of the ore…which makes the sector susceptible to changing local water availability and quality.” Unlike other industries that could – at least in theory – source their raw materials elsewhere if water becomes scarce,9 a mining company’s activities are fixed.

The effects of water challenges are already noticeable. In 2013, 64% of the mining companies disclosing to CDP – including Anglo American, BHP Billiton and Rio Tinto – reported that they had experienced detrimental water-related business impacts (CDP 2013), primarily expressed in radically higher costs. Water has become “a ‘value at risk’ issue” (Interview 33, 2016, unpublished). These rising costs stem from increasing capital expenditure (for example, the need to invest in desalinisation plants), and from rising operating expenditure (for example, rising energy cost of operating desalinisation facilities) (Moody’s 2013). Discussing this trend, an informant noted: “in 2009, the cost of water infrastructure as part of the total mine cost was about 10%. Today, it’s 30%. It’s a huge increase in capital expenditure” (Interview 13, 2015, unpublished). Confirming this, a representative from the sector stated: “capital expenditure associated with water is…rising... So that’s billions of dollars” (Interview 33, 2016, unpublished). According to Global Water Intelligence, mining companies spent $12bn globally on water infrastructure in 2013, which represents a 56% increase on the $7.7bn the industry spent in 2011, and a 275% increase on the $3.2bn spent in 2009. The comparable net increase in global mining output was between 20% and 52% for the same period (Moody’s 2013).

The mining sector is also susceptible to regulatory risk, especially in the form of stricter environmental regulations, or a sudden withdrawal of water rights or allocations that might drastically increase costs. In some cases, for example when Chile’s Supreme Court ruled that the water management system of Barrick Gold’s Pascua-Lama mine was insufficient, changed regulations can result in mine suspension. However, in most instances, it results in higher operating expenditure. Anglo-American gives an example of how changed water regulation in South Africa is anticipated, and is likely to affect their business:

The regulatory environment for water is developing in South Africa and poses potential risks to Anglo American. Three important draft regulations include:1.The draft regulations requiring the lining of pollution control infrastructure and mine residue dumps has a potential cost impact on the business.

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