Water Risks in The Mining Sector – Still Murky And Getting Critical

By Amanda Sauer 11 November, 2010

WRI’s Sauer explains hidden water risks in mining., WRI’s Sauer explains hidden water risks in mining., WRI’s Sauer explains hidden water risks in mining.

Hardrock mines rely heavily on water to operate – water is used in all steps of the mining process.
‘Mine the Gap’ concludes that with existing reporting practices, investors and financial institutions may not be fully aware of these risks, even though they may suffer the consequences.

Just as the Deepwater Horizon disaster reminds us of the underlying risks of offshore oil drilling, the recent Zijin disaster in China demonstrates the environmental risks associated with hardrock mineral mines in operation around the world. A hardrock mine–one that extracts minerals or metals from the earth–relies heavily on water to operate. These mines use water in all steps of the mining process: cooling equipment, separating waste from valuable minerals, controlling dust, and so on.

Working with such large volumes of water presents a variety of risks. Overconsumption of local water resources can threaten stressed water supplies. Mining waste can contaminate water supplies, threatening drinking water and aquatic ecosystems. For mining companies, the potential for accidents increases exposure to fines and lawsuits as well as new regulations and operational disruption. The Zijin incident is an excellent case in point.

The back story: A mine owned by China’s largest gold producer, Zijin Mining Group leaked 2.4 million gallons of waste water laced with acidic copper into the Ting River, killing 2,000 metric tons of fish – enough to feed 72,000 residents for a full year.

As Fujian’s Environmental Protection Bureau concludes its investigation of the spill, the consequences are clear:

  • Zijin Mining Group has been fined USD 1.4 million and ordered by the Shanghang Government to reduce gold output of around one ton this year; a ton of gold is equivalent to RMB 254 million (over USD 38 million). As a result of the order, shares of Zijin Mining fell 1.4% to RMB 5.64.
  • Zijin Mining Group has already called off a project in Africa in the wake of the Ting River accident. According to a recent report from Bloomberg, “[Zijin Mining Group’s] plan to make at least two overseas acquisitions this year was hampered by regulatory probes and cleanup for the acid-laced waste leakage.”

A related event is a pollution spill in Xinyi, in southern Guangdong, last September, where heavy rains caused the collapse of a tailings dam. The tin mine has been identified as a subsidiary of the Zijin Mining Group. On October 18, shares in Zijin Mining fell 3.21% in Shanghai and 3.70 % in Hong Kong after the Xinyi city government demanded payment of nearly three million dollars for damages caused.

 

Unreported Risks

For investors and financial institutions, water risks are difficult to track. A study on the accuracy of water quality predictions at hardrock mines in the U.S. found that although none of the sites’ Environmental Impact Assessments (EIA) predicted water quality problems, 76% of sites exceeded water pollution standards. 93% of the sites with acid drainage problems had not anticipated this risk in their EIAs.

Many international mining companies are ahead of the curve in reporting water data, but a WRI survey found that water disclosure varies widely – especially in emerging markets. South African and Latin American companies generally report the most water-related data, while most Chinese and Indian mining companies report little or no water-related information. This is particularly notable, since China and India are among the top three largest producers of most non-fuel minerals. Although overall, current corporate water disclosure does not provide a comprehensive picture of water risk.

WRI’s new report, Mine the Gap, concludes that with existing reporting practices, investors and financial institutions may not be fully aware of these risks, even though they may suffer the consequences.

The new paper points out three major shortcomings in current water risk reporting in the mining sector:

  1. Reporting the wrong things. While many mining companies are diligent about reporting how much water they consume, the risks their mining activities pose to water quality are either not reported or not reported with enough detail to be meaningful.
  2. Not providing relevant context. A gallon of water is much more valuable in a desert than it is in a rainforest. A mine’s water use data is meaningless without an understanding of the unique characteristics of the watershed it inhabits.
  3. Reporting inconsistently. Different mining companies employ different approaches when reporting their water use and water risk, making it difficult to compare performance across the sector.

These three factors contribute to a general lack of understanding of the water risks involved in mining, which in turn makes it difficult or impossible for the financial community to manage these risks. Without understanding risk, investors and financial institutions can be blindsided.

 

Mine the Gap presents a preliminary framework that the financial community can use to assess water risk, including a series of questions for mining companies about their water use:

  • What type of mining processes are employed?
  • What is the environment surrounding the mine?
  • How does the company measure and track its water use?
  • How does the company monitor and manage water quality concerns?

The framework offers a way to translate the answers to these questions into a more complete understanding of a mine’s exposure to water related risks, thereby helping investors and financial institutions to make wiser decisions.

Going forward, WRI will soon release a prototype Water Risk Index, which pulls together various data series to generate maps that highlight where and how water issues can pose financial risks (and opportunities) for companies. This will provide an essential geographic-specific context to understand where water risks are greatest.

 

A Role for the Financial Community

The mining industry will face increasing water risks in the future as water resources become scarcer in many mineral rich regions, competition for water supplies increases, and the industry itself requires greater water withdrawals because of declining ore quality.

The financial community, then, has an important role to play to encourage improved water disclosure in this sector. By engaging with mining companies about their practices and supporting broad-based initiatives to improve water disclosure, investors and financial institutions can work with the industry to fully understand and report water risk in the future.

Amanda Sauer
Author: Amanda Sauer
Amanda Sauer is a Senior Associate with the ENVEST objective of the Markets and Enterprise Program. Amanda specializes in research and analysis on the financial impacts of environmental issues on industries and their supply chains. Her research focuses on the regulatory and physical impacts of climate change and water scarcity on the energy, extractive, chemicals, automotive, forest products, and consumer products sectors. Amanda’s research has been featured in the Economist, the New York Times, the Wall Street Journal, NPR’s Market Place, the International Herald Tribune, as well as numerous journals and trade publications. Amanda has an Economics degree from Cornell University and a MFA from Virginia Commonwealth University. She is a practicing artist and professor of photography at Northern Virginia Community College.
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