BMI View: Water scarcity is set to emerge as the next big challenge for the global mining industry. With water being the most vital resource in all mining and quarrying developments, the issue over water management will intensify over the coming years as an increasing number of mining companies venture into remote and arid countries for investment.
Apart from the persisting threat of resource nationalism and softening commodity prices, we believe water scarcity is set to emerge as the next big challenge for mining companies around the world. The issues over water resource and management are posing significant risks to the global mining industry and have afflicted the growth and development of many mining projects. We expect the threat of water depletion to gain grounds over the coming years as an increasing number of miners embark on investment opportunities in frontier countries.
Water Integral To Mining Success
Water plays a vital role in the successful operations of mining projects as they are used in virtually all steps of the mining process. Most of the water at the mine site is used for the separation of minerals from host rocks, the cooling of drilling machinery to the control of dust particles. The level of water consumption varies greatly depending on a range of factors including weather conditions, ore mineralogy, mine management and practices, as well as the commodity being mined.
In general, hard rock mines such as gold, copper, nickel, diamonds and platinum are the most water-intensive as they are often associated with low ore grades. With a much lower concentration of ore being embodied in waste rock, these minerals require higher quantities of water and greater energy usage to separate the ore from the rock. As such, we believe the competition for water resources will intensify as many mines around the globe are grappling with declining ore grades, a persisting problem in the years ahead.
|Source: BMI, World Resources Institute|
|Surrounding Environment||Commodity||Type Of Operation|
|High Risk||Arid/semi arid environments||Low grade ore||Open pit that reaches below water table|
|Presence of other competing uses (agriculture, ranching)||Precious metals||Dewatering required|
|High seismic hazard||Diamonds||High acid drainage potential|
|Very high rainfall/frequent storm events||Copper||Tailings disposed in rivers|
|High permeability aquifers||Nickel||Energy derived from hydropower|
|Large water withdrawals|
|Medium Risk||Moderate seismic hazard||Coal||Open pit above water table|
|Moderate rainfall with distinct dry season||Uranium||Dewatering water recycled|
|Zinc||Potentially acid generating material capped and controlled|
|Lead||Tailing stored in impoundment|
|Iron Ore||Energy derived from coal/natural gas|
|Moderate water withdrawals|
|Low Risk||Moderate rainfall||Other industrial minerals||Energy derived from renewable sources|
|Low seismic hazard||Old mine workings capped and covered|
|Low acid generating potential|
|Water flows carefully controlled at site|
|Water discharges meet ecosystem requirements|
|All water consumed is reused/recycled|
Growing Water Stress Across Countr ies
Mining projects have traditionally secured their water supply by capturing surface water and groundwater, or by entering into long-term contracts with local municipalities. However, these options have become less probable in recent years as more governments are becoming aware of the need to conserve supplies for domestic agricultural and municipal users. For instance, India is one of the most water stretched countries in the world, with worrying long-term prospects given tightening water availability and rising consumption particularly from the agriculture sector. It is the largest groundwater abstracting country according to the United Nations, extracting 251km³ per year, compared to 112km³ in China and 64km³ in Pakistan. The country is expected to reach a state of water stress before 2025 when overall water availability is projected to fall below 1,000 m³ per capita.
The availability of freshwater in many countries is also decreasing as a result of the continued shrinking or complete disappearance of Himalayan glaciers which naturally release water to rivers. Together, stricter environmental regulations, climate changes and declining ore quality have heightened water-related challenges in many mineral-rich regions, making it imperative for miners to find new and innovative ways of managing and procuring water.
|Water Scarcity A Real And Looming Threat|
|Select Countries - Available Water Per Capita In 2010 (m³/inhab/year) & % Change between 2010 & 2030 (RHS)|
Water Challenges To Intensify With Frontier Mining
Water-related challenges are set to become more prevalent in the future as frontier mining gains precedence. As ore grades and mineral reserves in traditional mining regions dwindle, we expect more miners to undertake investment in remote locations with limited freshwater resources. Already, many of the world's largest mining projects are based in water stressed countries such as South Africa, Peru and Chile. To highlight, a recent study by Moody's revealed that 70% of the 'Big Six's' ( BHP Billiton, Rio Tinto, Anglo American, Vale S.A., Xstrata plc, Glencore International) mines are located in countries where water stress is considered a high risk (56%) or moderate risk (14%). Unsurprisingly, attempts to bring mining production into plays in these water scarce countries were often met with fierce resistance from the locals. Incidents of water pollution caused by mining projects have been well-documented in recent years. Problems such as acid mine drainage, metal contamination and increased sediment levels in local streams are often the subject of intense scrutiny and criticism. Indeed, acid drainage is one of the most serious environmental pollution from mining activities. It occurs when sulphide bearing rick is exposed to water or air, leaching heavy metals and polluting surrounding water bodies.
Miners To Incur Higher Operating Costs
Against the growing backdrop of frontier mining, we believe mining companies will have to incur higher capital expenditure in order to secure water supplies or comply with the environmental legislation and water usage regulations. The Global Water Intelligence (GWI), a UK-based specialist water consultant, estimates that mining companies will spend US$12bn globally on water infrastructure in 2013, marking a 56% increase from the US$7.7bn the industry spent in 2011.
|Spending On Water Infrastructure To Increase|
|Global - Water Infrastructure Spending (US$bn)|
Apart from the escalation in operating costs, water scarcity is set to be a key risk afflicting the future development of mining projects. In April 2012, the development of Southern Copper's US$1bn Tia Maria mine was halted by the Peruvian government due to concerns that it could harm water supplies. The decision has prompted Southern Copper to embark on a new environmental feasibility study which is expected to last for a year, and consider piping raw seawater to the mine for desalination in a bid to reduce their dependence on local water in the mining process.
Alternatives To Freshwater Withdrawals Available...
Although many miners are employing innovative ways to mitigate rising water stress by recycling water, with desalination being the most notable, we note that alternatives to freshwater withdrawals are often very capital-intensive. According to the World Resources Institute (WRI), desalination plants in Chile cost between US$100mn for small mines to US$3.5bn for large copper projects. Indeed, water scarcity concerns in Chile are especially acute and could ultimately lead to the collapse of domestic copper production. It is estimated that water consumption in the country, of which mining is the largest industrial component, is six times greater than water renewals.
|Water Stress To Drive Up Costs|
|Average Cash Costs - Gold & Copper|
...But May Not Be Optimal Solutions
Nonetheless, while desalination plant technology provides a secure and stable water supply for mining companies, the building and maintenance of the plant is an expensive process that can either make or break the economic viability of the mine. The desalination plant not only mandates the construction of a dedicated, purpose-built power source, but also requires the transportation of treated water over long distances to the mining site. Consequently, desalinated water can be 10 times more expensive than locally sourced freshwater, potentially negating any benefit from securing a safe and secured water source.
Mining Outlook Toughest For Smaller Players
Given our expectation for base metal prices to head broadly lower over the course of 2013 and 2014, we believe mining companies will be more vulnerable to fluctuations in commodity prices as investment into water management infrastructure increases. This is especially true for the smaller players in the industry who are less well-endowed with the financial resources and technical expertise to build water procurement and treatment systems.
|na = not available. Source: BMI, Company Announcements|
|Australia||Rio Tinto||Pilbara||310||Development of a new borefield and pipeline system|
|Australia||CITIC Pacific||Sino Iron Ore||na||Building a high-capacity desalination plant and a 30-km pipeline|
|Chile||Freeport-McMoRan||Minera Candelaria||300||Building of desalination plant|
|Chile||Anglo American||Mantoverde Copper||96||Building of desalination plant|
|Chile||CODELCO||El Abra Copper||na||Launching pre-feasibility studies for a desalination plant and pipeline to support mine expansion|
|Peru||Newmont Mining||Minas Conga||200||Construction of several reservoirs to supply water to the locals|
|Peru||Southern Copper||Tia Maria||na||Consider piping raw seawater to the mine for desalination|