The availability of surface water will be a key risk for mining companies in the future.
Climate change and its impacts are a major concern for mining in the future. Certain regions in the world are expected to receive more rain, while others will experience longer and more intense droughts. Many countries in Africa have already experienced crippling periods of no rainfall and access to surface water in these areas could become a major constraint.
According to a recent report published by Moody’s Investor Service, mining companies face substantial headwinds when it comes to securing reliable sources of water. The report states that water is a key resource in the mining process and scarcity costs associated with securing reliable sources is an elevated risk.
According to Carol Cowan, senior vice president at Moody’s many countries, including Peru, Chile, Australia, South Africa and Mongolia, have large mining operations exposed to decreasing water availability. “In the next 20 years, all of these countries will be in the high- to extremely-high ratio of water withdrawals to supply, which will make it difficult for companies to secure reliable sources,” says Cowan.
Mining companies’ challenges are exacerbated when using the ground and surface water that local communities rely on. This has resulted in protests and prompted stricter environmental regulations. Protests have occurred in Peru, Chile, Mexico, and the US over the last few years, and can cause delays in the construction of new mines or expansion of existing ones as demonstrations against such projects will likely continue.
From a company perspective, higher capital spending and operational costs associated with securing reliable water supply will be better managed by larger, globally diversified firms. With water levels expected to continue depleting, smaller mining companies with limited financial flexibility may face increased costs related to water procurement over time.