Water scarcity and rising energy costs threaten mining industry – by James Wilson (Financial Times – July 27, 2014)


Access to water has become one of the most significant business risks for miners, says a report that also highlights the threat to the sector from rising energy costs in some resource-rich areas.

EY, the consultancy, said affordable water and energy should now be viewed as one of the 10 biggest problems for miners. The threat was particularly acute in South America and Africa, it said. These continents are significant in the global supply of many metals, particularly copper.

Spending by mining companies on water infrastructure amounted to almost $12bn last year, compared with $3.4bn in 2009, EY said. BHP Billiton and Rio Tinto, the two largest in the world by market capitalisation, are investing $3bn to build a desalination plant at Escondida, the Chilean copper mine that is the world’s largest by output.

The report underscores how water resources are becoming an increasingly important concern across business. Peter Brabeck, chairman of Nestlé, told the Financial Times in a recent interview that water scarcity presented a more urgent challenge than climate change.

EY said large companies such as Rio, BHP and Anglo American had the expertise and financial strength to build complex water procurement systems for large projects and were therefore “likely to emerge as the partners of choice in water-scarce countries seeking to exploit their natural resources”.

By contrast, smaller companies with single-mine operations in water-scarce regions were likely to be the most vulnerable, facing the greatest risks with limited financial and technical resources.

EY also said miners were likely to have to devote more resources to renewable energy, which “needed to become core to operations”. In Chile, the world’s leading copper producer, electricity costs had increased 11 per cent annually since 2000, it said. The mining industry accounted for about 36 per cent of the country’s electricity consumption, EY added.

The biggest challenge for miners, said EY, was to recover productivity levels, which had declined over the past decade. This decline was “a byproduct of a choice by industry participants to pursue volume growth at almost any cost during an unprecedented boom in commodity prices,” EY said. “Mines were developed to get product out as quickly as possible, not as efficiently as possible.”

While miners had been cutting costs, the drop in productivity had become “entrenched”. What was needed, EY said, was an across-the-board response, including different mining methods, new equipment and more automation, as well as better measures to respond to data generated by their operations.

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