South African mining companies face escalating operating costs and capital expenditure in the next 20 years as climate change will cause water scarcity, according to a Moody’s Investor Services report last week. File Photo: IOL
JOHANNESBURG - South African mining companies face escalating operating costs and capital expenditure in the next 20 years as climate change will cause water scarcity, according to a Moody’s Investor Services report last week.

Moody’s senior vice-president and the report’s author, Carol Cowan, said mining companies faced substantial headwinds when it comes to securing reliable sources of water.

“Many countries, including Peru, Chile, Australia, South Africa and Mongolia, have large mining operations exposed to decreasing water availability,” Cowan said.

“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.”

This exposed these mining companies to elevated environmental risks that would result in higher costs from both an operating and capital development perspective, it said. The effect will force the government to implement stricter environmental regulations, affecting mining firms.

The cost of water for the mining sector totalled R8.1billion in 2018, representing 3.63percent of total production costs, according to the Minerals Council.

Moody’s said operating costs were likely to increase as companies spend additional capital to invest in technology, such as desalination plants, to secure water without disrupting resources used by local communities.

The large, globally diversified mining companies, such as BHP, Rio Tinto, Glencore and Anglo American, all had operations in high risk regions such as Peru, Chile, Australia, South Africa and Mongolia.

Mining companies need millions of gallons of water for processing ore, smelting and refining, dust suppression, to generate hydroelectric power, and for drinking for employees.

Minerals Council spokesperson Charmaine Russell said Moody’s correctly identified water as a strategic issue for mining.

“Larger mining companies have historically been able to invest significant amounts in water infrastructure to ensure the operations have access to the water required, but smaller companies with single mine operations have been most vulnerable due to technical and financial restraints,” Russell said.

“What we have seen recently is a move by smaller companies to partner with municipalities to upgrade existing water infrastructure as a trade-off for guaranteed supply. This allows the mining company to secure the water they require for their operations, while also improving access for host communities.” She said the gold mines in Gauteng pumped huge amounts of water to prevent flooding, while parts of the Northern Cape and North West, and increasingly Mpumalanga probably had the largest shortfall risks.

“We agree with the National Treasury that there needs to be a comprehensive management strategy for investment in water resource development, bulk water supply, and wastewater management,” Russell said.

“Mining should be a very important partner in any water strategy, as the point of shortfall between water supply and demand is approaching.”

Moody’s also said that miners’ use of ground and surface water that local communities rely on had resulted in protests and prompted stricter environmental regulations that would exacerbate the challenge.

Protests have occurred in Peru, Chile, Mexico, and the US over the last few years.

Cowan said these protests could cause delays in the construction of new mines or expansion of existing ones as demonstrations against such projects would likely continue.

With continued depletion of water levels expected, Cowan said smaller mining companies with limited financial flexibility might face increased costs related to water procurement over time.

BUSINESS REPORT