Water Risks in Extractive Industries

Water is an important natural input for mining, as extractive operations rely heavily on this natural resource to process the ore. However, the impacts of climate change (higher temperatures and more extreme, less predictable weather conditions) are affecting the availability of water resources globally.

The demand for metals to produce low-carbon technologies is on the rise as countries gradually move towards low carbon economies. Some of these metals in high demand include copper, nickel, lithium, aluminium and gold. Copper is one of the most effective electric conductors for renewable power structures. Lithium and nickel are used extensively in batteries. Aluminium is key to producing lighter, more fuel-efficient vehicles and gold is often used in the energy, healthcare and technology industries for various water-related applications. This makes the responsible development of the extractive industries vital to creating a more sustainable future.

As extractive companies aim to meet global demand, they also face several ESG risks related to water scarcity: from limited availability in the jurisdictions in which they operate, to stricter regulatory regimes, to competing for resources with local communities. The mitigation of water-related ESG issues is imperative for the continued successful operations of companies and the entire sector.

Risks for mining operations in water scarce regions

Geography is an important determinant of a mine’s level of water risk. Many of the world’s most popular mining jurisdictions (e.g., Peru, Chile, Australia, parts of Africa and Mexico) are constrained by water scarcity. Water availability is also an issue for mining companies in India, the United Arab Emirates and Bahrain, which are some of the world’s biggest bauxite mining countries (which is used to produce aluminium). It is estimated that by 2025, important river basins in these areas and others, such as Western Europe and the US, will face severe water issues like water scarcity or contamination.

Policymakers globally are under pressure to tighten water regulations. China has set stricter water resource management requirements and regulators have established mandatory limits on water usage, efficiency and quality. These changes could have financial implications for companies, such as fines, if they are unable to adapt to stricter regulations.

Several other factors related to operating in water scarce regions could impact mining companies’ enterprise value; from production constraints due to droughts, to increased operating costs. Moreover, as water is an important resource for communities surrounding mines, mismanagement can lead to community conflicts and reputational damage.

Mining processes put pressure on water supply

Mining is extremely water-intensive as water is used in several processes, such as ore processing, suppressing dust, or heating and cooling machinery. For metal producers, water is also used as a solvent for chemical reagents used to separate target metals.

While positive impacts of the industry such as employment and community development projects are essential, they do not off-set potential negative externalities. Concerns over water resources and availability are one of the leading causes of community opposition to mining. Resistance from local communities over water resources can result in violent protests and operational disruptions.

Environmental and social impacts of mining effluents management

Historically, mine tailings has been a major stakeholder concern. Tailings are a mixture of leftover ore and chemicals used in the mineral extraction process, such as cyanide or sulphuric acid. Inert or treated tailings spills can negatively impact communities along with their local infrastructure and toxic spills can have long-term effects on the environment through bioaccumulation.

All jurisdictions have some degree of regulatory oversight over tailings dams, and compliance with these regulations is required for mine permitting. Still, the stringency of regulations varies between jurisdictions and massive spills have occurred in jurisdictions where regular inspections and reviews are conducted.

Another risk for waterways resulting from mining is acid mine drainage. When sulphide minerals contained in ore are exposed to water and air, they react to form sulphuric acid. If sulphuric acid reaches waterways or aquifers, its acidity has severe negative impacts on human and marine life.

Aluminium producers that extract bauxite also face waste and effluent risks. Red mud, a toxic by-product of aluminium production, is composed of 60% iron oxide and contains silica, unbleached alumina and titanium oxide. A typical bauxite plant produces one to two times more red mud than alumina. Discharges of red mud are extremely hazardous because of the mud’s alkalinity.

Mitigating water-related risks in mining

To mitigate related risks and drive operational efficiencies, companies should implement comprehensive water management programs. Best practices in water management involve making processes more water efficient and recycling as much water as possible. Current solutions include new technologies such as desalination, water treatment or recycling facilities. However, these solutions are costly. In the case of desalination, they also require access to a coastline, and the significant capital needed to build and operate these complex and energy intensive plants could be a barrier to implantation for some companies.

Governments are working on securing water rights through regulation around the world, putting pressure on the mining sector to change. Water, however, is a cross-sectorial topic which requires all industries to work together to reinforce sustainable development.

Sustainalytics’ ESG Risk Ratings can help you better understand the material ESG issues facing extractive companies. If you’re interested in learning more, please contact us.