Rating agency Moody's warns increasing water scarcity is raising capital and operational expenditures for mining companies, with smaller players most at risk.
Global mining companies could adversely affect the ratings if they fail to proactively manage the accompanying operational and political risks to their businesses, Moody's Investors Service says in a new report published Thursday.
According to the report, "mining projects are already competing with local communities for limited water resources, while having to comply with stringent environmental rules is adding to the capital expenditure (capex) budgets for new mines.
"In addition, tighter environmental permitting requirements could add to project timelines and require the companies to seek more complex water procurement systems. This in turn will push up the companies' operating costs because of the higher associated maintenance and energy costs. Furthermore, political risk is likely to increase as competition for water resources between mining companies and local populations intensifies.
"Water scarcity is already changing the mining landscape as environmental legislation becomes more stringent, and operating in some countries increases political risk as mining companies' water supplies can be restricted if the needs of communities increase," says Andrew Metcalf, an analyst in Moody's Corporate Finance Group and author of the report.
"If, as a result, projects take longer to complete, and become costlier and riskier to execute, we would expect these factors to exert downward pressure on the ratings of the mining companies."
"In general, smaller, less-diversified mining companies – particularly those with single-mine operations – in water-scarce regions, such as South America, are the most vulnerable. This is because they are likely to have the greatest exposure to event risks, but have more limited financial and technical resources at their disposal to handle them.
"The large, globally diversified mining companies, such as Rio Tinto plc (A3 stable), Anglo American plc (Baa1 stable) and BHP Billiton Limited (A1 stable), will continue to be adversely affected given their global footprints and willingness to operate in the most remote and arid regions.
"While these companies have the expertise and financial strength necessary to build complex water procurement systems for large-scale projects – and are likely to emerge as the 'partners of choice' in water-scarce countries seeking to benefit from their natural resources as a result – evidence suggests that they have to date needed to absorb increasingly significant costs related to environmental risks.