Water is an investment: as valuable as ounces in the ground
Water is crucial to mining– to carry chemicals for processing ore and as a delivery vehicle for mine wastes that must either be dry-stacked or stored in large tailings ponds. Without a constant water supply, a mine ceases to function.
“If exploration geologists and mine developers applied as much diligence to thinking through water obligations, needs and strategy, as evaluating the resource, how it will be exploited and how much it’s worth, the industry as a whole would be in much better shape. The resource would be that much more attractive to a potential investor,” says Andrew Watson, Stantec’s mining sector leader. The global consulting firm offers water management and treatment solutions to mines and recently expanded their water service offering through the 2016 acquisition of water engineering giant MWH Global.
For more insights attend “Water strategy: Getting it Right from the Start” during PDAC on Wednesday, March 8th at 9:10 am in Room 713
Surprisingly though, given its importance to a mine, establishing a water strategy is not always top of mind for mine developers. Often promoters and investment analysts prefer to focus their attention on metal in the ground – arguably a sexier metric in the measure of a mine’s potential, due to an ore reserve’s capacity to quickly and handsomely reward shareholders.
“We spend a lot of effort talking about the resource in instruments like NI 43-101. But we don’t spend much time describing the ancillary resources which become ‘oxygen in the room’ and allow the mine to be developed. We presume they’re there but if they aren’t there, the project doesn’t go,” says Watson.
Getting the water balance right
Watson says mines need to find the “sweet spot” between not having enough water for their operations, and having too much water left over once mining ceases. Whether a mine’s water supply is from an underground aquifer, lakes or rivers that are running through the property or nearby, identifying the correct volume of water needed to operate is a crucial part of developing a mine and one of which potential investors should be acutely aware. Among the factors that play into getting the right balance: the amount of precipitation versus evaporation (i.e. the climate); the mine’s altitude; seasonal differences that affect the amount of available water; how the water will be used in the operation and other claims to the water.
Where’s the upside?
Just as important as water supply, is whether the mine has water rights. There are plenty of examples of mines that have run into trouble because they haven’t secured the right-of-way needed to convey water from the source to the property. The latter becomes important particularly when it comes to expansion. Not having access to additional water can become a constraint on growth plans.
Avoiding water conflicts
While water remains essential for mining, the smart management of water resources is key to successfully traversing the socio-regulatory environment and staying in business. There is no doubt that in some cases, mines and communities can and do happily co-exist. Mining companies have also begun to realize that just because they have obtained operating licenses from governments, does not necessarily mean that they have gained “social license” to operate from the community. The road to a successful mine is littered with projects that failed to secure a social license and couldn’t proceed because of local populations pressuring the government over water concerns.
Water is most often the issue that the community gets upset about first. If wells dry up, or if the water supply has been impacted – this is when water directly or indirectly becomes a catalyst for the community. “Water is often the litmus test to determine the strength of the tie to the community. The first thing savvy investors ask is can we build this thing? Not from a technical perspective but from a social/political perspective,” said Watson.
There are several examples in South America where mining companies invested in infrastructure, only to find that they couldn’t negotiate the right-of-way needed to pipe the water in from the source to the mine. In other cases, mines conflicted with communities who shared the same river water. An example is Pascua Lama, which was shut down during construction over concerns about the quality of water downstream from the gold mine straddling the border between Chile and Argentina.
Other times, expensive re-works are forced upon mining companies by government or courts who are compelled to listen to and make decisions based on the wishes – and safety – of local people. An example is the El Morro project in Chile, where Goldcorp had to alter its environmental impact study after the country’s Supreme Court halted mine development due to inadequate consultation with local indigenous people. The company eventually decided to build a water desalination plant, an expense that may have been a contributing factor in the Vancouver-based company opting to combine El Morro with Relincho, a nearby property owned by Teck Resources, in order to cut costs.
More recently, Kinross had to suspend operations and lay off 300 workers at Maricunga, its main gold mine in Chile, after a court upheld a regulator’s decision to shut down the operation’s water system over environmental concerns.
Part of securing a mining permit is coming up with a workable plan for closure that will satisfy regulators and, here again, water is often the elephant in the room. “The last thing you want to do is get a big surprise when you’re done mining: Once you’ve distributed all your earnings as dividends you don’t want to be stuck with a bill for closure,” says Watson, noting that a water quality issue is the most common cause of a long-term obligation.
“Just about everything else you can make go away – knock it down, re-use it or cover it, but there’s a litany of closed coal mines, hard rock mines, that look beautiful but they can’t get bond release. Knowing these things, we can anticipate and plan differently – provide contingencies or take slightly different actions during mine development and operation.”
“Developers need to diligently look at their options, do a proper risk analysis with a thorough and honest understanding the property, before they start disturbing it too much,” Watson advises. “I think that’s the premise of our presentation at PDAC is to say, if developers and investors apply as much diligence to thinking through water obligations, needs and strategy, as evaluating the resource and how it will be exploited, the whole industry will be in much better shape.”
See Andrew Watson, Stantec’s mining sector leader present “Water strategy: Getting it Right from the Start” during the Water in Mining session at PDAC on Wednesday, March 8th at 9:10 am in Room 713.