The water-mining interdependence, or nexus, poses several operational challenges to mining companies, including physical, reputational and regulatory-related risks and, as water-related risks continue to rise in the mining industry, it will become increasingly essential for companies to implement water risk management strategies and disclose water-related data.

Water is a fundamental input for the mining sector, and the mining process also significantly impacts on water resources and can result in water depletion and contamination, impacting on local communities and industrial users, said industry research and market intelligence company BMI in its ‘Navigating the Water Risk Landscape Top Priority For Mining Companies’ report, published late last month.

The risks will escalate over the coming years, as water scarcity rises and competition for resources intensifies, underpinned by factors such as urbanisation, industrialisation and climate change. Increasing demand and declining grades also require more ore to be processed, which requires additional water resources.

Further, the geographical location of a mine significantly influences its susceptibility to water risks. Numerous prominent mining regions worldwide, namely the Middle East and North Africa, Central Asia, and select markets in South America and Asia, will be particularly exposed to water-related risks.

Water-related risks could have severe financial repercussions for mining companies and may disrupt their supply chains. According to a report by global environmental disclosure nonprofit organisation the Carbon Disclosure Project (CDP), the extractives sector suffered over $20-billion in water-related financial impacts in 2018.

“These challenges underscore the urgency for mining companies to prioritise comprehensive water risk management strategies and the adoption of sustainable pratices in order to minimise financial losses and supply chain disruptions,” the report stated.

Environmental, social and governance issues, and specifically water management, have been cited as a key area of focus for the metals and mining sector and it receives the most scrutiny from investors, it added.

Mining operations heavily rely on water for various activities, such as mineral separation from host rocks; cooling drilling and processing machinery; and dust suppression. Additionally, water is frequently used for storing mining by-products and facilitating downstream processing.

Therefore, access to a secure and stable water supply is critical for mining operations. Various organisations, such as the CDP, the World Resources Institute and Columbia University, are actively developing tools for assessing water risks, BMI added.

Moreover, the International Council on Mining and Metals (ICMM) has launched a stewardship strategy, the ICMM Water Stewardship Framework, which offers practical guidance to the metals and mining industry centred on a catchment-based approach to water management. The four key elements of the strategy are: engagement with other water users; transparent public reporting on water usage, material water risks and performance; collaboration with other water users to mitigate shared water risks and support equitable access; and increased efficiencies in the use of water.

Regulatory, physical and reputational risks have widespread financial implications. The physical risks of water scarcity to mining companies include the potential adverse impacts of limited access to water resources on their operations. Decreased water supply makes obtaining sufficient quantities for mining processes difficult, leading to increased costs in securing water sources, through technology such as desalination.

“Additionally, operational disruptions may occur owing to limited water availability, potentially causing production delays or shutdowns.

“The severe drought in Chile at the start of 2022 significantly impacted on mining operations in the country. Chile is the world’s largest copper producer and second-largest lithium producer.”

Diversified miner Anglo American’s Los Bronces mine, in central Chile, experienced a 17% year-on-year decrease in production, as reported in the first quarter of 2022 results, attributed partly to water scarcity. Similarly, Antofagasta Minerals reported a 24% drop in production during the same period at its Los Pelambres mine owing to the impact of drought, the report pointed out.

Meanwhile, limited water availability can lead to tensions with local communities as mining operations compete for access to water resources, causing social and reputational challenges. Mismanagement of water resources and resultant water pollution can exacerbate community conflicts and damage a company’s reputation.

“Both these situations can lead to communities opposing mining projects, causing cancellations and temporary shutdowns of mines,” BMI said.

In January 2022, traditional herders from Khanbogd, in Mongolia, staged a demonstration at the gates of the Oyu Tolgoi copper/gold mine, which is controlled by Rio Tinto. The protest resulted from the frustration caused by the failure to fulfil promises regarding livelihood support projects for herders who lost access to water and pastures and job opportunities, the report highlighted.

Further, mining companies will likely face increasing regulatory risks concerning water in the near-to-medium term. Governments worldwide are responding to public concerns about water shortages by introducing new laws to regulate water rights, use and management.

“Failure to comply with stricter regulations from policymakers could lead to financial penalties if companies cannot adapt to the new rules or regulatory restrictions placed on production processes. As environmental sustainability becomes a priority for corporate boards and governments worldwide, water sustainability regulations and net-zero commitments will pressure mining processes in the coming years,” BMI noted.

For example, in response to rising concerns over water scarcity and environmental degradation, China has taken significant steps to improve water resource management.