Following concerns around mining companies having struggled to quantify the impacts of sustainability ‘megaforces’ on their mining operations, professional services firm KPMG highlights that if managed appropriately, these megaforces could provide unprecedented opportunities for growth, through new business models, cost savings opportunities and preferred access to stakeholder capital.
“Megaforces such as climate change, scarcity of energy, water and natural resources and environmental decline are some megaforces that mining companies are aware of. However, dealing with the issues that they present to the business environment has not become a core part of corporate strategy, as organisations often react to megaforces issues when they occur, rather than consciously hedging against future risks and preparing for opportunities,” says KPMG global climate change and sustainability mining leader Rohitesh Dhawan.
He adds that with the exception of carbon taxes, most megaforces have, so far, constituted little or no direct cost to businesses, but that this is about to change dramatically. This includes that where charges for external impacts of mining operations already exist, as is the case with carbon, costs are set to rise further.
“Mining companies are accustomed to a nominal financial outlay for activities that negatively impact the environment. However, taxes and penalties for air pollutions and carbon emissions are becoming more widespread and will inevitably extend to cover waste discharge, as well as the use of scarce natural resources. Opencast mines in particular use vast amounts of water, yet have not had to pay the true price, which will almost certainly rise significantly. As a result, many mining operators could find themselves facing significant, unforeseen expenses or even see mines unable to function, owing to a loss of their social licence to operate,” Dhawan points out.
However, he mentions that what could be beneficial for mines moving forward is to have a long-term outlook influencing decision-making, which will include a more proactive approach to the impact of megaforces on the life-of-mine (LoM) and beyond.
Dhawan explains that given the projected rise in traditional fossil fuel prices, over a 20- to 30-year period, mining houses could look into investing in renewable energy, which could yield positive business opportunity beyond the LoM.
Also, former mining sites are now routinely expected to be restored to their former level of biodiversity, which will also incur substantial charges in future, he warns. However, he notes that several mining firms take this responsibility very seriously, by extracting samples of vegetation and animal life from the area to be mined, preserving it in a nursery, to enable the environment to be recreated once the mine ceases to operate.
“Where there are no current charges, such as for degradation of ecosystems, new ones may be introduced. With companies increasingly expected to account for the true value of their operations beyond wages, labour, equipment, energy and services, such charges will likely become more common,” he highlights.
Also, mining companies will need to include the risk of unexpected retrospective charges that may be applied years after a mine has closed, for example, for damage resulting from acid mine drainage.
Although these have the potential to yield positive returns for mining companies, Dhawan emphasises that it remains the responsibility of managers to systematically monitor and measure energy and water use, emissions and discharges in order to deal with unexpected retrospective charges and also to be able to model future profit projections of the mine.