The Looming Water Wars
BMI View: With freshwater accounting for only 3% of the earth's water reserves , the competition for water resources between industrials and local communities will continue to intensify over the coming years. T his will have wide-reaching implications on the mining sector as miners across the board are slapped with higher regulatory compliance costs while having to allocate a larger portion of their spending to prevent and treat contaminated waters.
In line with our view, the issue of water scarcity has continued to gain grounds in India as an increasing number of companies are battling to cope with water-related challenges. Apart from afflicting growth in the mining sector, conglomerates such as Tata Steel and Adani Group are set to come under growing pressure amidst warnings of an impending water crisis by the United Nations. In recognition of this growing challenge, India's federal and state governments have set aside US$20bn for sewage treatment, irrigation and recycling of water resources over the next five years.
Water Concerns Rage On
As evidenced by a global trend of resource nationalism and environmental protest, the operational management of mining activities has resulted in an emerging challenge to the industry-wide social license to operate. This is especially true for India, which is one of the most water stretched countries in the world. Rising consumption from the agricultural sector, which consumes more than 80% of the water available, has seen industry and governments struggling to come to terms with this new and widespread issue. According to the United Nations, India is the largest groundwater extracating country, utilising 251km³ a year, compared with 112km³ in China and 64km³ in Pakistan. The country is expected to reach a state of water stress before 2025 when overall water availability is projected to fall below 1,000 m³ per capita.
|Global - Water Stress Levels|
With the Indian mining sector already reeling from a myriad of industry-specific problems, we note that concerns over water availability in India may prove to be the last straw that breaks the camel's back ( see our online service, February 25 2013, 'Water Scarcity The Next Bog Challenge For Miners'). Water is of transcendental importance in the minerals production cycle, particularly for precious metals, diamonds, copper and nickel. However, water quality problems including acid mine drainage and toxic waste disposal are among the most severe environmental impacts associated with mining.
Apart from the insufficiency in iron ore and coking coal, steelmakers operating in India face challenges to meet expanding local demand as attempts to start operations are often met with strong resistance from the local communities. To highlight, disputes with local farmers demanding rights to their irrigated land have stalled US$80bn of investment by steelmakers such as POSCO and ArcelorMittal. POSCO's plan to construct a US$12bn mill in the eastern state of Odisha is a drawn-out process and has been delayed for eight years as it involves the involuntary resettlement of domestic farmers.
|Global - Breakdown of Water By Source (LHS) & Breakdown of Freshwater Resources (RHS)|
Agricultural Sector At Stake
Agricultural producers in India are also fighting against the rising tide of water scarcity. Persistent drought in parts of Maharashtra and Karnataka, which together account for 45% of India's sugar production, resulted in a large number of farmers committing suicide due to falling incomes. With water use for irrigation rising rapidly in many countries, we believe the uncertainty of water security will remain at the forefront of the agricultural sector over the coming years. Irrigated agriculture consumes 70% of the total freshwater use in the world and it is estimated that 20-30% of agricultural water use is unsustainable at current levels. This notwithstanding, the dramatic increase in food security brought in large part by the 'Green Revolution' (which involves the development of high-yielding varieties of cereal grains, expansion of irrigation infrastructure, distribution of hybridised seeds, synthetic fertilisers and pesticides to farmers) has greatly increased water consumption and contributed to the degradation of aquatic ecosystems and declines in groundwater levels.
A Worldwide Problem
Indeed, the threat of water scarcity is not unique to India alone. Mining economies across South America and Africa are also grappling with the reduction or depletion of water tables. For instance, Newmont Mining's planned US$5bn Conga mine in Peru has been the source of deadly protests over water in recent quarters. Moreover, the amount of precipitation in Peru has been unusually low over the past two years due to the El Nino weather phenomena.
|Global - Water Resource & Population|
While South America is host to 26% of the world's water resources, second to that of Asia, many of the richest mineral deposits are, however, located in areas with limited water supplies. Stellar portfolios of copper, gold and silver are located beneath the Atacama Desert in Chile, which is so dry that rainfall has never been recorded in some places. Furthermore, governments, in a bid to spur economic growth, are allotting water for industrial use amidst a period of rising population growth. Admittedly, demographic and economic trends are intensifying the competition for water resources with water withdrawals in some countries fast approaching levels of the water resource available.
More Miners To Batten Down The Hatches
As water-related problems are becoming more acute, we believe governments around the world will implement a series of policies aimed at tackling water pollution and restricting water consumption over the coming years. Consequently, this will have wide-reaching implications on the mining sector as miners across the board are slapped with higher regulatory compliance costs while having to allocate a larger portion of their spending to prevent and treat contaminated waters. Most importantly, this will come amidst a time when many miners are struggling to right their ships and avoid wasteful cash burns at all costs. Given the murky outlook for future commodities prices and a litany of bad news that has sent stock prices tumbling in recent months, the looming water wars may well see more companies batten down the hatches.
|Source: BMI, World Resources Institute|
|Exploration/Site Preparation||Sediment runoff, increased suspended sediment load to surface waters|
|Spills of fuels and other contaminants|
|Mineral Extraction||Chemical contamination of surface and groundwater|
|Altered landscapes from mine workings|
|Decreased groundwater resources due to dewatering pits|
|Increased erosion and siltation|
|Processing||Discharge of chemicals and other wastes to surface water|
|Reliance on power from water-dependent sources (hydro and thermal)|
|Water consumption: Water used in mineral separation and beneficiation|
|Mine Closure/Post Operation||Persistent contaminants in surface and groundwater|
|Expensive, long-term water treatment|
|Persistent toxicity to organisms|