Vulnerable big miners must safeguard the environment

Sustainability for mining companies means access to new resources, but host governments and communities have other environmental priorities, as Martin Beaver reports

Supermarkets promote their spectacular offers with hype, exclamation marks and a superficial view of reality. “When it’s gone – it’s gone!” But mining companies can only dig something out of the ground once. So when it’s gone, it really is gone.

Despite there being more mining companies in the FTSE 100 than businesses from any other sector, mining is unusual. It is a primary industry, but unlike other primaries, such as forestry, fishing and farming, the resources that miners work with are finite and non-renewable. Ultimately, their operations are not sustainable.

Yet what they produce is absolutely essential for the sustainability of modern societies. Around 40 per cent of the world’s electricity is generated from coal. Our transport systems rely on steel from iron ore. The average Western family house can contain up to 200kg of copper in the form of plumbing pipes and electrical wiring. Mobile and information technologies require a myriad of exotic materials from beryllium to yttrium.

Sustainability is a slippery word and it is perhaps ironic that “big mining” is at the forefront of defining what sustainable development means in business terms. While many companies pay lip service to the concept of sustainability, miners have evidence. And for good reason. Their own sustainability depends on it.

“The two main challenges facing the industry are climate change, and community and regional development,” says Dr John Groom, UK representative at Euromines, the European Association of Mining Industries, Metal Ores & Industrial Minerals. “And we cannot simply ignore these issues.”

The sheer length of mining companies’ investment and operational cycles highlights their vulnerabilty to the long-term impact of climate change

Mining works to long timescales. Anglo American has estimated that the life cycle of a mine, from initial exploration to closure, can cover 170 years. Neither Germany nor Italy existed as nation states 170 years ago and Victoria had just become Queen of England. Rio Tinto’s Bingham Canyon copper mine in Utah is still in operation after more than a century.

Above all else, sustainability for a miner means access to new resources. Access requires permission. And permission is based on a mutual assessment of risks and benefits by national and local governments, by communities and investors.

These stakeholders make choices between one company and another. In the internet age, a credible track record in sustainable development and ethical behaviour is vitally important. A fish kill in one hemisphere can alert environmentalists in another; likewise human rights violations or a poor safety performance.

As global operations, big miners are vulnerable. They are only as strong as their weakest performing business unit. Corporately they have to say what they will do and do what they say. And be able to prove it.

But they can be an attractive proposition. They create large numbers of jobs, pay taxes, build infrastructure, and establish meaningful health and education programmes. However, they can also change environments and societies irrevocably, and have the potential to create havoc in the world and to themselves.

The Deepwater Horizon disaster cost BP billions of bottom-line dollars as well as an unquantifiable reputational hit. And mining companies are vulnerable to similar catastrophes, be it the mass pollution of water courses or class actions for an industrial disease.

However, for them to maintain sustainable businesses demands not only access to new mineral deposits, but also cost-effective access to operational resources, particularly water and energy.

The sheer length of mining companies’ investment and operational cycles highlights their vulnerabilty to the long-term impact of climate change.

The mining industry accounts for around 2 per cent of global greenhouse gas emissions, according to John Drexhage, director of  environment and climate change at the International Council on Mining and Metals (ICMM). This is the same as Canada’s emissions. And Canada is a member of the G8. “Climate change could be a defining issue for the industry,”  he says.

One of the main ways in which it is likely to manifest itself is a shift in the availability of water, of which miners use enormous quantities.

Dry areas could become drier, or wetter or both. Already many mining operations are taking place in water-stressed regions. In Australia, Queensland’s coal mines have suffered both droughts and flooding in the past five years.

Mining companies are already investing in desalination plants to use seawater for operations, rather than further endangering the access of local communities to fresh water. Using water more efficiently is both a cost and a social imperative.

A further significant risk is that from the rising cost of energy, of which miners use huge amounts. Not only are there prospective increases to their already eye-wateringly large bills, but they are experiencing increases in the intensity of energy they need to use to mine or smelt any given tonne of mineral. As resources get scarcer, they have to mine deeper, haul further and work harder to produce the same. Despite the cost incentive to cut their energy demand, they are having to run to stand still.

Resource-rich countries, such as South Africa, Australia and Brazil, are each planning or implementing carbon pricing mechanisms, which could impose billions of dollars’ worth of additional costs on mining companies. Even in the climate-sceptical United States, major developments are taking place below the radar.

So all the big miners are striving for ever-higher levels of social and environmental performance because society and investors demand it. Whether that is sustainable, we have yet to see.