With mining responsible for two thirds of exports in many Latin American countries, it is one business experiencing positive growth in a lagging global economy. Yet increasing regulation and past polluting practises are forcing mining companies to improve their water management. Sarah Thomas highlights opportunities and threats for the sector.
Few involved in the mining sector will have escaped the growing trend of "resource nationalism". Nowhere is this more acute than where water rights are concerned. This was highlighted by the anti-mining protests in Peru early this year which led to declaration of a 30-day state of emergency in Espinar province on at the end of May. And Peru is not alone.
There have been stories of protester marches from their villages to government offices in mineral-rich Argentina, Chile, Ecuador and Peru, all demanding protection of the environment in the face of large mining and other natural resource extraction projects. So why is the issue of water rights such a problem for the sector?
While South America is not alone in the growth of resource nationalism, there are challenges specific to the region. Firstly, the mining industry in South America has been expanding at astonishing speed. A recent research report from consultants PWC indicates that in 2010 and 2011, over one quarter of the Top 40 mining companies' capital expenditure was in South America.
In Chile, the mining industry is probably the most important sector of the economy, representing an average 19.5% of GDP between 2006 and 2010; in the same period, mining exports reached an average of US$37 billion, representing nearly two thirds of total exports. Recent predictions also indicate that the industry in Brazil is expected to be worth $46.44 billion by 2014, which is almost double what it was worth in 2008. Impacts on water quality and quantity are perhaps among the most contentious aspects of mining projects. Water supply is vital to the mining industry because of the amount of processes which require water to function.
Water stress
At the same time, Peru is South America's most water-stressed country - 70% of its population lives to the west of the Andes, where fewer than 2% of water resources are found. Water draining from the Andean highlands supports the population. While water use in the mining industry accounts for only 5% of Peru's water supply, many of the concessions are located in headwater areas in the high Andes. When combined with the rapid expansion of the industry, there is an inevitable tension between the needs of the general population, who require the water for survival and agriculture, and the needs of the mining industry. The issue of supply arises also in Chile. Northern Chile is one of the driest areas on the planet. Superficial water resources are scarce and there is an increasing demand for water from both industrial and local users.
In the area where the majority of mining sites are located, the shortage of water is a limiting factor for regional development. The proper management of resource supply sources — whether surface or underground — is as significant there as attempts to reduce consumption. In mining the industry speaks of "positive" and "negative" water balances. A number of the mines in Chile have a negative water balance where water is needed for the mine to operate. The particular topography is very difficult as the mine is typically located a long way from the water source and in mountainous terrain. Not surprisingly, in this context, the need for effective reuse and recycle technology becomes very important.
As well as water supply, mining companies often need to consider country-specific regulations. Water scarcity concerns can lead to increased regulation and reduced water rights for the sector. Such reductions in allocation may require investments in water efficiency and supply measures and/or production cuts. Particularly critical to the development of any deposit is the attainment of water rights i.e. a licence to use water.
In Brazil, at a national level, a clear procedure is in force for mining projects that require water use rights. Companies have to submit the PUA ("Water Plan for Mining"), a report concerning all water uses of a mine. The PUA requires that the whole water balance of a project is integrated in one report, and involves the company considering the impact on quantity and quality of surface and groundwater (although the implementation of this requirement by the authorities is somewhat patchy among certain states in Brazil).
The system in Chile, on the other hand, currently seems to offer more freedom. As a general rule, water rights in Chile are treated as private property and as a fully tradeable commodity. Water rights have an independent legal life therefore, and do not follow mining concession or land ownership.
However, legislation contemplates the so called "water right of the miner", which enables the holder of mining concession to use the water that has been discovered — within the limits of its mining concession - when performing mining works. In this case the so called "water right of the miner" follows the mining concession, thus expiring jointly with the mining concession. Once granted, water rights are not limited in terms of time. However, they may be subject to a "lack of use fee" if the Water Agency determines that the water rights are not being used.
Pollution to commodity
As well as water supply, there is also the issue of treatment and disposal of wastewater arising from the mining process. Acid drainage is the most widespread water pollution issue and can impact water quality as a result of mining any sulfide or pyrite-bearing ore body, most prevalent in gold, copper, zinc, lead, and coal mines.
Where sulphide ores are exposed as a result of mining activity, there is an increased likelihood of acid rock drainage. In July 2008, Peru declared a state of emergency at a mine near Lima over fears that its tailings dam, weakened by seismic activity and subterranean water filtration, could release arsenic, lead, and cadmium into the main water supply for the capital. Mine tailings are the materials that are discarded following the process of the separation of the sourced mineral and the unwanted sediment. These displaced materials can be a source of pollution and environmental concern.
However, they are also a known metal reserve, which can be turned into a revenue stream. High commodity prices mean great opportunities in the recovery of metals from tailings, and the regulations pertaining to the treatment and discharge of tailings water mean that the race is on to recover as much value from the waste stream as possible. Companies are also responsible for complying with regulations to prevent and treat water pollution even after the mine is no longer operational. As an example of some of the numbers involved, Newmont Mining has estimated its total closure liability to be in the hundreds of millions of dollars — two thirds of which is attributed to waste management. Clean up costs have even been known to force companies to declare bankruptcy and/or abandon mine sites entirely, as occurred in 1992 with Galactic Resources in Colorado.
But as the old adage goes — necessity is the mother of invention. The significant water challenges faced by the industry, particularly in water starved Chile and Peru, also present opportunities for players in the market with the right expertise, technology and solutions. While the industry itself is growing rapidly, investment in water infrastructure is increasing at an even faster rate.
Market potential
Estimates suggest that the total annual expenditure on water-related infrastructure serving the mining industry in 2011 to be worth $7.7 billion. And this is predicted to rise to $13.6 billion by 2014. So, expenditure is expected to almost double in three years. Of a total of $7.7 billion, investment in Chile is estimated at £817 million, Peru $794.4 million and Brazil $475.7 million. It should also be noted that the mining market is difficult to forecast with activity being driven by cyclical commodity prices.
The main growth areas are in water supply, reuse, metals recovery, effluent treatment and brine management. Water scarcity, reduced water allocations to industrial users and concerns about the social perception of environmental issues are driving the market for alternative water supply and water reuse.
The use of advanced technologies for effluent treatment and alternative water supply has also generated a secondary market opportunity in the management of brine. Salt disposal is a growing concern for mines due to stricter regulations and the cost of disposal.
Desalination processes have the strongest potential for growth. In Northern Chile, mining facilities are mainly located where there is little availability for water. In this scenario, and in order to overcome difficulties in obtaining water resources for their activities, mining companies have started to privilege investments in desalination plants.
Author's note: Sarah Thomas is a partner with international law firm Pinsent Masons. For more information and contact: [email protected].
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