Water and the Mining Industry

Unfortunately, existing tools, while useful for a general comparison of companies and locations, are inadequate for detailed, asset-level risk assessment and management.

The Columbia Water Center has received a 3-year grant from Norges Bank to develop a modeling platform to quantitatively assess mining-related water and environmental risks and their financial implications. For the initial phase of the project, the Center’s research team will focus on water-related exposure for the mining of copper and gold.

The new modeling platform will allow investors access to a targeted analysis of water-related mining risk, with a high level of specificity related to type of mining operation, geophysical and socio-political setting, remediation and mitigation needs, financial implications of particular asset risks on the broader company portfolio, and causal connections between risk factors and financial performance. A comprehensive database will be developed as part of the project to support these analyses. Norges Bank has initiated and actively supports this academic research project to increase understanding of environmental risks and their financial implications as part of its responsible investment strategy.

The project will use modeling tools to address elements of specific risks as well, including: meeting water requirements for mineral processing, energy production and community needs; treatment, disposal and re-use of wastewater; flooding and mine dewatering operations; and addressing accidents and spills. The role of rights, regulations and related governance issues as it poses financial risks to mining operations is also considered.

The model will be developed using the relatively data-rich settings in the USA, Canada, Chile and Australia. The research team plans to cross-validate model performance to test the application of the models to settings where data is less abundant. Applications will then be tested and in other regions such as South Africa and Peru, where geophysical and mining conditions are similar but where data might not be as readily available and where there may be differences in economics, governance and other site factors. Portfolio risk analysis tools are being developed for the analysis of financial risk at the asset, company and regional levels.

The data and models being developed are open source, and–subject to restrictions from the data providers– will be available to mining companies seeking to assess, manage and mitigate a broad range of environmentally induced financial risks. Other targeted users include financial analysts, mining companies, government regulators, NGOs and academics.

Current Research:

Blanchet, J., Dolan, C., Iyengar, G., and Lall, U. Towards a Robust Top-Down Model for Valuation of Mining Assets

Fonseca, F., Bonnafous, L. and Lall, U. Asset-level Analysis and Modeling of Water Risks Associated with Mining

 Maennling, N.,  Thomashausen, S.,  Nielsen, D.. and  Vempati, A.R. Mining and Water: A Perspective on Legal and Regulatory Risks

Siegel, J.M., An Investor’s Perspective: Long-Term Risk Assessment and Value Drivers for Mining Investors with Varying Time Horizons