In a world facing increasing water scarcity and droughts, many industries face water-related operating risks and capital expenditures that threaten financial performance and even license-to-operate. The mineral extraction industry in particular faces the dual challenge of increasing water management costs and growing public scrutiny of the often-irreversible effects of mining on local land and water resources.
Columbia Water Center developed a modeling platform to quantitatively assess mining-related water and environmental risks and their financial implications, in a three-year project sponsored by Norges Bank Investment Management (NBIM).
The modeling platform provides investors access to a targeted analysis of water-related mining risk, with a high level of specificity related to the 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.
The model was developed utilizing the relatively data-rich settings in the United States, Canada, Chile, and Australia. The research team cross-validated model performance to test the application of the models to settings where data is less abundant. Applications were tested 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 were also developed for the analysis of financial risk at the asset, company, and regional levels.
Read the full report on this project Mining and Water Risk: Diagnosis, Benchmarking, and Quantitative Analysis of Financial Impacts – A Synthesis of Key Findings or the one page project overview "Water and the Mining Industry."
Publications
Legal
S. Thomashausen, N. Maennling, T. Mebratu-Tsegaye. A comparative overview of legal frameworks governing water use and waster water discharge in the mining sector.
Physical
J. Ossa-Moreno, N. McIntryre, S. Ali, J.C.R. Smart, D. Rivera, U. Lall, G. Keir. The Hydro-economics of Mining
L. Bonnafous, U. Lall, and J. Siegel. An index for drought induced financial risk in the mining industry
L. Bonnafous, U. Lall, and J. Siegel. A water risk index for portfolio exposure to climatic extremes: conceptualization and an application to the mining industry
P. Larrauri, U. Lall. Assessing Risk of Mine Tailing Dam Failures
P. Larrauri, U. Lall. Tailings Dams Failures: Updated Statistical Model for Discharge Volume and Runout
J. Salem, Y. Amonkar, N. Maennling, U. Lall, L. Bonnafous, K. Thakkar An analysis of Peru: Is water driving mining conflicts?
Financial
J. Blanchet and K. Murthy. Quantifying Distributional Model Risk via Optimal Transport
J. Blanchet, Y. Kang, and K. Murthy. Robust Wasserstein Profile Inference and Applications to Machine Learning
J. Blanchet and K. Murthy. On Distributionally Robust Extreme Value Analysis
C. Dolan, J. Blanchet, G. Iyengar, U. Lall. A model robust real options valuation methodology incorporating climate risk
White Papers
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
Blanchet, J. and Lall, U. Private Risk and Valuation: A Distributionally Robust Optimization View
Butler, L., Lall, U., and Bonnafous, L. Cumulative Heavy Metal Contamination in Mining Areas of the Rimac, Peru Basin
G. M. Mudd, S. A. Northey, T. Werner Water Use and Risks in Mining
Internal Reports
Assessing Water-Related Legal Risks in the Mining Sector
Distributionally Robust Performance Analysis with Applications to Mine Valuation and Risk
Modeling Cumulative Effects of Heavy Metal Contamination in Mining Areas of the Rimac Basin
Institutional Investors & The Push for More Robust ESG Reporting
Articles
Hurricanes Harvey and Irma Show That It’s Time for Companies to Disclose Climate Risks to Investors
September 7th, 2017
“Last week’s Hurricane Harvey demonstrated the devastating risks that climate change poses to people and the planet. At least 60 people have lost their lives and some meteorologists are saying Harvey is the worst rainstorm and the one of the most expensive disasters in U.S. history. Climate change is making extreme weather events more extreme and more frequent. Warmer seas feed more power into hurricanes, and higher temperatures increase evaporation rates and the carrying capacities of rainstorms. As such, a number of scientists have suggested Harvey’s damage was magnified by the warming climate. Now Hurricane Irma is tearing up the Caribbean, strengthened by the same abnormally warm sea waters.”
Challenges for Governments Seeking to Get the Most Out of Natural Resources
June 29th, 2017
“Disappointed with the less lucrative results of these policies than expected and in light of the heavy environmental and social costs of mining, in recent decades a number of developing countries have pursued targeted policy interventions that promote protectionism or resource nationalism.”
Does El Salvador’s Metal Mining Ban Suggest a Global Trend?
May 2, 2017
“While a new administration in Washington has shifted toward deregulation of the mining industry, an opposing trend is taking root in jurisdictions around the world. A number of national and local governments are tightening environmental regulations and shutting down specific mining projects, or in some cases the entire industry, due to environmental risks, including those related to water use and pollution.”
Why Are Mines Still Polluting? The Money’s Not There
Dec 20, 2016
“Across the nation, thousands of abandoned mines remain nearly as they were left when they ceased to be operational. In many cases these mine sites continue to pollute the environment for decades as acid mine drainage flows into rivers and streams. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) was enacted in 1980 to enable the federal government to manage such industrial pollution. But through lack of funding and enforcement, the public has been stuck with the cleanup bills.”
Columbia Water Center Submits Comments to the SEC
Oct 3, 2016
“The Columbia Water Center submitted a letter in support of the proposed changes to the rules and encouraged disclosure on many factors related to water risk, including a mine’s capacity to maintain its social license to operate, its risk of tailings dam failure in the light of increasing extreme weather events, and its ability to live up to its own predictions of water quality during the mine’s operation and closure.”
Rules Would Requires More Environmental Risk Disclosure in Mining
Aug 10, 2016
“Under the proposed rules, mining companies must submit a “technical report summary” for each mineral resource or reserve that is significant enough of an asset to be considered material. The SEC outlined specific requirements for the contents of the technical reports, including, most relevantly: ‘the final identification and detailed analysis of environmental compliance and permitting requirements, including the finalized interests of agencies, NGOs, communities and other stakeholders, together with the completion of baseline studies and finalized plans for tailings disposal, reclamation and mitigation.’”
Shareholder Litigation Puts Spotlight on Environmental Risk
July 11, 2016
“Rule 10b of the Securities Exchange Act gives shareholders the right to bring a lawsuit to recover economic loss sustained as a result of fraud related to the trading of their investments in stocks or bonds. This fraud can come in many forms, including insider trading, price fixing or corporate misrepresentations to its investors. This last type of fraud has seen increased attention (primarily at the state level) from those who want to see corporate statements regarding future environmental liabilities, including climate change impacts.
In the past year, lawsuits against three different foreign-owned mining companies operating in South America were brought in U.S. courts regarding mismanagement and lack of disclosure of environmental risk.”
New Rules Hold Mining Industry Accountable for Cleanups
May 31, 2016
“Early this year, a federal court agreed with environmental advocates that the Environmental Protection Agency (EPA) must take steps to ensure that mining companies pay for their own harmful environmental impacts so the taxpayer is not stuck with the bill. The Court of Appeals for the D.C. Circuit affirmed a settlement agreement between the EPA and several environmental groups that establishes a timeline for the creation of financial assurance requirements for certain hazardous industries, starting with hardrock mining.”
Project Calculates the Cost of Social Conflict
Apr 18, 2016
“The Columbia Water Center is undertaking a three-year project to quantitatively assess mining-related water and environmental risks and their financial implications. This research is generously supported by Norges Bank Investment Management.”
When Environmental Oversight Takes a Back Seat
Apr 15, 2016
“The mining industry accounts for 12 percent of the Peruvian economy and 60 percent of Peru’s total exports. The government of Peru faces significant pressure to encourage growth and investment in this sector, especially in the face of falling commodity prices. But this has also put pressure on the government’s ability to properly assess environmental impacts.”