LatinFinance - July 2013 - 47

Metals and mining

Riding the cycles

Despite volatile commodity prices, however, some analysts
suggest companies should invest now for projects down the
line. The commodities cycle will eventually swing back in favor
of miners, and the industry could face a deficit of supply in 10
years time, says BMO’s Fung. In anticipation companies should
consider long-term investments in copper projects.
Approving and building a project takes longer than before,
she adds, as the ramp up for projects slows due to complex

permitting and social license issues. “It’s getting more
challenging to develop these projects.” Vena Resources’ Vegarra,
meanwhile, estimates as of the end of May that the drop in
investment appetite for metals may have begun to correct. “We
seem to have hit the floor,” he says.
Hopefully, he adds, that means prices will begin to move
more positively for mining companies. “We expect a rebound
in metal prices in the near term, and that’s of course going to
reignite investment in the industry.” LF

Water pressure
Environmental and social concerns are hardly new for miners, but they are set to intensify. Water scarcity is likely to be a particular
pressure point.

Water Spending ($bn)

Global Commodity Production

For miners, water supply and run-off is a big issue – with
beyond the local river it currently relies on, shared with local
the potential to throw an entire project off course.
communities, farmers and other industrial operations.
The Minas Conga copper and gold mining project in Peru
“Often it gets back to not necessarily scarcity of water, but
is stark evidence of this. Intense public protest pushed miner
in some areas where there’s run-off of water, it is about where
Newmont to halt construction of the mine in 2011. Now the
that’s going,” says Carol Cowan, Latin America mining analyst at
company is taking what it describes as a “slower, water-first
Moody’s.
approach” to the extraction.
It is not just rising costs that pose risks to miners’ ratings
Conga may be a high
– but also the growing
profile example of the
associated political risk. The
Drowning by numbers
potential cost to miners of
agency believes that capital
Mining output vs water management costs, indexed 2009=100
managing water resources.
markets will soon factor
But it is representative of
environmental risks into
200
14
a broader trend. Moody’s
investment decision.
Copper
Met Coal (Export)
Zinc
190
estimates indicate water
“This is not new, but it’s
12
Iron Ore
Thermal Coal (Export)
180
management costs for
coming more and more to
Nickel
Aluminium
mining companies globally
the forefront,” says Cowan.
170
10
Water Costs (RHS)
have increased three fold
“You see it in Peru
160
since 2009, to around
with Tía María, issues with
8
150
$12 billion this year. And
Newmont, for example. And
it believes the issue will
it’s not unique to LatAm.
140
6
become a big problem for
But it’s all a reflection of
130
miners in dry areas, such as
the fact that these are very
4
120
the Andes, in the coming
valuable resources to the
years.
communities, and everyone
110
2
People in emerging
is becoming more focused
100
markets are using more
on getting a balanced
90
0
water themselves – a
return.
2009
2010
2011
2012
2013
result of population growth,
“The companies I deal
Source: Moody’s estimates, company reports, GWI
urbanization and rising
with are as aware of that as
incomes.
anyone else is. They very
That means local communities and the agriculture industry
much try to work together, but it’s not something that happens
are increasingly competing with miners for water supplies, says overnight.”
Moody’s.
By their very nature, larger diversified mining companies
Water management is pushing up costs for miners who
face proportionately smaller financial risks from tension over
need to invest in pipelines or desalination facilities to secure
environmental factors. Similarly, existing projects are less likely
extra water supplies.
to be a focal point for popular pushback.
Freeport-McMoRan, for example, is spending $300 million
“[Social tension] tends to come up more in the new projects,
on a desalination plant and pipeline near the Pacific Ocean to
such as Codelco, Newmont, Yanacocha,” says Cowan.
supply water to its Candelaria mine in northern Chile.
“Usually it’s something isolated and not long lasting in nature
The plant will offer the miner another water source
and it’s resolved. It is however becoming more prevalent.” LF

July 2013

LatinFinance 47

LatinFinance - July 2013

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