Due diligence studies are comprehensive investigations into a mining project conduced before a project takes place. This is used to check if a project can deliver its stated outcomes. SRK Consulting, a mining consultant company, notes that water-related risks can easily be underestimated.
The underestimation of water-related risks, such as pollution and flooding, needs to be considered for investors and lenders to make informed decisions.
"In most mining transactions, the issue of water generally presents a significant risk to investors", says Peter Shepherd, Partner, and Principal Hydrologist at SRK Consulting South Africa. "This extends well beyond ensuring that the operation has a sufficient supply of water to meet its production targets; other key factors include the mine's ability to minimise pollution and discharge water, if necessary, with a water quality in line with both legislation and global standards".
Shepherd notes that a mine's water supply - abstracted from surface or groundwater resources - needs to be assessed in terms of its sustainability over time and production requirements.
Further, the operation needs to understand how its water consumption is likely to affect other users within the catchment.
"This plays into the environmental, social and governance (ESG) obligations of the mine, as the security of water supply needs to consider the bio-physical and social impacts of the operation's water usage", he says. "A due diligence study, which include examining the mining company's strategy for managing its water balance, needs to confirm that its systems and plans are adequate - and that there has been effective engagement with other stakeholders where necessary".
Compliance
Legal compliance is another key factor in passing due diligence, according to Ismail Mahomed, Partner and Principal Hydrogeologist at SRK Consulting SA, as the use of water resources globally its regulated by national laws and regulations.
"Incidents of non-compliance can carry various risks - such as the risk of financially onerous penalties, reputational risk for the company's brand, and the risk of regulators stepping in to stop operations", says Mahomed.
The way that mines use water in their processing plants, as well as how they control run-off on the mining site, raises the issue of water quality, he continued. Water can only be discharged from the site if it meets certain quality parameters, and the systems must be in place to achieve this.
