Randy Reichert Explains Why Environmental Studies in Mining Operations Matter
If you are familiar in any way with mining and the resource industry, then you may know that the past several years have not been easy for most mining sectors. Why? In part because prices for major ores, like gold and copper, have sunk, which has caused a ripple effect across the industry. Roughly two years ago, gold miners enjoyed a gold price of approximately $1,600 USD per ounce. As of the writing of this article, gold is trading at $1,197 USD per ounce. That is a significant difference, and unfortunately gold miners have experienced only short-term relief from low prices since 2013.
Copper has not fared much better. The emergence of China’s economy took the world by storm. Unfortunately, China’s economic growth has stuttered recently, and with China being one of copper’s major markets, the copper market has stuttered along with it. Recent press and a research report offered by Morgan Stanley this month sides with the idea that, with China’s metal market remaining “dormant” for the foreseeable future, copper miners won’t enjoy an uptick in copper prices for some time.
What does this all mean for mining companies?
It means that, more than ever, mining companies must focus on operating efficiently and using intelligent, well-grounded business practices. It means that companies must make sure that every financial aspect of their operations, from the consultants they hire to operational loans, are decided upon wisely, even conservatively. Many who have been working in the mining industry for some time know that these competitive, low-price periods are what separate the successful miners from the lesser so; and frequently, the not-so successful mining companies do not survive these periods.
Far from what some may think, the impact a mining company has on the environment as a result of its mining activities plays a significant role in a mining company’s success.
Almost every country, from the United States to Canada to Chile, requires that mining companies mining in their nation prepare and submit what is called an Environmental Impact Assessment, or EIA, prior to exploration and development of a mine.
The Environmental Impact Assessment report is a lengthy and ideally comprehensive document most often prepared by the mining company itself that explains the potential environmental impact of the company’s intended mining project. These EIA reports are submitted to the environmental regulation agency of whichever country the mining project will be in. For example, if a mining company is interested in a potential mine area in Canada, in most cases they will prepare and submit an Environmental Impact Assessment report to the Canadian Environmental Assessment Agency.
The penalties a company can face if they refuse or avoid preparing an EIA report can be extensive. As mentioned by the Canadian Environmental Assessment Agency: “Contraventions of the CEAA 2012 can result in fines ranging from $100,000 to $400,000.”
A $100,00 to $400,000 fine might sound like loose change for major, international mining companies. However, a penalty that size can jeopardize a smaller, junior mining company that is just starting out or looking for financing and is a black eye for any sized mining company.
Fines associated with an EIA preparation are just the beginning when it comes to the kind of risk that mining companies take when they jeopardize the environment or when they cavalierly forget to follow environmental rules of the governing country.
Review most mining trade journals and an article, at some point, will appear describing a mining company facing fines as a result of environmental infractions. Most recently, Chile imposed a fine on Japanese copper smelter, Pan Pacific Copper, as a result of Pan Pacific’s failure to implement mitigation steps to avoid the contamination of underground water, among other environmental infractions. Notably, Chile ordered Pan Pacific to pay a total of $11.9 million in penalties. That’s a significant amount of money that will undoubtedly affect Pan Pacific’s financial forecast this year.
Reinforcing the importance that miners consider and follow environmental laws, Cristian Franz, Chile’s regulator head, had this to say about Pan Pacific’s breach: “Our country [Chile] needs initiatives and investments to grow and develop, but they [mining companies] must be very rigorous in complying with environmental obligations.”
The reality is that whether a mining company can accurately judge the impact its operations will have on the environment goes a long way in determining whether that mining company will be successful or not. A company that fails to understand the kind of environmental impact its project will have, or worse, decides to navigate around environmental laws, will be hurt because of it.
“In my opinion, every mining company should have the resources to fully understand the environmental laws of the countries they are operating in.” This from Randy Reichert, founder and President of NW3 Mining Consultants, Inc., a mining consulting firm operating out of Toronto, Canada.
Randy Reichert, “Mining companies shouldn’t consider the environmental assessment report as just another step along the road toward mine development. Companies need to be aware of just how important creating a comprehensive, realistic EIA report is. Moreover, they must be aware of the financial risk that comes from failure to comply with regional and national environmental laws.”
“Penalties can affect a company’s operational budget and permitting status. Penalties can also affect the company’s reputation in the industry, which has an impact on gaining talent, gaining financing and perhaps being acquired by a major,” adds Randy Reichert.
Photo courtesy of the Flickr Creative Commons.
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