"The trend is clear: to qualify for equity or debt, mining companies will need to effectively manage their ESG aspects, including their carbon footprint. Financial players are taking an important stance in ESG discussions, setting precedents throughout the entire value chain."
Firstly, congratulations on your appointment as Director at SRK Consulting (SA). Reflecting also on your own journey at the company, how would best summarize SRK’s evolving role in the mining industry?
Over the years, SRK Consulting has maintained consistency in rapport with our mission: to contribute to a responsible industry. Rather than pursuing a particular growth figure, we have aimed to foster technical excellence, to act with integrity and to be independent. Sustainability underpins our approach, whether this relates to responsible reporting or developing codes and regulations for responsible mining. In this sense, we have fostered long-standing collaborations with organizations and committees such as the SAIMM, SAMVAL, SAMREC and IMVAL. Moving forward, we are applying and cultivating the same principles.
In a recent article published by SRK, it is found that social risks related to mining activities have been on the rise. How do you comment on the industry’s engagement with ESG norms and practices?
In South Africa and beyond, we have noted an improvement in ESG practices over recent years. More specifically, we have witnessed a change in the way ESG is applied across the board. If ESG was previously run as an independent department which would track ESG indicators, today ESG is becoming a more integral part of a company’s day-to-day operations. It also permeates into broader corporate discussions, becoming more salient to everyday conversations. For instance, one hears reports of banks not lending money to coal projects, and financiers who are tactfully designing their position in relation to climate change, environmental issues and social issues.
In addition, IFC principles have become a key consideration which financial institutions carefully check to ensure good practice is applied before they lend. The trend is clear: to qualify for equity or debt, mining companies will need to effectively manage their ESG aspects, including their carbon footprint. Financial players are taking an important stance in ESG discussions, setting precedents throughout the entire value chain.
I believe the idea of change with respect to ESG has firmly entered mining discourse; all industry players are giving at least some thought to the matter, both when it comes to obtaining financing and engaging meaningfully with their local communities.
The contribution of mining activities to climate change is often documented, but how prepared are miners to deal with the consequences of climate change, given the exposure of the exploration and production sites to environmental factors?
The difficulty with climate change is its unpredictability. There is the gradual process of climate change, which is a preoccupation for the long term, but it is the extreme weather events that cause havoc and come without notice. It is almost impossible to predict where an extreme event will take place, let alone the nature of the impact and how profound this will be for different communities. Even mines that are positioned in proximity to each other might experience very different impacts. Thus, there is no one-size-fits-all response for companies operating mines.
Having said this, there are ways for mining companies to protect themselves. One key strategy being adopted is more effective engagement between mining companies regarding issues such as water and land use, by becoming part of a broader group of cooperatives. Crises can be more easily overcome when individual operators collaborate as part of a network. Communities are certainly evolving just as awareness on the hazards of climate change is growing. We advise companies to constantly be on the lookout for joint solutions and opportunities to cooperate with communities and other water and land users. When everyone is involved, it can be less efficient but there is a lower risk of pointing fingers in times of crisis.
A key factor of risk in the mining industry is the storage of tailings. How do you think the mining industry has responded to tackle this aspect?
A few very well-publicized tailings disasters took place over the past few years. These were genuine environmental and social disasters which devastated communities and damaged ecosystems. They also sent a message to both industry and authorities that such disasters should not happen again, and more effective preventive action is needed. In some jurisdictions, there are still problems that need to be rectified, and implementing change has been met with capacity constraints. But the rule, especially for multinational companies, is to take great care when dealing with tailings-related issues. Tailings design and risk management requires high-level engineering input. This has been recognized by industry and investors and there is an understanding that recent incidents will, justifiably, lead to ongoing scrutiny.
Over the last few years, exploration activities in Africa have dwindled, especially in greenfield, as both juniors and investors have sought to reduce risks. How do you believe this trend will pan out moving forward?
Greenfield exploration has been an area which has lagged in investment, and has thus stagnated in many respects. I believe this is a very natural response when considering risk mitigation. It has been interesting to follow the change, especially in terms of financing. As it stands now, it is not clear who is going to finance junior explorers and greenfield exploration moving forward. At the same time, greenfield exploration is much needed to push businesses forward and maintain the cost curve – as mines age, costs increase. There has been a shift in how mining companies are managing their money in order to restore shareholder confidence. Rising production costs that lead to rising prices and the possibility of increased returns should bring investors back into exploration, but the duration of the underinvestment could lead to a period of higher prices and to good returns to those explorers who are currently active.