Consulting
Mitigating financing and ESG risks
The mining industry is well known for being extremely capital intensive, but as inflation has taken hold and borrowing costs have risen, it is now even more difficult to obtain financing. necessary to continually hit milestones. This, coupled with the issue of needing more mines to come online in an expedited manner to fill looming supply gaps, has necessitated a rethink around business and partnership models.
EY mining and metals leader for the Americas and Canada, Theo Yameogo, observed that while talks of new business models have been commonplace for years, they are now seeing rapid adoption. These changes are being manifested in the form of clients migrating across the value chain. Yameogo points to the example of a traditional nickel concentrate company that is building a battery grade nickel sulphate plant in Québec to supply an automotive company.
There was also a 50/50 joint venture that was recently created between a gold mining powerhouse and a base metals major, with the gold mining company sharing its development and operating experience in the region, in return of a 50% ownership. Yameogo even noted that he is seeing mining companies taking stakes in technology businesses, because they realize they need to branch out and anticipate the next waves of value creation. “Another area in which we expect to see massive change is indigenous involvement in mining. Though it is not new, we expect tremendous improvements to the consultation, collaboration and integration models. We expect the partnerships to be deeper with increased levels of trust,” he added.
In explaining his macro view, Yameogo expressed that he believes there is a reluctancy to make the same mistakes of previous cycles, which means companies will need to learn to do more with less. “Boards and management continue to show some restraints on flashy acquisitions or mega projects… The industry is taking a prudent approach when it comes to pursuing growth in today's market,” Yameogo said.
For companies like Ausenco, the idea of doing more with less comes naturally, because, as Zimi Meka, the company’s co-founder and CEO highlights, the ore bodies in their home country of Australia, in particular those containing gold, have not been as rich as they are in North America or parts of South America: “Capital is key, so the way we have been taught is to bootstrap and expand later,” adding: “Companies should see how much money they can raise, work back, and use that to inform their development plans. If they can get the project up and running, bootstrap cash flow and then do a stage two in 2-3 years’ time, increase tonnage or do more exploration, they are off to the races. Some of the great mines in the world have started this way. Projects that began with a five-year life turned into a 50-year life, and they never would have gotten off the ground if they considered it a 50-year project initially.”
“We need to supply industry with the right raw materials, and we might as well do it in our backyard. If we do not, someone else will. It is preferable to do it here, where we have control and we have proven we can mine safely.”
Stephan Theben, Managing Principal and Mining Sector Lead, SLR Consulting
Another feature of being capital constrained is that many mining companies, particularly juniors, are not able to hire the full range of professionals they need. Instead, they augment their teams by hiring firms like Ronacher McKenzie Geoscience that provide a full range of services from helping a client determine where to stake to the point where a company is ready to estimate a resource. According to Jenna McKenzie, the firm’s co-founder and principal geophysicist: “The long time it takes from targeting to mining is a huge issue, and we want to help in terms of the efficient targeting portion. We can bring all the data together to make sure a company is going after the right targets, instead of rushing to drill where it has always drilled without a thorough understanding of the results.”
Her fellow co-founder and principal geologist, Elisabeth Ronacher, added: “The other pain point is that investors have a very short attention span. Consequently, companies are driven to publish news constantly without taking the time to reflect and maximize the value of each data set they collect.”
Managing Tailings
One of the areas where things can go awry quickly is if a company does not have a plan that institutes globally recognized best practices in tailings management. Companies like SLR Consulting advise firms on how to effectively approach environmental and social components of the permitting process, and people like Stephan Theben, the firm’s managing principal and mining sector lead, are able to assist firms in meeting the more rigorous engineering and monitoring of tailing dams. “Companies hire SLR because we make sure their site performance increases and our clients’ facilities become safer and more environmentally sound,” he explained.
In Brazil, SLR has been working for Vale and the Prosecutor General auditing the upgrades on Vale’s tailing’s dams, thereby helping ensure that these facilities are safe and stable. In Canada, SLR does the engineering for new facilities, but also does the stability reviews and monitoring of existing facilities, in addition to tailings dam construction quality assurance work. As part of Magino’s construction, SLR is supervising the construction of the tailings management facilities. Theben sees sound construction of riskier areas of a mine as an important step in expediting permitting, and going forward he believes that ESG and safety will be issues that are tackled by mining companies from day one. “I think ESG services will become more of a standard in mine planning, and we will be able to benchmark projects based on ESG-related metrics such as greenhouse gas emissions or carbon footprint,” Theben observed.
This paradigm shift represents an opportunity for companies such as Titan Environmental, who act as a solutions provider and installer of geosynthetic products, which are mainly resin-based materials used in civil infrastructure construction projects. Specifically for tailings dams, the company’s most common offering is a bituminous geomembrane (BGM). Other common geomembranes are polyethylene based such as HDPE or LLDPE, which are different types of plastic liner materials with different thicknesses, in combination with other types of geosynthetics like thick nonwoven geotextiles for protection. “Because our products typically prevent issues such as seepage and contamination of the soil and groundwater, mistakes can be very dangerous. Safety and minimal environmental impact are what our clients want to see,” Titan president Juice Lambert points out.
“One of the biggest pain points is the longevity of mine site infrastructure, as it has big impact on production rates. Offering a premier product and a premier installation alleviates some of that stress for the owner.”
Juice Lambert, President, Titan Environmental Containment
Illuminating Environmental Threats
Environmental concerns in the mining industry are multi-disciplinary, which is why Ecometrix Incorporated CEO Bruce Rodgers has compiled a diverse team of scientists to interrogate issues from multiple angles. In his words: “Although a portion of our work was related to geochemistry, you cannot understand the geochemistry and how it fits into an environmental assessment without understanding the aquatic biology as well. Conventional wisdom is to manage towards a water or effluent quality objective, but we know that you need to also understand toxicology and biology to really put things into perspective.”
This helped in achieving success as part of a consortium that did the environmental assessment in support of the licensing for the Marathon project. The key to success lied in the integration of diverse expertise, which provided an understanding of how a regulator, mine manager, and the community would view it, and clear and transparent communication to ensure common understanding by a diverse audience.
Sarah Barabash’s, director of mining services at Ecometrix, thinks that in the feasibility stage there is often too much focus on the engineering portions of the project, and not enough credence on the collection of environmental data. “Collecting information at the start of the project allows you to look at your waste and water management in different ways, and it provides you with more options than if you wait until operation or closure to start thinking about those aspects. Many clients are starting to look at their projects in a more holistic manner, considering the full mine life cycle and thinking about closure and end land use after closure from day one,” she affirmed.
“Mine closure needs to be considered, and costs carefully thought out ahead of time, because undervaluation of closure costs has come back to bite companies in the past”
Nigel Fung, Partner Americas, CSA Global
CSA Global has also been working with Ontario-based mining companies to establish best practices in environmental management. Neal Reynolds, a partner, highlights that there are two aspects of water – hydrogeology and surface water hydrology. Globally, one of the biggest challenges for mining is the lack of water, which, in places such as Chile leads to operations in many cases budling desalination plants, that massively add to costs and carbon footprint. “Jurisdictions where water is abundant, like Ontario, are much more attractive for mining, but the challenge here is effectively managing the water in an environmentally and community-acceptable way,” Reynolds remarked.
Nigel Fung, partner for Americas at CSA Global, elaborated on the situation in Ontario, saying: “As much as we want to know the geochemistry of the rock being mined, the chemistry of the water is just as important and is an essential part of the equation because of the environmental impacts and tailings.”
“The need for reducing noise impact is becoming increasingly apparent. The biggest trend driving our growth is that people have heightened sensitivity to noise.”
Brian Howe, Principal Acoustical Engineer, HGC Engineering
Lowering Carbon Footprint
Perhaps one of the more overlooked components of the Yamana Gold acquisition was their GHG profile. Prior to the acquisition, the company brought in Thorn Associates to assist in developing their inaugural climate change strategy, which garnered praise across the industry. Having seen clients at a variety of stages, the Thorn’s founder and CEO Emily Thorn Corthay is able to discern which companies are serious and those who are less so. “If a company only has a net zero 2050 target, it is a red flag for sustainability rating agencies or investors. These days, a mining company must have long term targets, but an interim target is also essential,” she offered.
In recent years, Thorn has seen what it calls a “seismic” shift in the attitudes of C-suite and boards with respect to climate change and carbon reduction. This shift has largely been inspired by investors who are pushing miners to do things faster, as companies with significant ESG targets and initiatives can more easily obtain financing than others. “Moving forward, I believe we will see more sustainability backed bonds, such as what we saw with Newmont when they got preferential terms based on hitting certain ESG metrics. TCFD is also going to become mandatory, and there will be enhanced scrutiny on GHG inventory numbers. Companies will need to have those verified by a third party, and financing will increasingly be linked to ESG,” Thorn Corthay affirmed.
Article header image courtesy of Ronacher McKenzie Geoscience