Mining industry guilty of ignoring climate risks

Mining companies face severe business challenges as a result of climate change - and they are yet to work out how to deal with them.

That is the conclusion of a new report [PDF] from IBM and risk management company Acclimatise, which outlined a series of potential effects on mining companies of rising temperatures and sea levels, and documented a marked lack of risk awareness on their part.

The report looked at responses from mining firms to the most recent survey of large companies' climate change strategies carried out by the Carbon Disclosure Project (CDP). The CDP sent information requests to 144 of the world's largest mining companies, but only received detailed responses from 43 per cent of the firms.

The IBM/Acclimatise report found that of those that did respond only a third recognised that climate change could affect energy prices and security of supply, while less than one in five is considering the potential effect of climate change on land or marine transport.

The lack of awareness is remarkable given that experts believe supply disruptions, already common in the mining sector, could soar as climatic conditions alter.

Geopolitical changes based on shifting resources were also a big concern raised in the report. "The mining sector has traditionally found itself working in areas of the world where geo-political considerations can play a major role in shaping operational success," it said. "The consequences of instability or changes could have an adverse effect on the profitability, the ability to finance or, in extreme cases, the operational viability of some mining operations."

Mining companies are already suffering from business challenges, thanks to their particular vulnerability during the economic downturn. The market capitalisation of the 40 largest mining firms fell by 62 per cent during the downturn, thanks to large debts incurred by expansion during plentiful years.

These debts must be serviced by companies working in a capital-intensive sector, the report said, adding that climatic changes may force them to significantly increase maintenance and replacement costs for equipment.

"Mining assets have been designed on the basis of historic climate data and a period of relatively stable weather," the report said. "These design assumptions, together with those thresholds and margins set for regulatory, operational and financial performance requirements, will constrain the future effectiveness of assets to deliver under climate change."