Risk-Based Water Valuation for Mining Companies
Water is a critical resource for mining operations, yet, often the risks associated with its temporal and spatial variability and the shared nature of water, are not adequately incorporated in decision processes. There are many recent examples of significant revenue losses associated with production disruption, project delays, and asset stranding related to environmental and social externalities such as drought, floods, water pollution, and the ensuing competition for water. The basis for investment decisions needs to go beyond a point value of NPV.
The Columbia Water Center with support from BHP developed a framework that contributes to water risk pricing by mapping water-related risk pathways, including uncertainties and probabilities, into ranges of NPV outcomes to the decision maker. This approach leverages internal and external data to “internalize externalities” in the valuation process, reflecting how impacts to the community and the environment, and climate variability can translate into direct and indirect costs for the company and its investors.