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Antofagasta's ESG and Profitability Outlook Improves

Despite past opposition to operations and significant environmental fines, Antofagasta’s strong ESG policies and implementation are beginning to pay off

Sustainalytics 10 April, 2018 | 8:22AM

Antofagasta’s (ANTO) revenue reliance on Chilean mines exposes it to water and community relations risks, as local farmers and communities have been affected increasingly by drought. Antofagasta has taken several steps towards mitigating water risks associated with its operations. It pioneered the use of thickened tailings technology to reduce water consumption and lower environmental impacts and risks.

In 2016, seawater accounted for 48% of its overall operational water use, while its reuse rates ranged from 71% to 94%. Some upcoming projects, including expansions at its Centinela and Los Pelambres mines, will make exclusive use of seawater. This approach supports cost-efficient regulatory compliance and benefits to local communities.

However, the firm has suffered some stakeholder controversies related to water use and community relations. Notably, its Los Pelambres mine is home to El Mauro, the biggest tailings dam in Latin America. The dam has been criticised by local stakeholders for diverting and contaminating local water supplies.

Overcoming a decade long conflict with local communities, which involved legal actions and roadblocks, Antofagasta reached the Caimanes Agreement with 84% of the community in May 2016. Similar to the 2015 Salamanca Agreement, the Caimanes Agreement reaffirms Antofagasta’s commitment to contributing solutions to regional water shortages and supporting increased seawater desalination capacity.

With an approach to water risk and community relations management centred on engagement, dialogue, collaboration and transparency, we see an upside for Antofagasta linked to cost control and business continuity. Its water management and efficiency programmes demonstrate a clear focus on mitigating water risks related to its own operations, as well as community water needs, on a local and a regional basis eased seawater desalination capacity.

Problems Facing Copper Miners

This year is likely to be a mixed bag for copper miners. From a fundamentals perspective, miners are likely to benefit from a projected increase in copper demand, driven in part by the electric vehicle revolution. Investors may think primarily of cobalt and lithium when contemplating ways to play the electric vehicle materials rush, but lithium ion batteries also contain appreciable amounts of copper. Copper ended 2017 at over USD 7,000 per tonne, up more than 70% since early 2016.

Copper production by country, 2016, commodities mining miners natural resources

Yet we also foresee a number of risk factors that may prevent copper miners from capitalising on this opportunity. Chief among these is what we call “water-driven community opposition.”

Copper mining is a water intensive process, and copper miners in many regions around the world are exposed to the growing nexus of water risk and community protest. And the situation is particularly dire in Chile, which accounts for over one-quarter of global copper reserves and production.

Chile is under high and growing water stress, particularly in the Atacama region where copper production is concentrated. Privatization is also a factor: Chile was the first country in the world to privatize water rights and there is evidence that this approach has encouraged private speculation.

Copper mining companies are increasingly turning to desalination: according to a recent report by Chile’s state copper commission, desalination plants are expected to meet 50% of mining water demand by 2026, up from 9% today. However, desalination is an energy intensive solution, and impractical at high altitude mine sites.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Antofagasta PLC948.80 GBX5.07

About Author

Sustainalytics  is the leading independent global provider of ESG and corporate governance research and ratings to investors

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