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PESTEL RISKS OF MINING

Environmental risks

Mining has many environmental impacts and the various mining methods may have significant environmental and public health effects. Some of these effects are noise pollution, air pollution and visual effects, to add to this a mine can affect the surrounding areas with erosion of slopes and hillsides, pollution of tailing dams which results in the siltation of connected rivers and dams, deforestation and landscape degradation. All of this can effect a population greatly as well as destroy habitats or even whole ecosystems. These major environmental impacts cannot be done without having major consequences. In order to counter this some mining industries are required to follow environmental and rehabilitation codes, ensuring that the areas mined are returned to close to its original state.

Fines, penalties and assessments levied against mining companies are increasing globally in both magnitude and frequency. Countries such as Canada and Argentina are on a growing list enacting regulations to impose higher fines and penalties on the mining industry for environmental violations. Mining has a broad affect on a number of habitats such as rainforests, wetlands, reefs, and many more which are vital to wildlife species that inhabit them. The increased risk of having pressures put on by environmental groups, voluntary codes of conduct and reporting standards show that it has been heard that the mining industry has to be environmentally and socially acceptable. The largest issue involved with environmental risk is the pollution of water sources with the chemicals used in acquiring the minerals. Like in gold mining the use of mercury and cyanide which are both lethal chemicals if ingested or in the case of mercury, once exposed to sunlight and air vaporizes and becomes a form of air pollution. During the excavation of land the threat of collapse of buildings due to mine blasting is a real risk. Mine pits left from blasting can have effects on livestock and the local community.

Therefore to counter these risks mines need to dispose of waste properly insuring no harm can befall on anyone or the environment. To do this it needs to implement these risk management techniques:

• Doing site assessments before setting up.
• Engineering and designing of dams that insure these chemicals are contained and do not seep into water sources a community may use.
• Sealing trailing dams and cutting off any connection to leading rivers to prevent siltation of water sources.
• Preparing the site and constructing with affects in mind.
• Constant maintenance of operations and containment of affects of mining.
• Returning mined land back to its previous state.

Social Risks

One of the main competitive advantages a mine can obtain is to align its interests with the values of a community specially the one that the mine operates within. The mining organization has to have the support of the community if it wants to be successful. Mining has 2 sides to the coin, in that it provides jobs and form of substantial wealth but also threatens the destruction of lands and associated community life. The inflow of labour can also put strain on a community as external labourers searching for jobs puts pressures on living space, water supplies, the demand for local resources and an increases the chances of diseases. These effects can in fact increase the poverty of a community. The most affected social groups are the rural communities that are in the vicinity of the mine, as the rapid inflow of labourers can put strain on the traditional daily lives they lead.

To counter the affects on the society a mine can have it must make jobs available to the community it is situated in first before sourcing externally. Doing so prevents disruptions to the social balance. Although the community absorbs most of the environmental and social impacts of mining it does realise profits elsewhere like in the renting of living quarters. By having community projects and accessing the local pool of labour creates a positive relationship with the community, based on acceptance and trust. By monitoring and having constant engagement with the community allows for growth within the community and the organisation.

Large steps have been made in the corporate social responsibility dialogue by the oil and gas sector by refraining from mining on world heritage sites, showing that they understand and respect the natural and cultural value and sensitivity of the areas. By doing so these industries loose the wealth they could have gained in mining the area.

Economical risk

The mining industry is a very vulnerable due to the volatility of the economic and market. The industry itself is very dependent on the status of the global economy. In the state of economic boom mining industry is really at its peak because every country will require much resources for its developement, but when it comes to the downfall of the economy all minerals prices will hit the rock bottom and because of the instability that all buyers and sellers must consider the risks that they are taken.

Economical risk is really a big factor to take into account in the mining industry. SEIFSA's index of Cold Rolled steel showed an increase of 80.62% in Septeber in 2008 (year-on-year) for local merchants, while the decrease in early 2009 were reaching 36.77%. The price of Brent Crude boomed to an 80.49% increase in June 2008, followed by a decrease of 50.84% in December 2008. These extreme volatilities shows that all steel companies, like their customers

The vulnerability of the mining industry and private companies to economic and market volatility, both locally and globally, has become a central concern for decision makers and contributors to the South African economy. The exposure to price and market volatility based on global instability is a reality that all buyers and sellers in the mining industry must consider. The volatility of world commodity prices is transferred to local commodity prices; this makes planning and decision making difficult. Global commodity prices rebounded from their depressed levels during the second half of 2009 following improved liquidity and confidence in financial markets. SEIFSA's index of Cold Rolled steel showed an increase of 80.62% in September 2008 (year-on-year) for local merchants, while the decrease in early 2009 were reaching 36.77% (year-on-year) . Brent Crude prices boomed to an 80.49% increase in June 2008 (year-on year), followed by a decrease of 50.84% in December 2008 (year-on-year). These extreme volatilities imply that all steel companies, like their customers, must now focus on reducing working capital, cost and input cost savings (containment), and efficiency improvements. With Labour, Steel, Electricity, Transport, oils and fuels as some of the largest components driving input costs in the mining industry, it is important to keep these costs in check. Although there is very little scope for commercial savings relevant to the input costs such as electricity, which is a regulated price, technical savings still poses some opportunity. At the same time commercial savings on the other large input costs, such as steel, labour and transport are open for opportunity, if the necessary tools, processes and escalation processes are in place. It is important for any decision maker to make use of an index process or methodology, which gives an independent price and cost benchmark and accurately reflect price changes; also to justify contract price changes. The use of price and cost indices will assist any organisation in tracking changes in inflation and assist in containing costs. The use of cost and price indices, simplifies the price adjustment processes which benefit both a supplier and purchaser of a good or service. At the same time it provides an independent (because these indices are published by independent institutions such as Stats SA, SEIFSA or ETSA) benchmark to adjust prices, up or down. The purpose of these price adjustments at the hand of an index (or indices) is to compensate a supplier or provider for market changes or movements beyond his or her control. Poor decision making and planning on the side of the supplier, e.g., adverse exchange rate hedging or the lack thereof, should not be used to amplify a price increase, and at the same time is also not reflected by the indices. Because business is conducted in a high economic and market volatility environment, the distinction between volatile and non-volatile cost components are important. Highly volatile cost components such as steel, oil, fuel and copper pose huge challenges to any commodity manager. The frequency of price adjustments may need to be adjusted, as a supplier of these highly volatile components may need to be compensated more regularly as some of these prices (see graph above) may escalate (or drop) very rapidly. The opposite is true for non-volatile cost components, such as labour and overheads. At the time of the decision of the volatile and non-volatile cost items as well as the applicable indices, the argument often arises about a fixed portion in the negotiations or contract, should it be included or not? A fixed portion (as oppose to fixed costs) normally refers to the portion or percentage of total costs which are not adjusted over the life span of the contract. This has specific benefits for the buyer of a good or service, should the execution of the contract happen in an inflationary environment. The opposite is true when deflation is present. At the same time the disadvantage for the seller in an inflationary environment is that the escalation which he or she is entitled to is smaller, with the percentage (%) of the fixed portion. Some suggestions to commodity managers, buyers and suppliers of goods and services need to be noted. One of these suggestions is to determine the volatility of the good or service and the frequency of price adjustment before a contract is concluded. Make sure that the escalation clause in the contract contains detail of either a cost adjustment formula, or detailed indices which will guide the price adjustment process during the duration of the contract. Consult an index expert to select the best index for each of the cost components, both volatile and non-volatile. In this way the interests of both the buyer and supplier are protected.

REFERENCES

KITULA, A. G. N. 2006. The environmental and socio-economic impacts of mining on local livelihoods in Tanzania: A case study of Geita District. 14, 405-414.

A.M.ESTEVES 2008. Mining And Social Development: Refocusing community development using multi-criteria decision analysis. 33, 39-47.

BOOKS

MIRANDA, M., P. BURRIS, et al. (2003). "MINING AND CRITICAL ECOSYSTEMS:Mapping the Risks."