By Greg Peel
It was a tough decision for the people of Orange to make. If Newcrest (NCM) couldn't secure a water supply in the drought-stricken region then its Cadia gold mine would have to close. While farmers were quick to suggest mining should take a back seat in times of water scarcity, it was the 460 locals who would be laid off that sealed the deal. Newcrest got its water.
It was not the case for Rio Tinto's (RIO) Tarong coal mine in Queensland, which laid off 160 workers when the nearby power station it was supplying cut back production due to lack of water.
For parts of South Australia, New South Wales and Queensland, the drought has entered its fifth year. There have been some encouraging signs - good rain fell across western NSW last week, and scientists are predicting El Nino will give way to La Nina. However, if rainfall patterns don't start correcting back to something representing normality, it will not just be farmers that suffer. The mining industry is also under threat.
The irony is that across the tropical north of Australia - from Western Australia through the Northern Territory and into Queensland - mining has also had a frustrating couple of years. Not because of lack of water but, because of too much. Mines such as Energy Resources of Australia's (ERA) Ranger uranium mine have lost production due to storm flooding, while down in South Australia's Gawler Craton, the ongoing water supply situation looks dire.
Somebody did once mention a north-south pipeline. A pipe dream? Or not so silly? Of course the problem is that we just don't know what's going to happen anymore.
The situation has been enough to pique the interest of the Wall Street Journal, which reports that availability of water and cost of water infrastructure is beginning to crimp potential development in the mining industry. The South Australian Chamber of Mines and Energy notes that a study of 23 companies looking at development revealed water as a "fair chunk" of the $20 billion of infrastructure costs anticipated. In some mines water will account for a full 50% of infrastructure outlay.
As BHP Billiton (BHP) looks to significantly expand its gold-copper-uranium mine at Olympic Dam over the next ten years, its water requirements will increase sevenfold. Already plans have been drawn up for at least one desalination plant to alleviate the situation. Desalination plants, as we've learnt, use a lot of power, and Gawler Craton is not exactly adjacent to the ocean either.
Presently Australia's drought effected areas account for 5% of total mineral production. 80% of water used in mining is sourced from underground aquifers. While aquifers do not dry up as fast as rivers, they still need to be topped up by seasonal rains. As the government looks to shut down Murray-Darling irrigation, there is little comfort for mining companies as well as farmers. While mines only draw 3% of the country's water supply, it is still a crucial element in many operations.
Already hampered by rail and port incapacity, the mining industry is facing another infrastructure problem that could reduce potential production, and maybe delay the great commodity catch-up even further.
