UWA team wins international competition about sustainable mining
- By: John P Sykes
Posted in: Blog, Case Studies, Commodities, Conferences, Exploration, Media, Mineral Economics, Mineral Policy, Mining, Publications, Recommended
I’m really pleased to tell you that a team of University of Western Australia (UWA) MBA students has won a prestigious international competition about applying sustainable development principles to the mining industry – the Schulich International Case Competition, this year with finals in Canada, associated with the PDAC conference.
The team consisted of Matthew Horgan, Jessica Harman, Jessica Volich and Tim Andrews, and represents the sort of diverse skill set that addressing the sustainability challenge will likely require – their backgrounds not only include mining, but also petroleum, chemical engineering, business planning, project management and procurement. Ultimately this is a victory for advocates of boundary spanning, interdisciplinary research and the breaking down of intellectual silos.
The competition consisted of an essay about sustainability in the mining sector, which can be found online here. The team identifies the need to balance a “commercial licence to operate” (i.e. good assets, operational capabilities and finance) with a “social licence to operate” (an “informal broad and on-going approval by society”) to create a “future licence to prosper”, which also requires a continuous focus on identifying both risk and opportunities in a fast-changing mining sector (described as the “new reality”), innovation – particularly in productivity and flexibility, and integrated (and informed) decision making.
To quote the conclusion of their essay:
“…to achieve sustainable strategy it is critical that mining companies continue to protect and nuture their Commercial Licence to Operate whilst recognising the integral importance of a Social Licence to Operate. With the ‘new reality’ and the continuously rising sustainability ‘bar’ resulting from global trends and heightened focus on interconnected variables, sustainable companies must review their definition of success, and embrace the Future Licence to Prosper. We contend this is critical to sustainable mining in the 21st century, creating shared value for all stakeholders, and maximising the contribution of the mining industry to future global prosperity.”
There is a lot to take in here, but I think the terms “commercial licence to operate” and “future licence to prosper” alongside the existing “social licence to operate” are worth some deep and extended thought.
Admittedly the essay is still fairly theoretical, and one of the great challenges in sustainability is getting beyond saying nice and admirable things into actually doing something about it – an area that has been lacking – despite forest-loads of sustainability reports from the industry. This is what made the team’s second contribution to the competition so impressive, and I assume why they won the competition – their analysis of a theoretical mine project case study and how the discount rate for the project should be adjusted to factor in sustainability concerns.
The same case was set for all the teams in the finals and involved a ‘simple’ decision on what the discount rate for a Net Present Value (NPV) calculation should be for a mine project on a developing world, tropical island. Obviously this is not a simple task, however, the team after much complex work, did arrive at a simple answer.
Taking a ‘consultant’ type approach the team quickly established a base line discount rate based on similar tropical island locations, and then set about identifying key sustainability risks at the project. Brain-storming highlighted a number of risks and opportunities for the project ranging from automated trucks to the requirement to move a local village.
The trick was to quickly quantify the overwhelming number of risks and opportunities using a monetary impact-probability assessment (e.g. by identifying the frequency and monetary impact of tailings dam failures globally) and focus on the high value risks and opportunities – such as tailings dam design and the requirement to move a local village, as it turned out.
Measures where then identified to mitigate the risk or secure the opportunity, therefore substantially improving the project NPV (essentially creating shared value). The minor unmitigated risks could then be incorporated into a minor upward adjustment of the whole project discount rate, becoming part of the overall project risk.
In this way, sustainability was incorporated into the project in a value accretive way, resulting in an increased NPV, with benefits flowing to the local communities, rather than in a value-destructive way whereby the discount rate is simply increased, reducing overall project value, and not actually addressing the sustainability requirements – just seeing them as generic project risks beyond the owners control.
To me this is a substantial step-forward in industry thinking, and I think the team should be credited for this effort. I’m also pleased the judging panel appeared to recognise the importance of this work.
Congratulations Team UWA.
Credit should also go to competition sponsors CIBC, Kinross, Resource Capital Funds, PWC, Newgold, Alamos Gold, PotashCorp and Barrick for their enlightened approach to the sustainability challenge.