Quantifying Water related Financial Risk for the Mining...

Tuslequah Chief Copper-Lead Mine, BCCumulative Effects - Acid Mine DrainageMinera Escondida Copper, Chile

Water Scarcity - Desalination

Tia Maria, PeruWater Pollution à Social Conflict

PNG drought halts mining at Porgera

QuantifyingWaterrelatedFinancialRiskfortheMiningIndustry

Samarco, Brasil, Tailings Dam Failure

Atacama Floods, Chile

Operator/InvestorCAPEX, OPEX, Production Losses, Profit MarginsAsset Stranding, Operating License, Reputation, Regulatory Pressure

SocietyEnvironmental Degradation, Loss of Access to Water, Poverty Trap, Property and Life Casualty Losses

UpmanuLall,Yash Amonkar,JoseBlanchet,Luc Bonnafous,LaurenButler,PaulinaConcha,MadisonCondon,ChrisDolan,JuanGuiterrez,GarudIyengar,Nicolas Maennling,Karthyek Murthy,Jason Siegel,JorgeSuito&Sophie ThomashausenColumbiaUniversity with support from NBIM with contributions from Gavin Mudd,StephenNorthey, &TimWerner

Kennecott Copper, Utah

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Contents

RESEARCHOBJECTIVE/PROBLEM1

VALUATIONANDRISKFRAMEWORK2

3 ANALYSIS,RESULTS,CONCLUSIONS

4 RECOMMENDATIONSFORCOMPANIES&INVESTORS

5 RESEARCHEXTENSIONS

2

ResearchObjective

SpecificCase:Copper/GoldMining&WaterRisks

WaterManagementRisksinMining:• Scarcity- Aridity,Drought• WaterQuality/Pollution,WasteSpills• IncreasingWaterSourcing&TreatmentCosts• Flooding• SocialConflict&AssetStranding• Regulations&theirEffectiveness• FailureofRiskMitigationActions

Howtoquantifyfinancialrisksfromenvironmentalfactorsforlongterminvestors?

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1. Howdoincreasingwatermanagementcostsforminingimpactprojectriskandlongrunindustrycostcurve?

2. Whatarethefinancialriskexposurepathwaysforminingrelatedtowater&climate?Howcandataandestimatesonthesebedeveloped?

3. Whatarethemine'sriskmitigationstrategies,theircostsandresidualrisks?4. Givenlimiteddata,highuncertainty,andthepotentialforcatastrophicevents,

howbestcanfinancialriskattheassetandportfoliolevelbeassessed?5. Howwelldoregulatoryandfinancialdisclosureprocessesaddresstheserisks?

ResearchQuestions

4

ProblemFraming

• Minesareheavilyengineeredandregulatedwithlife>10years• Environmental/waterfactorshaveledtosignificantsocialconflict,

non-performingassetsandproductioncostrisks• Miningcompaniesdisclosetheireffortstoaddressthesechallenges

andprovideenvironmentalandfinancialreports• Analystsandregulatorsusethesereportstoassessperformanceand

valuethemines• Istheredatatoassesswhethertherisksareproperlyassessedand

disclosed?• Howdoesoneassesstheresidualfinancialrisk(beyondthemarket

valuation)recognizingthecomplexityinthephysical,social/legal,environmentalinter-dependenceoverthelonglifeofamine?Orforaportfolioofmines?

Whatarethematerialfinancial

risksrelatedtowater,howdotheyemerge,andhowcanone

valuethem?Aretheypricedright?

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Contents






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ShortvsLongTermInvestorPerspectivesShortTermInvestors:• Willthecompany(anditsassets)beatmarketexpectationswhenitannouncesitsresults?

• Isthespotcommoditypricegoingup(ordown)thisquarter?• Willthecompanyhavepositiveexplorationresultsinthenear-term?• Willthecompanyproducemore(less)payablemetalthanthemarketexpects?• Arecostsgoingtobelower(orhigher)thananticipated?• Willthecompany’sassetsgetpermittedinthenear-term?

LongTermInvestors:• Arethecompany’sassetsfundamentallymore/lessvaluablethanmarketperception?

• Whatshouldthefundamentalcommoditypricebe(supplyanddemand)?• Isitlikelythatcompany’sassetswillhavereserveshigherthanestimated?• Willthecompanybeabletoeconomicallyextractallofitsdefinedresources?• Whatlevelofcostsaresustainableinthelong-run?• Willthecompany’sassetsgetpermitted?• Aretherepotentialincreasesincostsduetounforeseenfactorsthatcouldleadtoa

strandedornon-productiveasset? 7

LongTermInvestment&SustainabilityGoals

• TypicallyDiscountedCashFlowisUsed• EmphasizesShort orNeartermCashFlows• Valuationsareupdatedascompaniesdisclosecosts,yieldsand

reserves,andanalystsupdatemetalprices• ProductionCostschangerelativelyslowly

• WaterManagementcostchangesareincluded• Riskdiscountsareappliedtoaddressuncertainties

• Costandproductionuncertaintiesarehighinearlystagesofminedevelopment

• RemediationcostsoccurlateinminedevelopmentandarehighlydiscountedinPresentValue,but=liabilities.

• Notclearhow“shocks”arepricedaccountingforpotentialmitigationeffortsbythecompany?

• Correlatedrisksacrossmineslimitedtometalprices

WhatkindofrisksarecapturedbyMarketResearch&Valuation?

ResidualFinancialRiskduetosystematicbiasinestimationand

disclosureofeitherthevalueatriskorthe

uncertaintyassociatedwiththerisk

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FinancialImplicationsofEnvironmentalFactorsVA

LUE

UNCERTAINTY

REVENUE

COSTS

CAPEX

Examples:Productionstoppage,permanentmineclosure,modifiedexpansionplans

Examples:Legalcosts,monitoring,communityrelations,ongoingremediation,permitting

Examples:Clean-upcosts,settlements,reconstruction

PROBABILITYOFFOREGONEREVENUE

PROBABILITYOFINCREASEDCOSTS

PROBABILITYOFINCREASEDCAPEX

$

P($)

P($)

$

$

P($)

Decisionsaremadeinresponseto“riskevents”àmaychangeassumedminetrajectory9

• MinePlansincludeenvironmentalimpactassessmentsandmitigationoverdecades.Theyareupdatedovertime.

• Valueiscreatedasthemineis“de-risked”asanalysesanddataimprove(thereforetheoreticallymoreaccurate)

• Minesbecomelessriskyasfutureoutcomesarebetterunderstood

• Biggestwaterrisksà non-performingorstrandedassets• Lossoflicensetooperate• Socialconflict• IrreversiblePollution• CatastrophicInfrastructurefailure• Competitionoverwater

ValueCreation/De-riskingOverTime

EIA

Aretherecriticaltriggersandexposurepathwaysforwaterrisks? 10

UnderstandingProfitabilityImpactofEnvironmentalFactors

EXAMPLE:TAILINGSSPILL

REVENUE

COST

CAPEX

WILLTHEASSETEVERMAKEMONEYAGAIN?

WHATARETHECARE&MAINTENANCEANDONGOING

MONITORINGCOSTS?

WHATWILLBETHERESULTINGCLEAN-UPCOSTS/LIABILITY/

LITIGATION?

FULLWRITE-OFF:Assetdoesnothavesufficienteconomicreservestojustifyrestart→ASSETHASRESIDUALVALUEOFZERO

PARTIALWRITE-OFF:Assethassufficientreservestojustifyrestart→ASSETHASRESIDUALVALUEGREATERTHANZERO

IFFULLWRITE-OFF→ZEROIFPARTIALWRITE-OFF→EQUALTOFIXEDCOSTSOFMINEDURINGPERIODOFRESTART+INCREASEDMONITORINGCOSTSASARESULTOFTHEINCIDENT

FUNDAMENTALESTIMATEBASEDON:• Proximitytomajorpopulationcenters/

waterresources• Capacityandquantityoftailings• Impurities/toxicity• Mine/Companyinsuranceprotection

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• Investorsrelyheavilyonminingcompanyanalysesasabasisfortheirinvestmentdecisions

• RegulatorshavetriedtostandardizetheseanalysesunderJORCand43-101toprotectinvestorsandpreservethecredibilityofthesestudies/publicdataandtheirrespectiveclassifications

• Researchhasshownthatanalysesarehistoricallyinaccurate.However,intheabsenceofotherpubliclyavailableinformationinvestorshavenoalternativeasabasisfortheiranalyses

• Thus,investorshavetocomeupwithsubjectivedeterminationsofriskassociatedwithcompanyestimates(discountstoNAV)

IssueswithRelianceonCompanyProvidedInformation

M&ADiscountstoNAVbyProject

Changingenvironment/climateandsocio-economicconditionsmayinvalidateminecompanyassumptionsanddisclosure

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• Thereareempiricalexamplesofbondsbeinginadequatetocoverreclamationcosts

• Examplesinclude:• SummitvilleMineinColorado,cyanidespill

required$192millionSuperfundcleanupwhilefinancialassurancespostedbyoperatingcompanywere$4.5million.

• 2005GAOReport:FinancialassurancesnotadequatetocovercleanupcostsofmajorityofinvestigatedabandonedminesonBureauofLandManagementproperty.

• Laterinthispresentation,wediscussindetailhowbiasisprevalentinreclamationcostestimateswhichcanhaveaprofoundimpactonstakeholders(includinglocalcommunities,regulatorsandinvestors)

IssueswithRelianceonCompanyProvidedInformation

RemediationCostsvs.PostedReclamationBonds

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Contents






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KeyIssuesFocusedon

BIASINREPORTING

LOWPROBABILITY/HIGHIMPACTEVENTS

CLIMATEEXTREMES

MispricingofRiskduetosystematicerrorsincompanyreports

InfrastructureFailurewithwatersystemimpacts

Asatriggerforwaterscarcity&floodingàinfrastructureimpactsandsocialconflict

ReclamationCostDisclosureAnalysis

TailingsDamStateIdentification&Failure

ImpactAnalysis

MispricingofatsiteriskCorrelatedPortfoliorisk

CUMULATIVEWATERPOLLUTIONEFFECTS Regulatoryeffectivenessandoutcomes ReputationalRisk,

WatershedImpacts

SOCIALCONFLICT Covariatesofwaterrelatedsocialconflict AssetStrandingpotential

FINANCIALRISKMODELING

Modellongtermriskevolutionandmitigation,overquantifiableriskexposurepathwaysßinformationbiases&uncertainties

Robustrealoptionsmodeltheoryandapplication

WATERUSE&COSTS Boundsonpotentialwateruseandwastewatertreatmentcosts

Longruncostriskforatsitewateruse

REGULATIONS ComparativeAnalysisAcrossCountries PotentialEffectiveness,Delays

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WaterUseandCosts

Concern:Increasingscarcity,competitionandconflictà increasinglongrunCAPEXandOPEXforwatermanagementà reducedIRRà assetstranding,especiallyasmetalpricesdropFindings:• Significantvariationsinwateruseandwastewater/tonproduced

• Decliningoregrades=moreprocesswateruse• Trendstowardsre-useanddesalinationinaridregions,andproducedwaterusein

humidregions• CAPEXandOPEXtypicallyvaryfrom5to10%oftotalproductioncosts,and

efficiency/technologyimprovementssuggestlongruncostcurveswillhold• LongrunCu/Augolddemandcurvestrendupfasterthanprojectedincreaseinwater

costsasafractionofproductioncosts• Longrunà industrycostcurverisesà newdemand-supplyequilibrium• WRIAqueductScarcityRiskIndexdoesnotpredictNAVorCreditRating

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CopperPrice(NASDAQ) Notetheover100%variationincopperpricesover5yearsandyearoveryearvariationsof+/-50%

WaterUseandCosts

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• Accordingtothe studybytheChileanCopperCommission,minelevel cashcostsatChile's19largestminesfelltoanaverageof$1.285perpoundduringthefirstthreemonthsoftheyear,down13.3%ornearly20capoundfromthesamequarteroflastyear.

• …improvedminemanagement,lowercostsforelectricity,servicesandshippingandlowertreatmentandrefiningchargedbysmelters.Thetrendoffallinggrades,coupledwithincreasingwatercostsinChilemakesthecostcuttingevenmoreremarkable.

WaterUseandCosts

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RobustRealOptionsModelTheoryandApplicationsFINANCIALRISKMODELING

RealOptionsModel:Simulation-OptimizationModelingframeworkforriskandasset/portfoliovaluationSimulation =performance/outcomesinthefaceofstochasticshocksovertimethatleadtodecisionsonchangesinsystemdesignoroperationandhencecostsandrevenuesOptimization =atanygiventimewheresuchadecisionisneeded,assumingthecompanyisarationaleconomicactor,identifytheeconomicallyoptimaldecisiontotheendoftheoperatinghorizonThus,thenonlineardependencebetweenshocks,decisionsandoutcomesisexplicitShocks=financialorenvironmental

Robust:Recognizesthatdataonshocksandtheoutcomesoftheshocksmaybequitelimitedandorbiased.Howdoesonederiveappropriateboundsfortheprobabilitiesofshockeventsinthissetting?Howdoesonesimulateshocksusingtheserobustprobabilitybounds?

TheoryDeveloped.DatabaseandAppDevelopedandavailable.AppliedtoAssesswhetheraMine/Companyisover/underValuedconsideringrisks

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SevereSustainedDrought

Replacementwater

Socialconflict

Revenue

ShorttermProfit

WastewaterTreatmentRequirements

Strandedasset

Climate

1.Financialexposurepathwaysforamineß waterrelatedrisks?

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Socialconflict

Revenue

ShorttermProfit

Strandedasset

Climate

ExtremeRain&Flood

TailingsDamFailure

ToxicDischarge


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Socialconflict Strandedasset

ToxicDischargeToxicDischargeToxicDischarge

ToxicDischarge

……..

DegradedWaterBodies

Cumulativeeffects


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Acquire Permitted Operational

Social/LegalEIS, Permits, ConflictsSystems DesignFinancing

Regional Drought

Water Available ↓Discharge Allowed ↓Waste Treatment ↑Social Conflict ↑Production ↓Net Revenue ↓

WWT failureSpill

Social Conflict ↑Regulatory fines ↑Regulation ↑Production ↓Net Revenue ↓

Flood Event

Power & Transportation ↓Infrastructure ↓Waste Spill ↑Production ↓CAPEX ↑Net Revenue ↓

Tailings Dam Failure

Power & Transportation ↓Infrastructure ↓Waste Spill ↑Regulation ↑Legal Actions & Fines ↑Production ↓CAPEX ↑Net Revenue ↓

Mine Closure

Wet Period

Site RemediationNew standards?Adequate Bond?

Groundwater Contamination ↑Regulation ↑Acid Mine Drainage ↑Liabilities ↑

Consider climate extremes, Tailings failures, Social conflict emergence as stochastic shocks whose probability of occurrence changes over time based on covariates à risks that change over time

Mining companies design/insure some of the risks

Outcomes = function of planning + event effects

Discounted present value reflects the risk?Simulate all possible occurrences, and best decision forward at each time 24

MineSiteandPortfolioRisk,anditsChangeoverTimeCLIMATEEXTREMES

Databaseandexposureestimation/rankingAppDevelopedandavailable.AppliedtorankcompaniesintermsofVARorcVAR exposure,andforRealoptionsModel

April 17, 2016: “Codelco, the world's top copper producer, said the rains forced the Chilean state-owned miner to suspend production at its century-old underground El Teniente mine, likely leading to the loss of 5,000 tonnes of copper production.”

10 year 1 day event ?

Mine infrastructure is designed for a certain level of flood or drought risk. Insurance may cover the residual risk with a payout limit.Assumption: data used to compute the probabilities is representative of the future.

Unfortunately, climate risk exhibits regime like behavior èDesign risk estimate may be out of phase with operation period risk

Climate risk exposure is also spatially correlated over a business cycle = Elevated Portfolio Risk

Daily Flow of the Mapocho River near Santiago, Chile

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ExtremeRainfall:40mineRioTintoportfolio.• Highclustering:36exceedancesinoneyearoutof142• Thereisapronouncedtrendanddecadalvariability

BHPBillitonRioTinto

Drought:38mineBHPBillitonportfolio.• Highclustering:24exceedancesinoneyearoutof60

BHPBilliton

RioTinto

Annualexceedancesof10year30dayrainfall

Annualexceedancesof10yeardrought

PortfolioExposureExamples:RioTinto(40assets)andBHPBilliton(38assets)

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0

1

2

3

4

5

6

7

BarrickGold

BHPBilliton Newmont RioTinto BarrickGold

BHPBilliton Newmont RioTinto

Ratioofactual numberofeventsinexcessof100year1dayextremerainfallforPortfoliorelativetowhatisexpectedbychance,for3

thresholdsoftheportfoliocdf

90th 95th 99th

Based onNOAA-CIRES1851-2014reanalysisBasedonECMWF1900-2010reanalysis

Fattailriskduetospatialclustering:

PortfolioExposureExamples:FourCompaniesandTwoClimateDatasets

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DroughtRiskRankingsbyVARandCVARnormalizedtoportfoliosize

ClimateExtremes– ResultExample– ComparisonAcrossCompaniesforDroughtExposure

TailingsDamStateIdentification&failureImpactAnalysisLOWPROBABILITY/HIGHIMPACTEVENTS

Concern:Tailingsdamsstorehighlytoxicwastes.Theirfailurecanleadtocatastrophic,multi-billion$liabilitiesandpotentiallossoflicensetooperate,assetstranding.• Noglobaldatabaseofdams.Yet,failurerate3-5xofriverdams• Sequentiallyconstructedofearthenfill.Morepronetofailure• Dominantfailuremodes:Overtoppingduetohighrain,GeotechnicalFailure.

MismanagementApproach&Findings:• MachineLearningapproachdevelopedforautomaticidentificationoftailing

damsfromsatelliteimagery• Regressionandindexingbasedapproachforprobabilisticimpactanalysisand

rankingofdamfailureimpact(ecological,population)basedonrunoutfromfailure.

• PredictionprobabilitiesfromthemodelcoveractualSamarco impact• However,hazardratingsformanyotherBraziliantailingdamsintheregionare

muchhigherthanthoseestimatedforSamarco

BARRAGEM

ITABIRUÇU230Mm3

DamFailure, SatelliteImageDatabasesandRiskAppDevelopedandavailable.AppliedtoderiveprobabilistichazardratingsandrankingforMinasGerais dams

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ReclamationCostDisclosureAnalysisBIASINREPORTING

DatabaseandRegressionModelDevelopedandavailable.Appliedtoestimate/predictdegreeofsystematicunder-reportingofReclamationcosts

Concerns:Ifminingcompaniessystematicallyunder-reportreclamationcosts,thenlongterminvestorsmayfacesignificantresidualfinancialandreputationalliabilities.• Companiesmayengageinstrategicbehaviortoavoidcoveringactualreclamationneedssince

theywerenotbudgetedordisclosed.• Dobiasesinthisaspectreflectsystematicbiasesinotherdisclosure?Findings:• Alongitudinaldataonreclamationcost,reserves,productionandothereconomicfactorswas

derivedfromquarterlyreports.• Regressionmodelshowsthatcontrollingforchangesinproduction,reserves,inflationand

otherfactors,the%ofremaininglifeofmineemergesasasignificantpredictorofreportedreclamationcostsà earlyestimatesaresignificantlybiasedlower.

• ComparisonswerealsomadewiththeEPA’srecentlyreleasedmodelwhichonlyusesasingledisclosureofcostsbyacompany,andfocusesonameanvalue.

• Difficulttocompiledataonactualreclamationcostsvsearlierestimates,butwerecommendreclamationbondsreflect90%probabilitycoveragebasedonuncertaintyestimates

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CovariatesofWaterRelateSocialConflictSOCIALCONFLICT

Concerns:WaterisperceivedasaprimarydeterminantofsocialconflictsrelatedtomininginLatinAmerica,andhasledtoassetandinvestmentstranding• Istherequantitativeevidencethattheprobabilityofconflictrelatestoawaterissue?Findings:• Datawascompiledforreportedwaterrelatedviolentandnon-violentminingconflicts

inPeruandMexicoandabroadsetofdemographic,waterandclimatecovariates.• Bayesianandrobustregressionmodelsfindthat

• Pastconflictisthestrongestpredictor• OthersareMiningScale,RedistributionofTaxrevenues,CorruptionPerception• Drought(rainfallreduction)ratherthanabsolutewateravailability,andwaterfines

(relatedtopollution)arethemainwaterpredictorsidentified• Cumulativeeffectsofminingandtheassociatedemergenceandpersistenceofconflict

maythusbekeyfactorsdeterminingassetlevelriskinawatershed

Peru&MexicoconflictsandcovariatesDatabaseandRegressionModelavailable.Appliedtoestimate/predictlikelihoodofconflict

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RegulatoryEffectivenessandOutcomesCUMULATIVEWATERPOLLUTIONEFFECTS

Concerns:Evenifsitelevelregulationofmineeffluentsiseffective,collectiveimpactsfromminingandotherpollutantsourcescancompromisethewatersources,leadingtosocialconflictandlossoflicensetooperate.• Isthereevidencetoquantifytheseeffectsandattributethemtospecificsources?• Docurrentregulatoryprocesseseffectivelyaddresstheserisks?Findings:• Significantlegacywaterpollutioneffectsofminingareidentifiedinallcountries• Datasetstopursuespace-timetrendidentificationandattributionaresparse• Miningcompaniesfaceconsiderablerisksasincreasingwaterscarcityandcompetition

exacerbatetheimpactsofpollutedwaters• EnvironmentalImpactAssessmentsandassociatedbondsarelikelyhighlyinadequateto

addressthesechallenges• Riskquantificationfortheindustryandforamineisconsequentlydifficult.• Anapproachtoregulationthatbuildsinwatershedoutcomesandattributionisneeded.

DatabaseWater qualityandpredictivefactorsdevelopedforbasinsinPeru&USARegressionmodelsillustratetrendsanddependenceonaggregateminingactivity

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1. Sourcewater(desalination,re-use,efficiency)costsmayaddupto10%tocopper/goldproductioncosts,andmaytranslateintolongtermmarginalcostcurvesforproduction.

2. Uncertaintiesrelatedtophysicalriskfactors:climate;tailingsdamfailure;andcumulativewaterpollutioneffectsmayleadtosignificantunpricedresidualfinancialrisks.Spaceandtimeclimateriskclusteringneedstobeaccountedforinportfoliorisk.

3. Arobust,realoptionsmodelingframeworkisusefulforderivingriskadjustedE[NPV]byintegratingtheseriskandcostfactors,consideringtheiruncertainties,andmineleveldecisionsformitigatingtheserisks.

4. FinancialDisclosuresneedtodirectlyprovideinformationonresidualrisksandtheirfinancialimplications,ratherthandetailedwaterrelatedmetrics.Biasesinclosurecostdisclosureswereidentified.Analyticstoevaluate/verifyfinancialdisclosuresareneeded.

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KeyFindingsandRecommandations

Contents






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Impacts:ReiteratingResearchObjective

• Identifykeyriskexposurepathwaysandmitigationstrategies

• Developprobabilisticmeasuresofriskfactors&theirvaluationwherepossiblefromavailabledata

• Assesspotentialmispricingorunder/overstatementoftherisks

• Translateriskstofinancialriskmeasures(VAR,CVAR)wherepossible

• Integraterisks,mitigationstrategiesintoarobustrealoptionsmodelingframeworkforriskbasedvaluation(withbounds)

• Assess&compareriskadjustedportfolios

Identifyrisksthatmanifestthemselvesoverthelongtermforminingcompaniesthatcompaniesandinvestorsmaynoteffectivelyconsider

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Recommendations:WhatdoesthismeanforCompanies&Investors?

BIASINREPORTING/MISALIGNMENTOF

INCENTIVES

LOWPROBABILITY/HIGHIMPACTEVENTS

LONGDURATIONTEMPORALTRENDS&CUMULATIVEIMPACTS

Company-formulatedestimatesofreclamationcostsarebiasedandtendedtoincreasenearertotheend

oftheminelife

Therisksassociatedwithtailingsdamfailurescanbetoidentifycompanies/assetsmostatrisk.

Certaincompaniesaremoreexposedtoclimateextremesthanothers,basedonthelocationsoftheir

assets.Evenwhenamineconformstoenvironmental

regulations,significantcontaminationofwater(evenfarawayfromsite)canoccurovertime.

Qualityandavailabilityofwaterimpactssocialconflict.Parameterswereidentifiedthatcanhelp

predictthelikelihoodoffutureconflicts.

Considerpotentialbiasininvestmentanddecision

processes

Considerpotentialassetandportfoliolevelriskand

uncertainty

Considerlong-termimplicationsonlicensetooperateandclean-upcostsConsiderpotentialimpactonassetlevelproduction,capex,costsandtimelines

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Recommendations:WhatdoesthismeanforCompanies&Investors?

KEYCONCLUSIONS

DATA/DISCLOSURE(COMPANY

ACCOUNTABILITY)

METHODOLOGY(INVESTOR/STAKEHOLDERANALYSIS)

• Long-termstakeholdersneedtobeawareofrisksthatcanslowlymanifestthemselvesovertime,suchascumulativepollutioneffects.Throughbetterdisclosure,investorswillbeabletoidentifyandencouragecompaniestomitigatetheserisksbeforetheproblemescalatestoalevelthatisunsolvable.

• Workingwithminingcompaniescanhelpidentifyavailabledatatohelpinformbetteranalyses.

• Discountedcashflowsshouldnotbetheonlymethodologyrelieduponfordecisionmaking.Ourrobustrealoptionsapproachissuperiorforriskbasedvaluationwithlimiteddata.

• Stakeholderscanuseadatadrivenapproachtoidentifythelikelihoodofsocialconflict.Thekeyparametersinducingconflictcanbeidentified,whichcanhelpshapedecisionprocessesbyinvestors,regulatorsandcompanymanagement.

• Investors,localcommunities,employeesandregulatorsneedtobecognizantthatminestudyworkispronetobias– differentstakeholdersneedtofindwaystoholdminemanagementaccountableforprovidingbiasedandconsistentlyinaccurateinformation.

• Low-probabilityhigh-impacteventscanhaveacatastrophicimpactonlocalcommunitiesandoncompanyandportfoliovaluations/returns.Longtermstakeholdersneedtobecognizantoftheserisksintheirdecisionprocessesandencouragebetteralignmentbetweenthemselvesandmanagement.

• Certaincompaniesaremoreexposedtoclimateextremesandsocialconflictthanothers,basedonthelocationsoftheirassetsamongotherfactors.

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ResearchExtensions:WhatotherrelevantprojectsareweworkingonatColumbia?

Focusontimelines,production,capex,opexandproducingamethodtostandardizeminingproject“discountstoNAV”

UsingBayesandotherstatisticalmethodstoexpanduponconclusionsfromtheworkwithNBIM

WorkingwithMajorMiningCompanytodeveloparisk-basedwatervaluationformining,takingintoconsiderationenvironmentalandsocial

aspects

Attemptingtoputforthmetricstoobjectivelymeasureperformancebothovertimeandretrospectively,andidentifyadditionaldatathatcanbedisclosedbyminingcompaniestohelpinformfurtheranalyses

Applyingourconclusions/methodologiesregardingrealoptions&climateextremestootherindustries

DevelopingPilotProcessforintegratedmonitoring,attributionandstatisticalcontrolforPeru

Howprevalentisbiasinotherareasofminingcompanystudywork?

Canweidentify“redflags”thatcauseproblemsforstakeholdersearlyonbeforetheymaterialize?

Canwecreateageneralizedmodelforwatervaluationtointegrateintoordinarycompanydecisionmakingprocesses?

Howcanwevalidate/increaseaccountabilityofminingcompanymanagementfortheirdisclosure/estimates?

Howcanweapplyourfindingsfromthisanalysisonminingtootherindustries?

Howcanweimproveregulatorymodelstoreducecumulativeeffectsandreducesocialrisk?

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Datasetscompiledandavailable• MinelevelwateruseinCuandAu,Waterdevelopment&water/wastewatertreatmentcostsformines

• Globalgriddedclimatedata=100+years• Tailingdamattributes,satelliteimagery,damfailureattributes• SocialconflictandrelatedcovariatesforPeru&Mexico• Miningproduction,ambientwaterqualitytimeseriesforPeru,USA• Remediationcostestimatereportsovertimeformines• Financialreportingandvaluationdataforminesfrommarketresearch• “WaterRisk”indicesfromAqueduct• Waterrelatedminingregulationsforcomparativeanalysisacrosscountries

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