Resources Policy 27 (2001) 1–7www.e

Resources Policy 27 (2001) 1–7
www.elsevier.com/locate/resourpol
Viewpoint Sustainable development: can the mining industry afford it?

D. Humphreys *
Rio Tinto Plc, 6 St. James’s Square, London SW1Y 4LD, UK
Received 30 January 2001; received in revised form 8 February 2001; accepted 10 February 2001
Abstract
Adopting the values of sustainable development implies an increase in the mining industry’s environmental and social costs. For an industry already offering poor returns on capital this is potentially a problem. An examination of the historical record, however, reveals that past increases in environmental and social costs have been more than offset by developments in industry productivity. The emergence of information and communication technologies seems likely to extend this trend into the future. The particular challenges being faced by mining in the US appear to be less to do with rising environmental costs than with competition from countries which have recently opened up to foreign mining investment and to a strong dollar. It seems likely that industry’s adoption of more sustainable practices will require, and could even promote, improved returns to capital in mining.  2001 Elsevier Science Ltd. All rights reserved.
Keywords: Mining profitability; Sustainable development; Environmental costs; Productivity; Information and communications technologies; USA
The proposition to be explored in this paper is that the profitability of the mining industry — already poor — is about to get worse as a result of rising cost pressures associated with the social and environmental demands of sustainable development. A secondary objective is to ask whether US miners are set to suffer dispro- portionately in this process.
Profitability and cost pressures
It is certainly the case that the financial history of the mining industry is an undistinguished one. As Fig. 1 illustrates, data going back over the past 27 years reveal that the resources sector as a whole has achieved a reasonably respectable 8% average real rate of return on capital. However, this achievement is entirely down to the oil and gas sector which in 1999 had a market capi- talisation some eight times that of mining. Real returns for mining have been a much more modest 5%, pos-

This paper is based on a presentation at the Northwest Mining Association’s 106th Annual Meeting, “Winds of Change”, 4–8 December 2000, Spokane, WA, USA. * Tel.: [phone]; fax: [phone]. E-mail address: [e-mail] (D. Humph reys).
0301-4207/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved. PII: S0301-4207(01)00003-4
Fig. 1. Profitability by industry sector.
itioning it alongside so-called “basic industries” such as steel, construction, forestry and chemicals. This is the background against which the mining industry now confronts the possibility that cost pressures on it are about to intensify as a result of increased social and environmental demands associated with a move to sustainable development. There is an argument, which generally goes under the heading of “eco-efficiency”, that environmental improvements go hand in hand with improved industry efficiency. In other words, there are “win–win” opport-
2 D. Humphreys / Resources Policy 27 (2001) 1–7
unities which avoid the necessity of making difficult trade-offs between what makes good business sense and what is good for the environment. Higher mineral recoveries obviously mean less waste and lower waste disposal costs, while higher energy efficiencies mean less carbon emissions and lower operating costs. There is undoubtedly much in this argument. How- ever, it is far from the case that all expenditures on social and environmental matters bring about cost-savings. Many such expenditures are a straightforward intern- alisation of that were previously external costs; which it to say, costs picked up by society at large in the form of the degradation of air or water, or the despoliation of landscapes. The reinforcement of a tailings dam or the sterlisation of part of an ore body for environmental reasons may allow a miner to continue in business but they generate no rates of return. The same applies to the reclamation and rehabilitation of worked-out mine sites. Community programmes are real costs, without neces- sarily any immediate offsetting efficiencies. So also are the permitting costs which miners must incur before they have cash-flow, always assuming, that is, the permitting process enables them to get one. Quite what the scale of these internalised costs is it is hard to determine. This is partly because some cost- savings, of the eco-efficient variety, would have been done anyway, while others are not specifically identified as social and environmental costs but treated as a normal part of doing everyday business. Company accounts do not typically contain headings distinguishing environ- mental costs, and those identified as social costs will tend only to relate to specific programmes. Were it possible to break out the role of social and environmental costs, they would probably not be that high anyway for the simple reason that many of these activities are today built into the way projects are set up to run. (This will not necessarily be the case at older operations where companies are having to play catch- up.) For the most part, it is more likely that additions to costs arising from higher environmental and social standards will be found in the capital component of mine projects. In one of the few attempts to put numbers on these things, Metals Economics Group (1993), in a survey of gold companies in 1993, found that respondents con- sidered environmental provisions accounted, on average, for only 3% of their operating costs. However, they claimed they accounted for around 12% of their feasi- bility costs and 14% of their development costs, with the figures rising to 22% and 17%, respectively, in more demanding jurisdictions. Data produced by Statistics Canada (1997) show environmental protection account- ing for some 23% of capital expenditures in the mining sector and, on a totally different definitional basis (one which includes “any expenditure that ensures or antici- pates compliance to environmental regulation or official
voluntary agreement”), for 77% of operating expendi- tures. But whether incurred in operating or in investment, these are still real costs which make tougher the chal- lenge of an industry seeking to improve its returns on capital.
Productivity and industry returns
Against this backdrop, it might seem likely that the arrival of sustainable development as a social objective generally, and as an objective for the mining industry in particular, must, by adding to costs, compromise its profitability further. There are, however, certain prob- lems with this notion. Not the least of these is that the industry has been improving its standards of social and environment performance over very many years already, during which time mining costs have fallen substantially. How is this so? Here we encounter one of the great unsung achieve- ments of the mining industry, its extraordinary and sus- tained growth in productivity. The record of productivity growth has enabled the industry to offset rising costs associated with the adoption of higher social and environmental standards, combat the tyranny of declin- ing ore grades and, over some periods, still achieve a reduction in real costs of production. Indeed, this decline in real terms production costs is the basis for the long run decline in real prices of many commodities. A particularly fertile source of information on US mining productivity is the US Bureau of the Census. This permits analysis of the mining industry back to 1860. Looking first at its data on copper, it can be seen in Fig. 2 that over the past 140 years, labour productivity per tonne of copper contained in ore has increased at an average rate of 3.4% a year, a total improvement for the period as a whole of over 100 times. Moreover, as indi- cated by the logarithmic trend, the rate of improvement has been remarkably consistent over the period covered. Considering the productivity of ore milled rather than copper contained in the ore — in many respects a fairer
Fig. 2. Productivity growth in US copper mining.
3D. Humphreys / Resources Policy 27 (2001) 1 –7
measure of productivity since it recognises that ore grades have fallen over time — then the productivity growth is around a percentage point higher again. As regards costs, although the trend overall has been down, bearing out the proposition that it is possible to absorb increased social and environmental costs, combat declining grades, and still achieve a reduction in pro- duction costs, the experience has varied significantly over different periods. Recession during the 1930s for- ced a reduction of industry production costs, partly by forcing closures of higher cost capacity, but unit costs subsequently pushed upwards as ore grades declined. Since the early 1980s, real unit costs have fallen sharply, again partly as a result of closures at high cost mines and improvements at the remaining mines producing copper concentrates, but also because of the emergence of a new recovery technology in the form of solvent extraction- electrowinning (SXEW). Similar developments have been experienced in iron ore. Here, as Fig. 3 illustrates, labour productivity has increased at an average rate of 2.5% over the last 140 years; a more modest, though still impressive, 27 times. As in the case of copper, the improvement in pro- ductivity has been relatively consistent throughout the period. Also, as with copper, the impacts of these pro- ductivity improvements have been slightly less straight- forward. The effects of growing economies of scale and then of the Great Depression are evident in the decline of costs through to the 1930s. Thereafter, costs started to rise

Kết quả (Việt) 1:

Tài nguyên chính sách 27 (2001) 1-7www.Elsevier.com/Locate/resourpolQuan điểm phát triển bền vững: các ngành công nghiệp khai thác có thể mua nó?Mất Humphreys *Rio Tinto Plc, 6 St James Square, London SW1Y 4LD, Vương Quốc AnhNhận được 30 tháng 1 năm 2001; nhận được cải tiến thành 8 tháng 2 năm 2001; chấp nhận 10 tháng 2 năm 2001Tóm tắtViệc áp dụng các giá trị của phát triển bền vững ngụ ý sự gia tăng chi phí môi trường và xã hội của ngành công nghiệp khai thác mỏ. Cho một ngành công nghiệp đã cung cấp cho người nghèo trở về vốn điều có khả năng là một vấn đề. Kiểm tra một số ghi chép lịch sử, Tuy nhiên, cho thấy rằng trong quá khứ gia tăng chi phí môi trường và xã hội đã nhiều hơn bù đắp bởi sự phát triển trong ngành công nghiệp sản xuất. Sự xuất hiện của công nghệ thông tin và truyền thông có vẻ có khả năng mở rộng này xu hướng trong tương lai. Những thách thức cụ thể đang phải đối mặt bằng cách khai thác ở Mỹ dường như là ít hơn để làm với tăng chi phí môi trường hơn với sự cạnh tranh từ các quốc gia mà gần đây đã mở ra để đầu tư khai thác mỏ nước ngoài và một đồng đô la mạnh. Có vẻ như có khả năng của ngành công nghiệp nhận con nuôi của các thực hành bền vững hơn sẽ đòi hỏi, và có thể thậm chí quảng bá, cải tiến trở về thủ đô trong khai thác mỏ.  năm 2001 Elsevier khoa học Ltd. Tất cả các quyền.Từ khoá: Khai thác mỏ profitability; Phát triển bền vững; Chi phí môi trường; Năng suất; Công nghệ thông tin và truyền thông; HOA KỲThe proposition to be explored in this paper is that the profitability of the mining industry — already poor — is about to get worse as a result of rising cost pressures associated with the social and environmental demands of sustainable development. A secondary objective is to ask whether US miners are set to suffer dispro- portionately in this process.Profitability and cost pressuresIt is certainly the case that the financial history of the mining industry is an undistinguished one. As Fig. 1 illustrates, data going back over the past 27 years reveal that the resources sector as a whole has achieved a reasonably respectable 8% average real rate of return on capital. However, this achievement is entirely down to the oil and gas sector which in 1999 had a market capi- talisation some eight times that of mining. Real returns for mining have been a much more modest 5%, pos-
This paper is based on a presentation at the Northwest Mining Association’s 106th Annual Meeting, “Winds of Change”, 4–8 December 2000, Spokane, WA, USA. * Tel.: [phone]; fax: [phone]. E-mail address: [e-mail] (D. Humph reys).0301-4207/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved. PII: S0301-4207(01)00003-4Fig. 1. Profitability by industry sector.itioning nó cùng với cái gọi là "cơ bản ngành" chẳng hạn như thép, xây dựng, lâm nghiệp và hóa chất. Điều này là nền tảng chống lại mà ngành công nghiệp khai thác mỏ bây giờ phải đối mặt với khả năng chi phí áp lực trên nó là về để tăng cường là kết quả của tăng nhu cầu xã hội và môi trường kết hợp với một động thái để phát triển bền vững. Đó là một cuộc tranh cãi, mà thường đi dưới tiêu đề "eco-efficiency", mà cải thiện môi trường đi tay trong tay với ngành công nghiệp cải tiến efficiency. Nói cách khác, có những "win-win" opport-2 D. Humphreys / tài nguyên chính sách 27 (2001) 1-7unities which avoid the necessity of making difficult trade-offs between what makes good business sense and what is good for the environment. Higher mineral recoveries obviously mean less waste and lower waste disposal costs, while higher energy efficiencies mean less carbon emissions and lower operating costs. There is undoubtedly much in this argument. How- ever, it is far from the case that all expenditures on social and environmental matters bring about cost-savings. Many such expenditures are a straightforward intern- alisation of that were previously external costs; which it to say, costs picked up by society at large in the form of the degradation of air or water, or the despoliation of landscapes. The reinforcement of a tailings dam or the sterlisation of part of an ore body for environmental reasons may allow a miner to continue in business but they generate no rates of return. The same applies to the reclamation and rehabilitation of worked-out mine sites. Community programmes are real costs, without neces- sarily any immediate offsetting efficiencies. So also are the permitting costs which miners must incur before they have cash-flow, always assuming, that is, the permitting process enables them to get one. Quite what the scale of these internalised costs is it is hard to determine. This is partly because some cost- savings, of the eco-efficient variety, would have been done anyway, while others are not specifically identified as social and environmental costs but treated as a normal part of doing everyday business. Company accounts do not typically contain headings distinguishing environ- mental costs, and those identified as social costs will tend only to relate to specific programmes. Were it possible to break out the role of social and environmental costs, they would probably not be that high anyway for the simple reason that many of these activities are today built into the way projects are set up to run. (This will not necessarily be the case at older operations where companies are having to play catch- up.) For the most part, it is more likely that additions to costs arising from higher environmental and social standards will be found in the capital component of mine projects. In one of the few attempts to put numbers on these things, Metals Economics Group (1993), in a survey of gold companies in 1993, found that respondents con- sidered environmental provisions accounted, on average, for only 3% of their operating costs. However, they claimed they accounted for around 12% of their feasi- bility costs and 14% of their development costs, with the figures rising to 22% and 17%, respectively, in more demanding jurisdictions. Data produced by Statistics Canada (1997) show environmental protection account- ing for some 23% of capital expenditures in the mining sector and, on a totally different definitional basis (one which includes “any expenditure that ensures or antici- pates compliance to environmental regulation or officialtự nguyện thỏa thuận"), 77% của hoạt động expendi-tures. Nhưng cho dù phát sinh trong hoạt động hoặc trong đầu tư, đây là những chi phí vẫn còn thực tế mà làm cho khó khăn hơn lenge khóa một ngành công nghiệp tìm kiếm để cải thiện của nó trở về thủ đô.Năng suất và lợi nhuận của ngành công nghiệpAgainst this backdrop, it might seem likely that the arrival of sustainable development as a social objective generally, and as an objective for the mining industry in particular, must, by adding to costs, compromise its profitability further. There are, however, certain prob- lems with this notion. Not the least of these is that the industry has been improving its standards of social and environment performance over very many years already, during which time mining costs have fallen substantially. How is this so? Here we encounter one of the great unsung achieve- ments of the mining industry, its extraordinary and sus- tained growth in productivity. The record of productivity growth has enabled the industry to offset rising costs associated with the adoption of higher social and environmental standards, combat the tyranny of declin- ing ore grades and, over some periods, still achieve a reduction in real costs of production. Indeed, this decline in real terms production costs is the basis for the long run decline in real prices of many commodities. A particularly fertile source of information on US mining productivity is the US Bureau of the Census. This permits analysis of the mining industry back to 1860. Looking first at its data on copper, it can be seen in Fig. 2 that over the past 140 years, labour productivity per tonne of copper contained in ore has increased at an average rate of 3.4% a year, a total improvement for the period as a whole of over 100 times. Moreover, as indi- cated by the logarithmic trend, the rate of improvement has been remarkably consistent over the period covered. Considering the productivity of ore milled rather than copper contained in the ore — in many respects a fairerHình 2. Năng suất tăng trưởng ở Hoa Kỳ đồng khai thác mỏ.3D. Humphreys / tài nguyên chính sách 27 (2001) 1 –7measure of productivity since it recognises that ore grades have fallen over time — then the productivity growth is around a percentage point higher again. As regards costs, although the trend overall has been down, bearing out the proposition that it is possible to absorb increased social and environmental costs, combat declining grades, and still achieve a reduction in pro- duction costs, the experience has varied significantly over different periods. Recession during the 1930s for- ced a reduction of industry production costs, partly by forcing closures of higher cost capacity, but unit costs subsequently pushed upwards as ore grades declined. Since the early 1980s, real unit costs have fallen sharply, again partly as a result of closures at high cost mines and improvements at the remaining mines producing copper concentrates, but also because of the emergence of a new recovery technology in the form of solvent extraction- electrowinning (SXEW). Similar developments have been experienced in iron ore. Here, as Fig. 3 illustrates, labour productivity has increased at an average rate of 2.5% over the last 140 years; a more modest, though still impressive, 27 times. As in the case of copper, the improvement in pro- ductivity has been relatively consistent throughout the period. Also, as with copper, the impacts of these pro- ductivity improvements have been slightly less straight- forward. The effects of growing economies of scale and then of the Great Depression are evident in the decline of costs through to the 1930s. Thereafter, costs started to rise