Mining Companies Face Ratings Cuts as Water Scarcity Lift Costs

Global mining companies may see increased pressure on their credit ratings as environmental issues including water scarcity add to capital and operating costs, according to Moody’s Investors Service.

Smaller, less-diversified mining companies in water-scarce regions such as South America are most vulnerable, Moody’s said in a report dated yesterday. Larger producers including BHP Billiton Ltd., Rio Tinto Group and Anglo American Plc will also be adversely affected given their global operations and willingness to operate in remote and arid regions, it said.

“Water scarcity is already changing the mining landscape as environmental legislation becomes more stringent,” Andrew Metcalf, a Moody’s analyst, said in the report. “Operating in some countries increases political risk as mining companies’ water supplies can be restricted if the needs of communities increase.”

Mining companies are already competing with local communities for limited water resources, and environmental rules and permit requirements are adding to the cost of new mines and project time-lines, Moody’s said.

Rio, BHP and Anglo have the expertise and financial strength necessary to build complex water procurement systems for large-scale projects and are likely to become preferred partners in water-scarce countries seeking to benefit from their natural resources as a result, the rating company said.