El Niño re­turn bad news for SA

Finweek English Edition - - THE WEEK IN THE NEWS -

A re­port by Mac­quarie Re­search re­cently con­cluded that in the face of what is be­lieved to be the third-most-po­tent El Niño weather sys­tem in his­tory this sum­mer (or win­ter, hemi­sphere de­pend­ing), some 54% of 100 com­pany shares an­a­lysed by the bank would be pos­i­tively im­pacted.

In­ter­est­ingly, some min­ing com­pa­nies, such as First Quan­tum Min­er­als, could be pos­i­tively af­fected as higher than nor­mal rain­fall in parts of Zam­bia, where it operates, could help recharge the Kariba dam, im­prov­ing the hy­dro power sit­u­a­tion in the coun­try, where elec­tric­ity short­ages have ham­pered the econ­omy.

Gen­er­ally speak­ing, how­ever, El Niño is ex­pected to bring drier con­di­tions to South­ern Africa, as well as swathes of Aus­trala­sia and South­east Asia. Parts of South Amer­ica, such as Ar­gentina, are ex­pected to be­come wet­ter.

In this con­text, there are some very spe­cific out­comes. For in­stance, in Aus­tralia, in­sur­ance stocks do bet­ter ow­ing to the higher like­li­hood of bush fires, which is the least costly type of in­sur­ance event com­pared to hail or earth­quakes. The loss sever­ity is there­fore lower.

In SA, how­ever, the threat of dry con­di­tions to busi­ness fo­cuses on agri­cul­ture and industry, par­tic­u­larly be­cause of the sig­nif­i­cant amounts of wa­ter used by the coun­try’s min­ing busi­nesses.

Wa­ter us­age is in­creas­ingly be­com­ing a hot potato in places such as the Water­berg in the Lim­popo, as well as in the North West, where many of the plat­inum and chrome mines op­er­ate, and the iron ore mines of the North­ern Cape.

Ac­cord­ing to Matthew Burnell, an at­tor­ney with Fasken Martineau, there is spe­cific risk to min­ing com­pa­nies be­cause – in terms of the Na­tional Wa­ter Act – the depart­ment of wa­ter and san­i­ta­tion (DWS) has the abil­ity to re­strict wa­ter us­age even within the con­fines of an In­te­grated Wa­ter Use Li­cence, the per­mit all min­ing com­pa­nies must own in or­der to mine.

Says Burnell: “In th­ese in­stances, it is up to the [DWS] to make sure that wa­ter resources are not sig­nif­i­cantly com­pro­mised. It can do this by de­creas­ing the wa­ter al­lo­ca­tion per­mit­ted by wa­ter users.

“Al­though a wa­ter-use li­cence per­mits a wa­ter user to con­sume a cer­tain quan­tity of wa­ter, the li­cence does not guar­an­tee that that quan­tity of wa­ter will be avail­able and gen­er­ally per­mits the [DWS] to re­duce the amount of wa­ter avail­able to the wa­ter user.”

Al­though this is “a wor­ry­ing fac­tor” for min­ing firms, Burnell be­lieves it will en­cour­age min­ing com­pa­nies to seek out sus­tain­able wa­ter use prac­tices that would ex­ert less strain on the sys­tem, low­er­ing con­sump­tion costs.

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