Alejandro Antonio Fiocco

Sustainability in the Peruvian mining industry: Nature and value of sustainability-related production disruption in the operational phase of a mine’s life

The mining industry is rarely associated with sustainability, yet, the extraction of minerals enables development and technological advancement. A growing global population that desires to have the same life quality enjoyed in the developed world will require us to continue extracting minerals in order to fuel a sustainable and inclusive development. Even green technologies, such as wind turbines, require large amounts of metals. Therefore, to enhance this sector’s contribution to sustainable development, the industry needs to integrate sustainability principles into its operations.

Furthermore, the mining industry has a great opportunity to become more efficient and profitable by adopting sustainability principles. Many studies have analysed the direct and indirect financial losses for companies that do not take sustainability-related risks into account. Projects are delayed or even suspended are the most common example, however, few studies have attempted to understand the disruptions that unsustainable practices and situations have in operating projects. For that reason, this research aims to quantify and comprehend the impact that sustainability-related issues have on projects during their operational phase.

This research intends to quantify direct losses in production generated by unsustainable practices in order to make a business case for the importance of sustainability in the mining industry. However, it must be recognised that costs for mining companies also occur indirectly. Fines, damaged reputation, or loss of the management’s productivity that translates into opportunity costs are examples of other factors must also be considered in order to fully assess the magnitude of sustainability-related disruptions.

The historical production of Peruvian mines between 2013 and 2017 has been analysed on a monthly basis in order to highlight the months when production decreased markedly. After analysing the production data for the most representative mines (accounting for more than 95% of the production of the targeted metals), several sources, including Peruvian newspapers and company reports, were reviewed to discover the nature of these disruptions, thereby allowing classification based on the causes. Out of a total value loss due to production disruptions of around USD 1.9 billion, 70% was identified as being sustainability-related, mainly conflicts with the community and a combination of increasingly extreme weather events and poor infrastructure planning. This represents 1.5% of the value of all the metal produced in the same time period or 5% of the gross profit made by mining companies. This is a substantial amount of value lost.