People, Profits and Planet
Conventional Strategic Mine Planning produces multiple scenarios to maximize a project’s economic value and reliability as measured by Net Present Value (NPV). Green NPV incorporates environmental costs. By doing so, companies can develop efficient projects, at minimal costs, that are environmentally and socially sustainable.
If climate change is real and mining companies are serious about committing to climate action, then why would they not calculate ecological costs in strategic planning?
Perhaps a more important question is, “How should planners include ecological costs?” Which costs, what categories of costs? How broadly should these costs be defined? How does it benefit mining to do so?
Green NPV Opportunities
Mining companies typically avoid considering environmental costs in mine planning optimization because it’s believed those costs might hurt overall business valuation of a project. Any ecological assessments that might be included in conventional or base NPVs are typically qualitative in nature and do not provide economic parameters for comprehensive planning.However, a recent study that includes clearly defined and quantified ecological costs in early mine-planning scenarios demonstrate improved efficiency of mineral reserve exploitation while minimizing ecological impacts of mining operations.
By incorporating such ecological costs as carbon emissions, area of damaged pits, waste dumps and tailings dam, value depreciation of direct and indirect ecological services and more, planners can generate new optimized scenarios with a “Green NPV.” This approach can generate energy-efficient projects that minimize environmental impact and also help reduce “green” taxes when obtaining environmental permits and licenses for a mining project.
The Costs of Ecology
Environmental impact does cost, but that doesn’t necessarily equate to less efficient operations. For example, an analysis of manufacturing in France over the past 15 years shows that rising energy prices, including environmental taxes, triggers reallocation of production and workers from energy-intensive to energy-efficient operations.
Mining generates quantifiable ecological costs. To truly incorporate these costs in mine planning, values must be assigned to such environmental impacts as solid particulate emissions due to blasting, greenhouse gas emissions from diesel engines and electricity generation, soil loss, desertification, and hydrological dynamics that alter rivers as well as rehabilitation costs of restoring land to pre-mining condition during mine closure phases.
Recent theoretical studies have developed strategic mine planning that include ecological costs related to the construction, execution and closure of a mine, including carbon emissions, costs per damaged area on a per-acre basis, rehabilitation costs, the opportunity cost of ecological services, pollution, etc. The result produces a “Green NPV” that is more sustainable and efficient than an operation with a conventional or base NPV which does not consider ecological cost.
This modeling should be considered as a next logical step in planning by mining organizations already committed to broad environmental sustainability initiatives, because it answers key strategic questions companies are asking now within their organizations:
- Are we prepared for more rigorous environmental policies?
- Is our company making efforts to reduce global emissions?
- Is the company committing to climate action within its strategic planning?
- Are we efficient in the current design configuration of its project?
- Can we absorb and optimize changes based on environmental regulations?
Modeling Green NPV Solutions
In a detailed Sustainable Mining Network presentation of the case study referenced here, the author outlines an optimized strategic planning process that generated 1,188 Green NPV scenarios aimed at maximizing project value through increased revenue and minimal ecological costs. Interestingly, the study also considers the value that healthy environmental ecosystems contribute to human wellbeing.
The study outlines categories of costs as well as a nine-stage planning process. Optimized Green NPV modeling reveals, for example, that the size of a mine operation strongly affects indirect ecological and restoration costs: larger operations lead to lower costs. The model also demonstrates that lower production capacities result in longer production plans, and the longer a mine remains in operation, the higher the ecological costs due to extended environmental damage.
Green Planning Grows Opportunities
Incorporating environmental costs in an optimized Green Net Present Value achieves a more efficient strategic plan in the use of resources while containing environmental damage more effectively. This provides better information for decision making and thus reduces risk.
This approach provides other benefits as well. By factoring in ecological costs early in the planning process, decision makers can prepare earlier for changes to environmental regulations. It allows mining companies to cultivate stronger, more resilient community relations. Companies can standardize planning for energy-efficient projects that minimize environmental impacts and continually improve optimized scenarios for ecological models.
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