Measuring and managing total impact: Strengthening business decisions for business leaders - Mining scenario

Start adding items to your reading lists:
or
Save this item to:
This item has been saved to your reading list.

Should the company widen and repair existing the existing access road, or build a new road entirely?

Decisions about mine design and development are often made on the basis of engineering feasibility and cost, with the wider impacts typically being ‘mitigated’ later in the design process. The intangible implications for the business (e.g. reputation) are often not taken into account.

In this example, the mining company is developing a new mine design, and wants a balanced view on the wider long-term impacts of the access road options. Proactively understanding and comparing the long-term impacts of widening and repairing the existing access road or building a new access road will help the company make informed decisions and mitigate and manage stakeholder challenges on granting approval for the mine design. Since these external impacts affect the mining company’s ability to obtain and maintain its ‘social license to operate’, this is also the first step towards understanding the resultant internal costs and benefits for the business, for example, in terms of brand value, reputation and ultimately the bottom line.

Overview of the Options

Option 1: Widen and repair the road surface of the existing road

Upside: 

  • Lower environmental impact

Downside:

  • This route passes through many communities, some of which have been vocally opposed to mine development
  • The route is approximately 250km and passes through mountainous terrain, on which there have been many traffic accidents

Option 2: Build a new road for the mine traffic

Upside:

  • The proposed route is through generally under-populated areas
  • This route would only be 50 km long and pass through less mountainous terrain
  • Some environmentally sensitive habitats would be affected by the proposed route

Downside:

  • Some environmentally-sensitive habitats would be affected by the proposed route

Summary outputs of the TIMM analysis

TIMM can be used to value not only the business financial performance, but also the wider social, tax, economic and environmental implications. The TIMM wheel provides a simplified analysis of the results of the TIMM analysis for the two options. The inner circle shows the Financial Performance in terms of total upfront capital costs and ongoing expenditure, and overall net present value (NPV) for the road over the life of mine. Each bar represents a positive (green) or negative (red) impact. These different impacts can now be compared and aggregated.

Business financial performance:

  • Upgrading the existing road in Option 1 would involve lower upfront capital cost than building a new road in Option 2.
  • However, due to the shorter route in Option 2, material will be transported for processing more quickly and efficiently, and thus fuel costs will be lower.

Trade-off: Do the savings from fuel costs and the shorter journey times in Option 2 justify the higher upfront capital costs?

 

Environment:

  • In Option 1, the increase in traffic would lead to increased air pollution, dust emissions and noise impacts for communities living alongside the existing route, whereas the route for Option 2 goes through largely under-populated areas.
  • In Option 2, there will be slightly greater water use and waste generated due to the more significant construction activities, and potentially greater water pollution impacts.
  • Given that Option 1 involves a longer route, the greenhouse gas emissions from vehicles will be more than in Option 2.
  • However, Option 2 will involve construction of a road through environmentally sensitive areas, leading to habitat loss and biodiversity impacts. If the road attracts further development, this could lead to further habitat loss over the life of mine.

Trade-off: Are the environmental impacts in Option 1 greater or less than the impacts on biodiversity in Option 2?

 

Economic:

  • During the construction period, building a new road (Option 2) will deliver higher economic benefits than upgrading the existing road (Option 1) through increased
  • employment, procurement and contracting of suppliers, and through associated indirect and induced spend.
  • Following the construction period, the improved access brought by the upgraded road in Option 1 may induce economic development within local communities and
  • businesses (although this could be countered by impacts of increased congestion caused by mine traffic).
  • Option 2, however, could also induce economic development in previously remote and under-populated areas within the proximity of the new road.
  • Both options could generate positives and negative impacts in terms of intangible assets such as brand value, intellectual property and reputation for the mining company and its contractors, but in this case, we have assumed that the effects balance out.

Trade-off: Which Option will deliver greater economic benefits both during construction and after completion?

 

Social:

  • Given the proximity of local communities to the existing road in Option 1, some families will require resettlement to allow for road widening, which will impact community cohesion.
  • In Option 1, communities may also suffer health impacts, during and after construction, from increased dust and air pollution, and there will be an increased risk of traffic accidents involving public vehicles or pedestrians and mine traffic.
  • In Option 2, the new road could attract rapid in-migration to currently under-populated areas, leading to disruption of community cohesion and cultural issues.
  • However, both road improvements (Option 1) and construction (Option 2) may also bring social benefits to communities, such as improved livelihoods as a result of economic development and better access to healthcare and education facilities.

Trade-off: In both Options 1 and 2, how do the social benefits that the road upgrade/construction weigh against the health risks and disruption caused?

 

Tax:

  • During construction, higher taxes will be payable for Option 2 due to greater levels of material consumption, larger areas of land acquisition, and higher levels of employment.
  • During operation, in Option 2, more cost-efficient transportation will result in higher profits and therefore higher profit tax contributions. However, the mine’s fiscal contribution via fuel taxes will be lower.

Trade-off: Taxes payable are likely to be higher for Option 2.

Summary

In this hypothetical example, in the absence of total impact thinking, the decision would have been made largely using financial analysis with some qualitative overlays.

TIMM brings a new perspective. Using TIMM to put a value on the qualitative overlays, the total impact of each decision is clear and the many trade-offs between Options 1 and 2 can be identified in a holistic manner:

  • Option 1 offers lower upfront costs but at the expense of higher community disruption, higher operating costs and community exposure to impacts of increased traffic from the mine.
  • Option 2 requires higher upfront costs and entails higher levels of environmental damage, but allows for greater economic benefits, lower operating costs and less disruption to local communities.

TIMM may not be able to provide the empirical answer, but gives management significantly more insight into how mining operations impact external stakeholders so that decision-making can be undertaken on a more informed basis. These external impacts affect the mining company’s ability to obtain and maintain its “social licence to operate”, which is vital to the success of the mine. Quantifying external costs and benefits is the first step towards understanding the resultant internal costs and benefits for the business, for example, in terms of brand value, reputation and ultimately the bottom line.

Follow us