By Julie Gordon
MINA ZALDIVAR, Chile, May 30 (Reuters) - High in Chile's bone-dry Atacama desert, mining engineer Enrique Miranda surveys a metal structure filled with a pungent mix of earthworms and woodchips. Sprinklers inside the enclosure snap to life, shooting waste water from the nearby mining camp into the wriggling mass, which serves as a natural filter.
"That's lunch for the worms," says Miranda, an environmental supervisor who has worked at Barrick Gold Corp's Zaldivar copper mine for 18 years.
The worms munch through all the waste water generated each day at the mine's camp and office facilities (not from the mine itself) and eventually produce irrigation quality water. The experimental process forms part of Barrick's efforts to get more than 90 percent of Zaldivar's annual water needs from recycling. The mine also reuses much of the water used in the extraction process, reducing the amount of new fresh water needed.
The recycling plant highlights the lengths that miners like Barrick, BHP Billiton Ltd and Antofagasta Plc have to go to assure adequate supplies of water for everything from toilets for their workers to separating the valuable metals in the ore body from waste rock and tamping down dust that heavy trucks kick up.
"I link the need to have water with the urgency of having an ore body," said Bill Williams, Barrick's vice president for environmental issues, referring to the mineral deposit. "If you don't have the water to produce the ore body, you don't have anything. It's critical for most mining ventures - certainly for the ones we're involved in."
Traditionally, water has come from rivers or underground, but many sources are running dry, crippling production and delaying developments of mines around the world. Shortages have pitted mining companies against farmers and others who fear for the quality and quantity of their supplies.
Miners have been forced to turn to more expensive options like seawater desalination and sewage treatment plants to obtain water for their needs and for the communities around them.
Energy companies face similar challenges, especially given the rise of fracking, a controversial technique that involves pumping millions of gallons of chemical and sand-laced water into shale rock formations to extract gas.
With the world's population expected to reach 9 billion by 2050, boosting global demand for fresh water by 55 percent, according to the OECD, conflicts between communities and industry over water are only likely to get worse.
"In some regions the miners are actually competing with the community," said Rachael Bartels, managing director of Global Mining at Accenture. "We're seeing far more community involvement, and that drives far more licensing requirements and more tightening from around where they can extract water from."
Water-related infrastructure now accounts for some 10 percent of mining capital costs, management consultant Accenture says, and that number continues to grow.
It's made worse by the fact that the world's accessible deposits have already been mined. Many new projects are in remote and inhospitable regions of the world - like the deserts of Southern Africa or high in the Andes mountains.
Mining companies will spend $11.9 billion on water infrastructure in 2013, up from the $3.4 billion spent in 2009, says consultancy group Global Water Intelligence.
The rising costs have prompted Moody's Investors Service to warn of possible risks to credit ratings, creating more worries in an industry battered by falling metal prices and surging costs.
"In our opinion, the consequences of poor environmental risk management will increasingly lead to production stoppages, protests, fines, and license withdrawals - all factors which may directly impact mining companies' profitability and credit risk profiles," the ratings agency said in February.
But there are winners, too. Engineers like Fluor Corp and WorleyParsons Ltd are now building water treatment plants and pipelines, along with traditional mine infrastructure, while consultants such as Accenture Plc and AMEC Plc are being called on to help miners better manage their existing water and help find future solutions.
In Mexico, battered in recent years by its worst drought in seven decades, Goldcorp Inc was forced to slash planned output last year at its Penasquito mine as a lack of water made it impossible to run the mill at full capacity. The company is still working on a long-term solution.
North of the border, U.S. states New Mexico and Texas are struggling with exceptional drought conditions. Meanwhile, water levels in America's vast underground aquifers are dropping at an accelerated rate.
Drought has held back output at mines in Australia and Africa, and is particularly worrisome in South Africa, where miners are grappling with power outages and worker protests.
But nowhere is the need for water more apparent than in Chile's 600-mile-long Atacama, the world's driest desert. The Zaldivar copper mine was built nearly two decades ago when securing water rights was both easier and cheaper than today.
"In Northern Chile, there is no underground water for new projects, so any new project will require seawater, desalinated or not," said Diego Hernandez, CEO of Antofagasta Plc, which uses raw seawater to process copper at its Esperanza mine.
Desalination is an alternative that does not come cheap. BHP Billiton estimates that using desalinated sea water triples water costs.
The miner currently pumps about 20 percent of water for its Escondida mine up from a desalination plant on the coast. BHP plans to eventually run the copper mine entirely on desalinated water, although costs of such a development remain unclear.
The other concern is making sure that any water infrastructure put in place by mining companies helps not only their operations, but also the surrounding residents.
To that end, Antofagasta Plc runs a desalination plant that provides about 60 percent of the city of Antofagasta's water. A second plant, currently in the planning stage, will make the mining center the first city in the world to get its entire water supply from the ocean.
"What mining companies need to be able to do is to invest in sufficient water capacity to make sure that they leave some of the water that they are producing to other uses," said Christian Grimm, a fund manager with Caisse de depot et placement du Quebec, a pension investor that has stakes in Barrick, Goldcorp and Teck Resources Ltd, among other Canadian-based miners.
Indeed, community concerns over water are becoming roadblocks to new mining developments.
Southeast of Zaldivar, on the border between Chile and Argentina, Barrick has run into serious water-related issues at its controversial Pascua-Lama gold project.
Work on the Chilean side of the project has been in limbo since early April, when a local court ordered a halt to weigh claims by indigenous communities that the project has damaged glaciers and harmed water supplies. Chilean regulators fined Barrick on Friday, citing environmental breaches, and blocked construction until a water management system is in place.
Barrick is not alone. Worries over the impact of mining on water has led to legal actions, protests and even deadly conflicts at developments across Latin America.
At least three people have died in a series of violent protests this year over Tahoe Resources Inc's Escobal project in Guatemala, which opponents say will pollute the local water supply, a charge the company denies.
Water conflicts, often with political undertones, have also led to deadly confrontations in Peru and Mexico, prompting suspensions at Newmont Mining Corp's $5 billion Conga project and Bear Creek Mining Corp's smaller Santa Ana development, among others.
Back at Zaldivar, the scene is serene as row upon row of biofuel plants push up like green aliens through the reddish-grey soil. Nourished with the recycled camp water, the plants are the only greenery within a hundred miles.
Barrick is growing the plants as part of a plan to run its smaller trucks on biofuel starting in 2014, eventually handing the plants and biofuel production over to local communities so they get more economic benefits from the mine and its resources.
Communities in mining regions, well aware that mines and the rich jobs they bring are only temporary, are now demanding benefits that will last long after the deposits are gone.
Facilities that can provide fresh water for decades to come are emerging as a major bargaining chip for miners looking for local acceptance and a smooth life for their investment.
Still, for some the potential damage to the quality and quantity of a local water supply outweigh any benefits a mining project may bring to a remote community.
"The majority of rivers in the north (of Chile) are overexploited or highly polluted," said Lucio Cuenca, the director of the OLCA environmental group in Santiago, adding that water recycling efforts amount to little more than "green-washing" by mining companies.