ESG in the Mexican Mining Industry. Part Three

In the second part of the document “ESG in the Mexican Mining Industry” we addressed the first three pillars relating to environmental best practices for the mining industry in 2022, in accordance with the provisions of the Responsible Mining Index (RMI) prepared by the Responsible Mining Foundation (RMF). Specifically, we addressed environmental best practices for the mining industry in the areas of (i) environmental management, (ii) tailings management, and (iii) water management. In this third part we will address the four remaining pillars set out in the RMI. Noise and vibration During the operational phase of certain mining projects, noise and vibrations may be generated throughout the day. It is well known that noise can have adverse effects on human health, such as the development of chemical, biological, neurological, and neurocognitive conditions, and even damage to genetic material and the development of certain types of cancer. Not to mention that it also has an impact on wildlife. This is why it is highly advisable to address this matter during the first interactions with both investors and stakeholders (employees, clients, suppliers, local communities, and society in general) in the development of mining projects. Above all, because communities are more likely to be tolerant of mining-related noise and vibrations when companies are transparent and work with them to develop acceptable mitigation strategies. Best practices regarding noise and vibration, as reported by the RMI, include limiting known sources of particularly loud noise or strong vibrations (such as blasting during the day), as well as dampening or controlling noise and vibrations at their source. In Mexico, environmental regulations, specifically the Official Mexican Standards (NOMs), already establish restrictions and the maximum permissible noise limits and require noise levels to be assessed periodically. Biodiversity and ecosystem management The livelihoods and survival of rural communities in developing countries, and of indigenous peoples and communities, may depend heavily on the ecosystem services underpinned by biodiversity (contributing food, nutrients, medicines, and fuel, among others). As a result, it is of vital importance to preserve biodiversity and to properly manage ecosystems. Without adequate and sustainable management of its activities, mining has the potential to affect biodiversity, for example, through the removal of vegetation in the construction of roads and paths in forests to access mineral veins, the conversion of land, wetlands, or bodies of water into waste disposal sites, and the planned or unplanned discharge of waste into the environment. An example of this is the pollution of Lake Izabal, in Guatemala. In October 2021, fishermen and indigenous communities publicly demonstrated and even protested in the streets so that the mining company Guatemala Nickel Co. would halt the activities that were resulting in the pollution of the lake, which, if continued, could cause irreversible harm. To mitigate risks and avoid situations like the one described above, the mining companies studied in the RMI have encouraged the implementation of, among others, the following actions: · Avoiding critical habitats and key areas for biodiversity conservation, whenever possible. · Applying the mitigation hierarchy criterion as a means of managing risks to biodiversity. That is, priority must be given to avoiding impacts on biodiversity and ecosystem services; and, where this is not possible, promoting the minimization, restoration, and, as a last resort, offsetting of residual impacts. · Conducting independent external audits or oversight to verify that biodiversity management strategies are being implemented effectively. We emphasize the third point above since, as reported in the RMI, those companies that demonstrate the application of external audits of their management practices tend to secure easier and less costly access to capital, land, and resources. Climate change and energy efficiency The United Nations (UN) defines climate change as “long-term shifts in temperatures and weather patterns.” These shifts may be natural, but since the 19th century, human activities have been the main driver of them, mainly due to the burning of fossil fuels such as coal, oil, and gas. While this is a problem that affects the whole world, the fact is that developing countries are often disproportionately affected. Mining makes intensive use of energy, which means there is significant room for improvement in the more efficient and sustainable use of energy. This industry is responsible for around 4% to 7% of the total greenhouse gases emitted annually worldwide. In addition, some countries have already anticipated that in the future energy consumption will increase as it becomes viable to exploit mineral deposits located at ever greater depths. For this reason, more and more companies (such as Anglo American, BHP, and RIO Tinto) are monitoring and publishing information on their energy consumption and greenhouse gas emissions, in addition to taking measures to reduce energy use and emissions in the supply chain, incorporating clean or renewable energy, low-emission technologies, and improving energy efficiency. There are many benefits for companies that proactively reduce energy consumption, greenhouse gas emissions, and dependence on fossil fuels. Among others, it stands out that companies can protect themselves from rising fuel prices, mitigate the effect of regulations that may limit or put a price on carbon emissions, and have a better public image, specifically in the communities where they carry out their projects. This type of practice can already be seen in Mexican territory. Specifically, in 2020 the mining company Grupo México reported an 8% reduction in its operational greenhouse gas emissions compared to those of 2019 as a result of adopting renewable energy. It is worth noting that Mexican legislation allows for the implementation of various schemes that can help mining companies in Mexico reduce their greenhouse gas emissions, as in the case of the acquisition of clean energy certificates, the implementation of on-site electricity generation schemes through renewable energy sources (for example, distributed generation, isolated supply, among others). Alternatively, electricity supply contracts linked to one or more clean or renewable energy sources may be entered into, or participation in a voluntary carbon credit market or in the regulated emissions trading market, a “cap and trade” mechanism for reducing greenhouse gas emissions that is currently in a pilot phase in which facilities that carry out activities in the energy and industrial sectors, such as mining, whose annual emissions are equal to or greater than 100 thousand tons of direct carbon dioxide emissions, participate. In the fourth part of this document we will address this topic in detail. Hazardous materials management The preliminary standardized inventory of tailings dams in the country –recently published by the Ministry of Environment and Natural Resources (SEMARNAT) in 2021– marks the location of the 585 existing tailings dams in Mexican territory. It is worth mentioning that the existence of at least half of these tailings dams was unknown to SEMARNAT until recently. This carries the risk that, since they are not regulated and monitored by the competent authority, the dams may break or overflow their limits and, therefore, generate spills, thus causing damage and losses in nearby localities, or in those that are near rivers, since their contaminants can reach the tributaries, the land, or seep into groundwater. The potentially toxic elements most commonly present in the tailings of Mexican mines are lead, cadmium, zinc, arsenic, selenium, and mercury. In accordance with current regulations, tailings, spent oils, and residual solvents are considered hazardous waste. All hazardous materials require adequate management of occupational health, environmental, and social risks throughout their life cycles, including during their sourcing, transport, storage, use, production, and disposal. Such management is regulated in Mexico by the General Law for the Prevention and Integrated Management of Waste. Ideally, in the responsible management of hazardous materials, priority should be given to avoiding their use, for example, by opting for less hazardous chemical processes or products. If it is not possible to avoid their use, the RMF's recommendation is to minimize the use or production of hazardous materials, as well as the prevention and control of spills and accidents. Other measures include the application of education and training programs for workers, contractors, and communities; conducting inspections and maintenance of equipment and facilities; monitoring concentrations of hazardous substances in waste; and the development of procedures to address residual risks that cannot be avoided or controlled. In general, international best practices in noise and vibration, biodiversity and ecosystem management, climate change and energy efficiency, and hazardous materials management go hand in hand with the proper sustainable planning of projects prior to their implementation, as well as the incorporation of transparency and accountability systems. In light of all the above, proper planning will foster society's trust in the mining project and a better reputation for the company, which translates into greater economic growth for it. To read the first part of this document, please click here. To read the second part of this document, please click here. For additional information on the subject of this note, please contact our experts: Edmond Grieger, Partner: +52 (55) 5258-1048 | egrieger@vwys.com.mx Ariel Garfio, Partner: +52 (55) 5258-1048 | agarfio@vwys.com.mx

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