CLIMATE ADAPTATION FLAGSHIP

Mining adaptation case study report Learning from the Fortescue Metals Group(FMG) Extreme Weather Events Risk Assessment project

Barton Loechel EP 126964 November 2012

CSIRO Climate Adaptation Flagship, Theme 1158: Adaptive primary industries, enterprises and communities. In association with CSIRO Minerals Down Under Flagship

Citation

Loechel B (2012) Mining adaptation case study report: Learning from Fortescue Metals Group (FMG) Extreme Weather Events Risk Assessment project. EP126964 CSIRO Earth Sciences and Resource Engineering. Pullenvale, Australia.

Acknowledgments

The author wishes to acknowledge the generous provision of time provided for interviews by project personnel within the Fortescue Metals Group and consultants Worley Parsons and Adaptive Futures. I also acknowledge and thank Kieren Moffat for his assistance in project conceptualisation, Mark Howden for supporting the project through Theme 1158 funding, and Justine Lacey and Lilly Lim-Comacho for their helpful feedback on earlier drafts of this report.

Copyright and disclaimer

© 2012 CSIRO To the extent permitted by law, all rights are reserved and no part of this publication covered by copyright may be reproduced or copied in any form or by any means except with the written permission of CSIRO.

Important disclaimer

CSIRO advises that the information contained in this publication comprises general statements based on scientific research. The reader is advised and needs to be aware that such information may be incomplete or unable to be used in any specific situation. No reliance or actions must therefore be made on that information without seeking prior expert professional, scientific and technical advice. To the extent permitted by law, CSIRO (including its employees and consultants) excludes all liability to any person for any consequences, including but not limited to all losses, damages, costs, expenses and any other compensation, arising directly or indirectly from using this publication (in part or in whole) and any information or material contained in it.

Mining adaptation case study report | i

Contents

Executive summary............................................................................................................................................. ii

1 Introduction .......................................................................................................................................... 1

1.1 Background to the FMG Extreme Weather Events Risk Assessment project ............................. 1

2 Methodology of this study .................................................................................................................... 2

3 Results ................................................................................................................................................... 3

3.1 Drivers/ rationale for the risk assessment .................................................................................. 3

3.2 Overview of the risk assessment process used .......................................................................... 3

3.3 Barriers/ challenges .................................................................................................................... 4

3.4 Enablers/ benefits ....................................................................................................................... 5

3.5 Outcomes .................................................................................................................................... 6

3.6 Recommendations for industry .................................................................................................. 6

3.7 Possible next steps for the project ............................................................................................. 6

4 Conclusions ........................................................................................................................................... 7

References .......................................................................................................................................................... 8

ii | Learning from Fortescue Metals Group’s Extreme Weather Events Risk Assessment project

Executive summary

This report describes and distils lessons from the Extreme Weather Events Risk Assessment project commissioned in 2011 by the Fortescue Metals Group (FMG) for their expanding Pilbara iron ore and infrastructure developments.

The risk assessment was conducted by FMG utilising the expertise of Energy and Resources Infrastructure Consultant, Worley Parsons (WP), and climate change risk assessment specialist, Adaptive Futures (AF). The CSIRO mining adaptation team was not involved in the conduct of the risk assessment but rather our interest stemmed from an ongoing suite of work investigating climate change adaptation within the resources sector.

The mining industry is potentially at risk from the physical impacts of climate change yet there appear to be few risk assessments occurring within the industry. The FMG project presented an opportunity to distil the lessons learnt by one mining company undertaking this process and provide some insight and guidance for other companies considering the issue.

The case study research methodology included a desk-top study of project related documents and semi-structured interviews with a number of key FMG and consultancy personnel involved in the project.

The results outline key elements of the risk assessment process and discuss the various drivers, challenges, enablers, outcomes and limitations of the process.

The key driver of the climate risk assessment for the company was their considerable investment in mine and associated infrastructure expansion and the need to ensure design parameters are robust in the face of future climate change impacts. Small periods of downtime can have large impacts on business revenues.

The research demonstrated the importance of gaining support at both a senior level and across the particular business areas within the company expected to use the results for the risk assessment process. Gaining this support required committed and competent project leadership, including attention to the process of awareness raising and internal feedback.

The study highlighted the difficulties that a lack of consistent, regionally specific climate change data poses for these types of risk assessments. In order to gain credibility and acceptance within the company, the assessment included a consultative process across the key business units involved to gain consensus on climate scenario assumptions. This approach is potentially problematic in that it may produce an assessment better suited to current needs than future uncertainties. However, including independent expertise to assist the interpretation of the climate change science reduces this risk.

It was evident there was a need to bound the parameters of the risk assessment to ensure it was manageable, particularly given this was the first time such a study had been conducted by the company. In this case the assessment was limited in scope through a screening process to identify the most significant and amenable risks, namely large infrastructure development projects, as opposed to those of lower ranking such as existing infrastructure and/or operational systems.

Finally, the study emphasised the importance of communication, knowledge and ‘knowledge translation’ to the project. Communication of project information to the range of internal project stakeholders in forms and terminology that were meaningful and user-friendly was crucial, including gaining input and feedback. Also of importance was the knowledge provided by outside expertise (the consultants). The translation of specialist knowledge by the consultants into forms easily applied within the company’s standard risk assessment processes was generally considered to be a key to successful uptake.

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1 Introduction

This report describes and distils lessons from the Extreme Weather Events Risk Assessment project commissioned in 2011 by the Fortescue Metals Group (FMG) for their expanding Pilbara iron ore and infrastructure developments. The risk assessment was conducted by FMG in conjunction with Energy and Resources Infrastructure Consultant, Worley Parsons (WP) and climate change risk assessment specialist Adaptive Futures (AF). CSIRO’s interest in this project stems from our ongoing suite of work investigating climate change adaptation within the resources sector (CSIRO 2012). The mining industry is potentially at risk from climate change impacts so it is important to better understand the nature of these risks and approaches and methods of dealing with them. The FMG project is one of the few examples known in Australia of a mining company formally assessing the potential risks of climate change to their operations and prepared to showcase the process publicly. There was therefore an opportunity to examine the process as a case study to gain a better understanding of the range of factors that influenced the initiation, conduct and possible implications of climate adaptation planning for mining companies more generally. This knowledge will be useful in developing strategies and products to further assist the mining industry to prepare for climate change.

Mining industry expansion and climate change are two major trends impacting Australia. Many mining companies are currently making significant investments in new or expanded mines and related infrastructure to capitalise on rising minerals and energy demand, principally from Asia (ABS 2012). At the same time rising global emissions, partly due to the growth in these Asian economies, are fuelling climate change with major effects expected, and already experienced, in Australia (Cleugh et al 2011). The Australian climate, already having warmed 0.9°C in the last 50 years, is expected to continue warming and experience more intense droughts, floods, cyclones and sea level rise in future (CSIRO and BOM 2007; Hennessy et al 2008). Possibly associated with global warming, recent major flooding of Queensland coal mines during a stronger than usual La Nina event linked to high sea surface temperatures, has had a devastating and continuing impact on coal mining in the state (Evans and Boyer-Souchet 2012; QRC 2011).

Of concern is that a changing climate may mean that the capability of new and existing mine developments to withstand future extreme weather events may be less than expected, due to engineering design specifications and management practices based on historical information. This could put at risk the future performance of these investments while having implications for surrounding communities and environment. It is therefore important that mining companies undertake rigorous climate risk assessments and it is hoped that this case study of FMG’s attempt to do so will provide useful insights for other companies considering this task.

1.1 Background to the FMG Extreme Weather Events Risk Assessment project

FMG is a relatively young (established 2003) and rapidly growing Australian iron ore producer operating in the Pilbara region of Western Australia (FMG 2012). The existing mine, ore processing and transportation (rail and port) infrastructure was constructed prior to 2008. Recently the company embarked on significant expansion to achieve a tripling of production by 2014, requiring an investment of over $8 billion (FMG 2012). The current development phase includes expanding current mines and constructing new mines and support facilities, such as ore processing facilities, transportation infrastructure including roads, rail and port facilities, work camps and waste containment dams. The FMG Extreme Weather Events Risk Assessment project was commissioned by FMG to assess the potential risks of climate change to these developments.

2 | Learning from Fortescue Metals Group’s Extreme Weather Events Risk Assessment project

2 Methodology of this study

This case study predominantly comprised review of FMG (commercial-in-confidence) documents related to the initiative, and interviews with key actors in the process itself and in subsequent related activities. The interviews, conducted May-June 2012, included a range of FMG and consultancy (Worley Parsons, Adaptive Futures) staff to ascertain key elements of the project process from conceptualisation to completion and future activities. The aim of these interviews was to gain an understanding of the motivations, drivers, procedures, challenges and enablers, and perceived strengths and weaknesses, of the risk assessment process. Interviews were guided by a structured questionnaire addressing each of these topics and undertaken either face-to-face with FMG staff (FMG offices, Perth) or by telephone conference call (WP and AF staff). The findings were summarised and are provided in a synthesised format in this report

Table 1 Roles and responsibilities of staff interviewed

ORGANISATION ORGANISATIONAL ROLE PROJECT ROLE

Fortescue Metals Group Environmental sustainability Project manager

Risk Corporate risk assessment; key project team member; project sponsor

Infrastructure development Large infrastructure development projects; key project team member; project sponsor

Infrastructure development Infrastructure modifications & improvements; project client (user of engineering design specifications)

Engineering Engineering design standards & specifications and documentation

Senior management Senior oversight; communication to senior management

Worley Parsons Sustainability and Climate Change Manager

Consultancy team project coordination

Senior engineering hydrologist Engineering design; hydrology

Engineering hydrologist Engineering design; hydrology

Adaptation Futures Managing Director Climate change risk assessment scenario development and facilitation

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3 Results

3.1 Drivers/ rationale for the risk assessment

The overriding rationale to conduct the project was the large financial commitment by FMG to expand the infrastructure base to increase production, in the context of a changing climate. This infrastructure will potentially have a life of many decades and may therefore be operating under altered climatic conditions. Thus there was considered to be a compelling case to ensure that the design and build specifications of new infrastructure are sufficient to withstand future climatic conditions. Participants explained that failure to do so may risk billions of dollars in impaired production and/or repairs and potential risk to human life and safety. The associated corporate risk in failing to assess these operational risks as part of fiduciary duty was also highlighted.

A secondary motivation lay in the risks posed by future climate conditions to existing infrastructure and systems. While the capacity to mitigate these risks is much reduced due to the costliness of modifying existing structures and processes it was nevertheless considered worthwhile identifying what the risks were.

3.2 Overview of the risk assessment process used

Consultation with FMG and the two consultant groups established the broad outline1 of the risk assessment process used. The overall process was led by the environmental sustainability unit within FMG, although specific components were managed by the consultants.

The process involved the following steps (not necessarily in chronological order):

1. Knowledge development

a. developing knowledge and awareness of extreme weather event and climate change adaptation issues, particularly as they apply to mining the Pilbara - potential impacts, vulnerabilities and adaptation needs

b. collecting information on climate change science and projections relevant to the Pilbara region

2. Internal issue awareness raising and discussion

a. providing a forum to bring the issue to the attention of, and gain feedback from, key people in the company based on the relevance of the issue to their responsibilities (e.g. risk assessment, infrastructure/business development, engineering) and seniority

b. gaining high level support for advancing the project from key responsibility areas and senior management

c. this process of gaining broad and senior commitment to the project took a few months but was considered essential to the project’s success

3. Clarifying the risks in terms of:

a. collecting more detailed technical projections of a range of climatic change variables for the Pilbara region

b. translating these in terms of meaningful and useable data for the companies standard risk assessment processes – a collaborative process with environmental sustainability, risk, engineering and infrastructure development personnel

1 the detailed procedures of the risk assessment process are commercial-in-confidence and proprietary knowledge

4 | Learning from Fortescue Metals Group’s Extreme Weather Events Risk Assessment project

c. refining the project scope to focus on risk, engineering specifications and infrastructure assets

4. Engaging consultants, principally engineering consultancy firm, Worley Parsons, and climate adaptation consultancy, Adaptive Futures, to:

a. assess current infrastructure design thresholds and initial key infrastructure risk screening b. develop and provide to FMG a limited range of plausible climate change scenarios for the Pilbara

region to 2030 based on relevant climate science data c. facilitate workshops of personnel with relevant expertise from both the consultancies and FMG to

identify climate risks d. provide a summary of any changes required to current infrastructure design approach

5. FMG embedded the recommended changes into the company infrastructure design documentation for seamless uptake by infrastructure development staff.

3.3 Barriers/ challenges

This section outlines the major challenges, barriers or difficulties experienced in undertaking the risk assessment study. The results suggested the types of challenges faced by the company and its consultants were similar in most respects, so they are not reported separately here.

The main challenge reported was the paucity of reliable, authoritative, and specific climate change data for the Pilbara/NW region of Australia. That is, despite a profusion of more general, Australia-wide, climate projections data, that was itself considered somewhat inconsistent, there was reportedly limited information specific to the Pilbara region or even the broader north-west Australia region, for many climate change variables. The perceived lack of consistent and specific data led to reduced sense of certainty around what the likely changes would be for a range of climatic variables important to the risk assessment (e.g. rainfall intensity, cyclone activity/ severity, sea level rise). The consequence of this data uncertainty for the project was the necessity to gain agreement/ consensus amongst the project team on the data assumptions underpinning it, in order for the study to achieve internal acceptance. While data uncertainty was not considered ideal, having the potential to open up the study findings to question, it was nevertheless considered important to acknowledge and communicate the uncertainty so that those using the study had a stronger appreciation of its limitations.

Other challenges reported included:

Gaining broad, senior level support across relevant functional areas within the company

– this process was considered time consuming but essential to the success of the project

The necessity to translate often diffuse and high level climate change data (e.g. temperature, rainfall change) into meaningful and useable forms for use in the company standard risk assessment process

Some initial trepidation with regards to not having done this type of risk assessment before and there being no established mining industry model to follow

The broad scope of mining operations and consequent multiplicity of risk areas to assess, requiring a broad range of experts to be involved, increasing logistical complexity

Initiative a little late for some infrastructure already commenced

Communicating the information/ findings to senior and operational personnel due to climate change science ‘cynicism’ was considered only a minor issue.

Apart from the deficiencies inherent in the assumptions underpinning the risk assessment described above, one further limitation of the study reported was its relatively narrow focus on engineering and infrastructure issues as compared to broader impacts on operations.

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3.4 Enablers/ benefits

Those factors that were reported as assisting the conduct of the project included:

Strong, demonstrated, high level support by senior, respected people in the company

Committed project leader and leadership team

A strong rationale for the project (security of the large infrastructure investment)

Correct balance of representation on the project team across environmental sustainability, risk, engineering and business/infrastructure development

– right mix of expertise and experience of consultants (engineering, knowledgeable about FMG’s business, climate change adaptation knowledge)

– right level, extent and type of engagement

The project was seen to be producing something meaningful and user-friendly by those in the company who would be required to use it, including:

– utilising a familiar risk assessment framework and terminology – seamless incorporation into current systems and processes – avoiding new and/or onerous compliance requirements

Engineers are used to dealing with extreme weather events; this study seen as just raising the upper limits of standards and specifications

Recent severe flooding in Queensland mining areas raised company awareness of the potential impacts of extreme weather events and climate change

Company culture considered to be frank in its communications and action-oriented

– this enabled the project personnel to admit uncertainty but not be paralysed by it, with the confidence senior personnel were prepared to investigate “answers which might make us nervous”

The benefits of undertaking the project were reported as:

Providing a forum to discuss an issue that a range of personnel from relevant areas (environmental, risk, infrastructure, corporate management) had been thinking about for a while

Providing some peace of mind that the issue had been addressed in a substantive, systematic way, regardless of the findings

An opportunity for FMG to revisit business operations and risks from a different perspective

– giving greater insight into operational risks and even the opportunity to reduce specifications and costs in some areas where risks had been overestimated

– providing a guide for future corporate expenditure in terms of value for dollar spent on risk mitigation

Additional factors reported by the consultants as assisting the project were:

Knowledge and experience of the teams within WP regarding FMG operations and engineering design more generally

Having a relatively narrowly defined scope for the project (engineering design)

Strong commitment to the project by FMG – it was viewed as a valued and respected project in the company

Good process:

– targeted, strategic, efficient – good use of the broad range of available expertise – high level of engagement with FMG personnel

Use of a robust, well tested climate risk assessment tool

6 | Learning from Fortescue Metals Group’s Extreme Weather Events Risk Assessment project

3.5 Outcomes

The main outcomes of the project were reported as:

The review of data suggested that the current engineering/ infrastructure design specifications comfortably accommodated variation expected from climate change

Modified company definitions of extreme weather events, based on the expected variation from climate change (e.g. a 1 in 100 year event may refer to a 110mm rise in stream level as compared to 100mm previously)

Modified engineering design specification documentation (for incorporation into infrastructure development processes)

Providing ‘peace of mind’ that:

– the issue of climate change vulnerability had been addressed in a substantive, systematic way by the company, regardless of the findings

– current infrastructure design specifications appear sufficiently robust to accommodate expected climate change

– the company has a clear and defensible basis for communicating its climate risk to business stakeholders

Providing a starting point for further work in this area, for example, investigating some of operational and management implications of the redefinition of extreme weather events.

3.6 Recommendations for industry

Interviewees were asked what their main recommendations would be for other mining companies considering undertaking a climate change risk assessment.

The climate risk assessment process is valuable in itself, worth doing even if no changes are required because it provides a fresh perspective on business risk and processes, may identify opportunities for cost and risk reductions, and demonstrates a process by which the issue can be addressed

Identify where the biggest risk areas lie and tailor the process to addressing these; smaller, lower priority, risks can be addressed later

Carefully consider the time horizon of infrastructure and weigh the cost/ benefits of upgrading

To obtain buy-in from different business groups and senior personnel in the company it helps to frame the issue in terms of 'security of business continuity' because downtime is known to be huge and virtually unrecoverable cost

Use high engagement processes that provide a good understanding of the business

Communicate in terms that are meaningful to those you are seeking to assist

Obtain the best climate change data possible

Use the climate data available in a robust, well tested climate change risk assessment tool

Turn this data into useable, valuable inputs into the business’s own risk assessment framework/ process

3.7 Possible next steps for the project

Opinions differed somewhat amongst interviewees regarding future steps for the project. Some considered the project to be completed, with only a ‘watching brief’ on the climate science now required, with a review of the study at some stage in the future. Others saw it as essentially a beginning, a foundation for expanding beyond the engineering/ infrastructure focus to examine a broader range of operational aspects, and/or more detailed practical studies of impacts on particular areas. Others felt that while it had mainly focussed on implications for the proposed infrastructure of the new development phase, attention now needed to turn to assess more closely the vulnerability of existing infrastructure from previous development phases.

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4 Conclusions

This study of FMG’s Extreme Weather Event Risk Assessment project has highlighted a number of key issues important to such projects. Foremost amongst these appears the importance of gaining support within the company for the project, both across a range of relevant business areas and at a senior level. Such support is required for the project to gain the funding and authority within the business that imparts credibility, provides the necessary resources and motivates the time and attention of personnel. Gaining this support requires committed and competent project leadership, including attention to the process of awareness raising and internal feedback.

This study also highlighted the difficulties that a lack of reliable, regionally specific climate change data pose for these types of risk assessments. In this case, the scarcity of data saw FMG apply an innovative process of deliberation across the key business areas involved to gain consensus on an agreed magnitude of expected climate change. This process is potentially problematic in that it presents a risk of producing answers that are better suited to current needs (minimal costly change) than future realities (although these are by definition highly uncertain). However, the process is defensible in that any risk assessment based on limited data could be expected to require a degree of transparency and agreement on assumptions in order to be broadly accepted within the organisation. The inclusion of independent expertise to assist the interpretation of the climate change science also strengthened the process.

A third key finding of this study was of the practical imperative for some trade-off between undertaking a more manageable project of relatively narrow scope, in this case focussed on engineering specifications and infrastructure risk, versus one of broader scope considering a wider range of impacts such as to operations, staff health and safety, and the surrounding environment. It was the general consensus that a narrow but manageable focus was preferred, at least initially, and that applying a screening process up-front to identify and focus on the major business risks most amenable to mitigation was important. Once these components had been dealt with competently, lower ranked and/or broader risks could then be considered in future phases of the project.

Finally, the study emphasised the importance of communication, knowledge and ‘knowledge translation’ to the project. It was clear that communication of project information to the range of project stakeholders in forms and terminology that were meaningful and user-friendly was crucial, as was gaining the input and feedback from these personnel. Also considered of great importance was the specialist knowledge provided by outside expertise (the consultants). In particular, the translation of this knowledge by the consultants into forms easily applied within the company’s standard risk assessment processes was seen as a key to successful uptake.

8 | Learning from Fortescue Metals Group’s Extreme Weather Events Risk Assessment project

References

Australian Bureau of Statistics (2012) 1301.2 Year Book Australia 2012 (Section: Mining: Mining Industry). http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%20Features~Mining%20Industry~150 Accessed July 18, 2012.

CSIRO (2012) Exploring how the mining industry can adapt to climate change. http://www.csiro.au/science/adapting-mining-climate-change Accessed August 31, 2012.

CSIRO and Bureau of Meteorology (2007) Climate Change in Australia: Technical Report 2007. CSIRO and Bureau of Meteorology, Melbourne, Australia. http://www.climatechangeinaustralia.gov.au/technical_report.php Accessed August 8, 2012.

Evans, J and Boyer-Souchet, I (2012) Local sea surface temperatures add to extreme precipitation in northeast Australia during La Niña. Geophysical Research Letters, Vol. 39, doi:10.1029/2012GL052014.

Fortescue Metals Group (FMG) (2012) Company overview. http://www.fmgl.com.au/About_Fortescue/Company_Overview Accessed July 11, 2012.

Hennessy K, Fawcett R, Kirono D, Mpelasoka F, Jones D, Bathols J, Whetton P, Stafford Smith M, Howden M, Mitchell C, Plummer N (2008) An assessment of the impacts of climate change on the nature and frequency of exceptional climatic events. CSIRO and Bureau of Meteorology. http://www.csiro.au/Organisation-Structure/Flagships/Climate-Adaptation-Flagship/CAF-working-paper-9.aspx Accessed August 22, 2012.

Queensland Resources Council (QRC) (2011) QRC submission: Queensland Floods Commission of Inquiry - 11 March 2011. www.floodcommission.qld.gov.au/__data/assets/file/0018/6174/Queensland-Resources-Council.pdf Accessed July 25, 2012.

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