Resources Boom, Drought Clash As Newcrest Uses Region’s Emergency Water

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It is almost like a scenario from Geoffrey Robertson QC’s television series, Hypotheticals, the series of programs in which the eminent Queen’s Counsel poses various hypothetical scenarios to a panel of ‘celebrities’ asking them to make a decision that could have dire consequences either way.

The real life hypothetical was played out by Orange Council in New South Wales. Its dilemma? Well, perhaps it is the ultimate irony. Perhaps it is the perfect example of how finely balanced the Australian economy is between untold wealth and unimagined disaster.

Over the last two years, what have been the two most talked about subjects? Arguably it has been the resources boom and the drought.

In the Orange district of New South Wales these two worlds collided, giving councillors and residents a pretty stark choice – a Hobsons Choice if you will. The problem giving rise to the commotion was that the local gold mine – operated by Australia’s largest gold mining company, Newcrest (ASX:NCM) – had exhausted its water supplies.

New South Wales continues to suffer through another year of drought conditions where water is at a premium, where locals have a bucket in the shower to catch water for the garden; where hoses from the washing machine are plumbed into the toilets for flushing purposes. But if the mine was to continue operating, it required access to an additional supply of water.

This meant that the council had to decide whether it was going to draw on emergency water reserves to allow the mine to continue its operations, safeguarding the jobs of up to 3,000 people directly or indirectly connected to the mine through their employment.

The council’s decision was to risk the residents dying of thirst (probably a bit over-the-top there) by drawing on water reserves from two emergency reservoirs. Over the next three months the mine will receive a water supply of 5 megalitres per day. In other words, five million litres of emergency water will be diverted to the mine per day.

A big number, but what does it mean? This is where we could unhelpfully compare it to filling the MCG with water or that it would stretch from here to the moon.

To illustrate the point, approximately 40,000 people live in the Orange district. A not inconsiderable size. As for the number of households, we’ll make an assumption of roughly three people per house, giving us just over 13,000 households.

According to a Water Consumption report compiled by Swinburne University in 2005, average daily water usage for Melbourne (we’ll assume the people of Orange have similar usage patterns) was 545 litres per day per household. Replicated in Orange this means that the 13,000 households require 7.2 megalitres per day.

We don’t know what the correct answer is for this one, but what we do know is that for every day that the Newcrest mine uses its full compliment of water from the emergency reservoirs that’s one less day of water supply for the municipality of Orange in what must seem like a never-ending drought.

Kris Sayce
The Daily Reckoning Australia

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
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Solution To Water Crisis There is an invention which could cut water consumption in the cities by 25%. Would that help with your water crisis? Three weeks ago when we heard about the Australian water crisis we wrote to the Mr. Howard offering help but I am sure he has more important matters to deal with. It’s such a simple idea, its a toilet which flushes on 1 litre, where as most Australian toilets will flush on 6 litres or more. It looks like a toilet, behaves like a toilet and you would not know the difference unless you took… Read more »
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