In Tampa Bay, an all-to-real demonstration is playing out of the trickle-down economic impact of a company operation being shut down for environmental reasons. The Tampa Bay Business Journal reported this story.
The Mosaic Co. is a publicly-traded company with over $6billion in annual revenue reported last fiscal year. Mosaic mines phosphate ore. The company has been mining in Polk County since 1995 and recently filed for an expansion of operations to access reserves in Hardee County. These ore reserves represent about 10 years of active mining operations.
The Sierra Club, along with other NGOs challenged the issuance of a federal permit that would allow Mosaic to expand, alleging that the expanded operations would cause environmental damage to the headwaters of the Peace River and other streams that drain into the Charlotte Harbor estuary.
On July 30, in response to the challenge
U.S. District Judge Henry Lee Adams Jr. in Jacksonville issued a preliminary injunction against the expansion, saying the Army Corps had failed to adequately explore alternative plans that would cause less environmental damage to the area.
The article reports that, if the Mosaic expansion does not move forward, the economic impact would be dramatic.
At least 18 companies that do business with Mosaic would be out at minimum of $80 million in combined annual revenue, and about 400 of their employees would lose their jobs, in addition to the 221 Mosaic workers who would be laid off …
“If Mosaic is prohibited from further mining, it will mean that Bul-Hed Corporation would cease to exist sometime in the near future,” Ronnie Hedrick, president, said in a court filing.
Mosaic has estimated it would lose $250 million to $300 million in operating earnings in a worst-case scenario. In its fiscal year ended May 31, Mosaic had earnings of $1.75 billion before interest, taxes, depreciation and amortization on net sales of $6.76 billion.
Business Interruption Planning
The company’s most recent 10-Q (Item 1A – Risk Factors), filed April 1, 2010, did disclose this potential risk:
Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals. Over the next several years, we and our subsidiaries will be continuing our efforts to obtain permits in support of our anticipated Florida mining operations at certain of our properties. In Florida, local community participation has become an important factor in the permitting process for mining companies, and various local counties and other parties in Florida have in the past and continue to file lawsuits challenging the issuance of some of the permits we require. In fiscal 2009 environmental groups for the first time filed a lawsuit in federal court against the U.S. Army Corps of Engineers with respect to its issuance of a federal wetlands permit and similar lawsuits could be brought in the future. A denial of, or delay in issuing, these permits or the issuance of permits with cost-prohibitive conditions could prevent us from mining at these properties and thereby have a material adverse effect on our business, financial condition or results of operations.
Even so, how should the company – and its business partners – respond to such a risk? And did business partners understand, assess and plan for such a contingency? In many discussions we have had with clients about potential shut downs, it is common for companies to plan production volume shifts across other operating locations to make up for the lost volume and continue operating. In Mosaic’s case, however, the article states:
Although Mosaic has four other mines in Florida, their output would not offset the impact of a shutdown at South Fort Meade, the company said.
Even where a company has the physical capacity at other locations to make up for lost production at one plant, environmental restrictions may not allow timely production increases at others. Wastewater and air permits typically contain conditions limiting production. These limits can take various forms:
- Direct limits. For example, plant operating hours or volume; emissions limits for production equipment or material use; wastewater flow or contaminant concentration limits.
- Indirect restrictions. For example, fuel use or emissions limits on supporting equipment such as generators or boilers; wastewater treatment capacity/retention time for adequate treatment.
Suppliers, contractors and vendors may attempt to recover losses from Mosaic through the contractual obligations in place between the parties. However, in this case, Mosaic has notified at least some of their business partners that this is a “force majeure” event – an extraordinary circumstance beyond their control – which releases Mosiac from contractual obligations.
Has your company evaluated/assessed the myriad business continuity risks associated with environmental matters in your supply chain? And what contingency plans do you have in place to protect yourself?