The mining industry uses a staggering amount of water to extract and process what it takes out of the ground. However, despite the fact that 70% of the earth's surface is covered in water, the mining industry is experiencing a real shortage of water. This is causing quite a problem which is only expected to get worse.

For example, Barrick Gold's (GOLD 2.43%) Pascua Lama mine has been put on hold in Chile due to concerns surrounding lack of power and water. Earlier this month a Chilean court suspended the project after indigenous communities complained that the project was threatening their water and polluting glaciers. The court charged the company with "environmental irregularities" which have now halted construction of the world's highest altitude gold and silver mine.

Barrick believes that there are 17.9 million ounces of gold reserves at Pascua Lama and believes it will become one of the world's biggest and lowest-cost mines. However, the latest delay, along with cost overruns, is a glimpse of how important the water issue is becoming. Those cost overruns have the mine's costs going from $3 billion to more than $8 billion due to the need to source and develop the necessary infrastructure to ensure the availability of water.

To combat its water problem, the industry is looking to increase the amount of water that is recycled. Mining in the U.S. alone used 4,020 million gallons of water per day in 2005, though that included mining for minerals such as coal, as well as the use of water in oil and gas operations. The increased use of hydraulic fracturing since that time has only further increased the amount of water used in domestic mining operations.

To combat this problem coal and natural gas producers, like CONSOL Energy (CNX -0.05%), are investing millions in developing water solutions. The company owns a water subsidiary, CNX Water, which houses a number of assets, including an advanced water treatment plant to support its coal operations. The company has been investing heavily in the subsidiary; it spent $126 million last year and plans to spend another $50 million this year.

These assets will play a vital role to develop the sources of water CONSOL needs to support its coal and gas operations. It's also exploring a range of opportunities to expand its use of technology which recently included investing in a company that is developing a solar-powered, water-purification system. The issues surrounding frack water is an important area of investment for CONSOL. 

CONSOL is not the only company investing to treat and recycle the water used in fracking. Last year environmental services company Heckmann (NESC) purchased a stake in Appalachian Water Services, which operates a regional water treatment facility in the Marcellus Shale to beef up its recycling capabilities. Over the past few years Heckmann has built a billion-dollar enterprise dedicated to mitigating the water issues surrounding fracking. It sees a major growth runway as it deals with the water related to fracking in the U.S.; however, globally the water story is much larger. 

It's one of the reasons why earlier this year ratings agency Moody's issued a warning in regards to the water issue. According to Moody's, miners are faced with increasing water scarcity which is raising both capital and operational expenditures for mining companies. Moody's saw smaller miners as having the most risk, but it noted that global giants like Rio Tinto (RIO 0.44%) and BHP Billiton (BHP -0.09%) will also feel the pinch. The two mining giants will be adversely affected because their global scale has both willing to operate in more remote and arid regions. The overall scarcity of water in these regions will require complex water procurement systems which will add significant costs to future projects. 

The key takeaway here is to shy away from smaller miners with less diversified operations. These are the companies that will likely be most affected by future water issues as cost overrun could decimate operations. Finally, you need to expect cost overruns due to water related issues to be a bigger problem in the future. Most of the world's "easy" mines have been developed, so in order to grow miners are required to mine in less developed regions where water will continue to be a nagging problem.