Mining is required to produce commodities which are integral to life as we know it, whether it be steel for construction, gold for a wedding band, lithium for batteries, cobalt for magnets, copper for the transfer of electricity or zinc for producing rust resistant steel. The mining of raw materials is also required to support the development of new energy and renewables, trends that are increasing dominating the politics and economics of our advancing world. Renewable energy needs copper for transmission from source to users. Lithium, nickel and cobalt are needed for battery cells that can store excess electricity to smooth supply, for electric vehicles, storage at site, and bulk storage for grid support as with the recent Tesla battery installed in South Australia. Mining, historically, has been highly energy intensive, which typically means emissions can be high. Increasingly, the industry is focused on addressing this issue.
So what is a ‘green mine’?
In our way of thinking, a mine that has minimal environmental impact, ideally being carbon neutral on scope 1 and scope 2 emissions, can be called a ‘green mine’. For the cynics out there, we believe a green mine is entirely possible given the nature of technology now available, however, the trade-off comes down to implementation cost. As these technologies become increasingly mainstream, costs will fall, and the decision from a miner’s perspective will become far more compelling. Today, there are many opportunities to reduce emissions within mining operations using technology that is available today, and new technology that is advancing quickly (such as electric mining equipment). Technologies that can bring about a green revolution in mining include EV and battery technology (to displace diesel, and increase renewable energy usage); carbon capture and storage that can offset carbon emissions in activities like smelting; chemical treatments and processing for critical resources; and water capture and recycling, for example.
In terms of carbon, the potential for technology to help companies achieve net zero targets is worth exploring, including alternative emerging developments in power generation, open pit mining, underground mining, and materials processing.
So why is green mining important to investors?
Over the past few years, we have witnessed a groundswell towards greater accounting for the environmental impact of mining, both in terms of the physical impact of mining (rehabilitation, tailings, etc) and measuring and reporting on carbon emissions. Increasingly we believe the practices used in mining operations, and the environmental impact of an operation, are increasingly becoming a core focus for investors. We believe this trend will continue to gain investor attention in the coming years to the point where those at the forefront of low carbon emissions mining, and limited environmental impact, could attract a significant valuation premium to companies which lag the trend. Within our investee companies, we like to see an acknowledgement of the trend towards lower carbon mining, and a clear focus on opportunities or plans to reduce the carbon footprint of operations. Fortescue Metals has announced net zero targets for 2030, some twenty years ahead of many mining companies whose net zero target date is 2050.i For operations still under design, ideally we would like to see a clear focus on opportunities to reduce the environmental impact from construction and planned operation with a view of the future that solves for life beyond the usable term of the resource.
Power generation: Carbon reduction opportunities
Mining tends to be energy intensive. Some jurisdictions are fortunate to have an abundance of low cost renewable energy (such as hydro in regions of Canada/South America), whereas more remote operations often need to generate power through on-site generation. On site generation has historically been gas generation if infrastructure is available, diesel or HFO (heavy fuel oil) generation, all fossil fuels with different but damaging levels of impact on the environment. Wood Mackenzie recently estimate that around 70% of Scope 1 and Scope 2 emissions from copper mine sites come from power generation, while this figure is around 84% for gold mining.
We are now starting to see remote operations increasingly add renewables as a supplement to older methods of power generation. In addition to the environmental benefits, the cost of these renewables are significantly more attractive for mining operators, as illustrated in the following chart.
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