Globally, more and more companies are acting according to “green” principles
A new environmental thinking is also very expensive for the metal industry
Metal producers, from miner to smelter, are faced with ever stricter and more expensive environmental demands made by banks in search of cleaner investments.
While switching to smaller producers may prove insurmountable, large companies have a long window of opportunity and are at a time when greener technologies are helping to reduce their costs.
Sustainability is a long-standing topic for metals that covers a wide range of issues, including corruption, governance, jobs, communities around mines, and mining waste.
But environmental issues have topped the agenda in recent years as awareness of climate change has risen amid public protests.
Metals and mining are responsible for 10% of total climate change impacts, according to the UN Environment Program.
“We rejected a lot of things. Being green is critical to lending, ”said Laurent Charbonnier, Global Head of Metals and Mining at HSBC, ahead of LME Week when the world's metals industries meet in London.
Mine operators are now facing large checklists of lenders before releasing funds, and listed companies are being audited by fund managers before buying their stock.
Global "sustainable" fund assets have doubled over the past five years to $ 844 billion by the end of June, according to research firm Morningstar.
"For us the exam is all around us," said Shishir Poddar, Executive Chairman of Tirupati Graphite plc, which plans to record in London.
Enormous investment required
The metals and mining industry will need around $ XNUM billion in investment over the next decade to produce key base metals and gold, according to Wood Mackenzie.
However, an increase in funding is linked to compliance with environmental, social and governance (ESG) directives and puts additional investment on operators.
"You may need to invest an additional 25% to get the right community and environmental policies in place," said Simon Morris, global head of metal at Wood Mackenzie.
“So will investors accept lower returns? I think it's probably causing the industry to shake a little bit in this tug-of-war of priorities, "added Morris, who previously worked for global miner Rio Tinto plc.
Larger metal companies have the financial mass to handle the higher investment.
The BHP Group, the world's largest miner, signed four renewables contracts earlier this month to supply all Chilean copper mines from 2021.
But the new contracts came at a price - BHP has accepted a provision of approximately $ 780 million related to the termination of existing coal contracts.
Such costs are more challenging for smaller companies.
"The problem for these companies is to raise enough money to build the mine," said analyst John Meyer of the investment bank SP Angel in the London branch. "Adding another $ 50 to 100 million for a solar power plant is pretty difficult."
Long-term cost advantages
In many cases, adapting mines to environmental standards goes hand in hand with new technologies that will increase efficiency and reduce long-term operating costs.
Large mining companies such as BHP and Anglo American are investing in solar power, automation and water saving technologies, and believe that large upfront investments will both improve their environmental footprint and increase efficiency.
“Pursuing sustainability goals doesn't necessarily mean an increase in costs,” says Rachael Bartels, Senior Managing Director at Accenture.
Although BHP has suffered a major loss to terminate its coal contracts in Chile, the group says the new renewable energy contracts, starting with 2021, will reduce energy costs by 20%.
The replacement of diesel generators by electric motors in new underground mines could cut pre-run costs by about a third by eliminating fans to extract diesel fumes, according to a study by EY.
Anglo American has tested a new mining technology technology in Chile that could increase productivity by as much as a third and also lower the cost of capital for new mines.
Investment intensity, the ratio of initial investment to annual production capacity for new copper mines, has tripled in the last 36 years to around 18.000 per ton, according to Morgan Stanley.
But Anglo's new technology has the potential to cut capital intensity by almost half under 10.000 dollars per tonne, the bank said in a statement.
Anglo declined to release capital intensity data, but said in an email that the new technologies were “game changers” in terms of both environmental footprint and cost.
ISE / Arndt Uhlendorff - October 2019
