GAME CHANGERS: CLIMATE-FRIENDLY INNOVATION IN THE REAL ASSET ECOSYSTEM

The utility and light-duty transportation industry have received the bulk of decarbonization focus to-date. Together, they account for anywhere from 40% to 53% of total energy-related CO2 emissions.1 The progress in these sectors has been significant, and the solutions are, at this point, well understood. In a sense, we have moved from a period of needing to prove a concept to a period of needing to execute.  

Looking ahead, investors, businesses, and policymakers need to increasingly focus on the hard-to-abate sectors of the economy that account for anywhere from 47% to 60% of energy-related CO2 emissions. Most of these emissions come from interrelated extractive industries and industrial businesses that generally sit at the beginning of supply chains. These businesses produce the critical goods and building blocks of modern life as we know it. They include everything from forestry and copper mining to chemical production and aquaculture.

Within this universe of companies, the importance of achieving both economic and environmental sustainability has been under-discussed. This is particularly true for resource-intensive businesses and extractive industries whose economics depend quite literally on monetizing the environment.

Achieving economic and environmental sustainability in these businesses is not as direct as the auto industry or the utility industry. Whereas the solution set for both these industries is a product (an admittedly complex product), it is nevertheless a discrete solution. Replace the internal combustion engine with a battery and charge the battery with a renewable resource: a discrete problem, a discrete solution.

Difficult to decarbonize industries lack discrete solutions. In mining, battery-powered haul trucks may be part of the solution, but they only address a fraction of a mines' emissions. A carbon-free source for heat can address roughly 50% of the emissions that arise from cement production, but the other 50% stems from the process of making cement. Decarbonizing cement means changing both the source of thermal energy and fundamentally changing the process to create cement. Few, if any, of the difficult to decarbonize industries have discrete solutions. The paths forward require focusing less on individual technologies and focusing more on entire system redesign.

In this occasional ongoing series, we will examine the greenhouse gas emissions that arise from these less-heralded sectors of the economy and look at what different companies and industries are doing to address those emissions. In doing so, we hope to shine a light on the opportunities for investors concerned with having an environmental impact that generates non-concessionary returns.

Addressing Green House Gas Emissions in Copper Mining

Electrification is a large portion of the solution set to address CO2 and other GHG emissions. At issue is that renewable electricity is also extremely material intensive. The transition from a carbon fueled economy to an electric fueled economy is not one that sees extractive industries lose their place in the economy, but rather one in which oil and gas companies lose their crowns as the worlds' key extractive industries to the mining industry.2

In many ways, this makes the current transition a throwback to an earlier era when mining was the principal extractive industry and one of the world's essential industries. The Industrial Revolution, for instance, was as much a mining and metallurgical renaissance as anything else. During that great economic boom, one of the critical metals, and one well placed to play an ever-increasing role in many economic booms to come, is copper.

Copper mining has remained mostly unchanged for half a century.3 As we look out at a world needing increasing metal quantities, these incremental changes will need to come faster and more frequently. The industry faces operational challenges to maintain competitiveness and lower its energy and water requirements while increasing production. Furthermore, copper miners must do this in a world where investors, the essential sources of capital to fuel necessary investment, know less about the challenges associated with mining than they have at any time in the history of modern markets.

Copper is mined both from open pits and underground mines, and the metal occurs in ores that are either oxides or sulfides, which alters the copper's processing path. Processes to produce high-grade copper concentrate include stages of concentrating, smelting, and refining. Copper can also be recovered from most of its end-products and returned to the production process without losing quality during recycling.

The emissions from copper mining vary by geography, metallurgical process, mining method, ore grade, and fuel sources for heating and electricity, resulting in a wide range of outcomes. The wide range of outcomes means it is even more critical for investors to dig into the miners' details if they choose to express a positive outlook on copper via a copper miner investment.

Copper's carbon footprint ranges from 2.1 to 8.0 Kg of CO2 equivalent per Kg of copper.4 This means copper production releases about 144 million Kg of CO2 equivalent emissions a year, or 0.15% of annual global emissions. By 2030, should nothing change, the industry will be responsible for roughly 0.20% of annual global emissions, and by 2050 could be as high as 0.63% of global emissions.

Given this small number, the copper supply chain's decarbonization might be viewed as being of relatively low importance. However, the sources of decarbonization available today – electrification of fleets and equipment, renewable power, efficiency in processing to lower energy intensity, and advanced aerial technologies to improve discovery – have all been shown to enhance mine economics. In isolation, any one solution has a marginal impact. Together, they can dramatically alter the energy intensity and emission profile of the operation.

Addressing GHG emissions from copper mining is a rare example of investment in environmental sustainability producing increased economic sustainability. As such, they make for excellent early investments in the broader transition to a low carbon economy and a good case study of what types of innovation we need to look for and should expect from other industries in the future.

With this as context, we believe the following are significant trends to watch at copper miners.

Fleet and Equipment Electrification

Copper mines are hard to find, and the trend over the last twenty years has been towards developing mines with declining ore grades. Falling ore grades means that operating costs are higher, making mining less economically sustainable without appreciating copper prices. Furthermore, increased material movement is often the largest source of direct emissions at a mine. As mine grades continue to decrease while material demand increases, material movement emissions will increase. The resulting mines are less environmentally sustainable at the same time as the economics of mining copper decreases.

Electrification of mining equipment, such as diesel trucks and gas-consuming machinery, is only starting to become economical but represents one of the most significant opportunities for miners to improve their operation. According to the Mining Journal, haul trucks represent up to 30% of global mining emissions.5 Right now, only 0.5% of mining equipment is fully electric. However, in some cases, battery electric vehicles have a 20% lower total cost of ownership versus traditional internal-combustion-engine vehicles.6 As a result of the lower total cost of ownership, electrified mining equipment can be viewed as a capital investment with a negative cost of abatement, which is to say it is an investment in sustainability with a positive return for shareholders.

Simultaneously, fleet electrification is a prime example of the lack of portability of solutions even within the same industry. Battery electric vehicles are mostly confined to operations underground, where cost savings accrue to miners both because of electricity cost savings on ventilation and fuel. Underground haul trucks and equipment are relatively small, though, and batteries have proven capable of providing the needed power. That solution has not yet proven itself portable to open-pit mining. For example, the three-, four- and five-hundred-ton haul trucks used in open pit mining already have electric drive trains, but you cannot put enough batteries on them to power the drivetrains.7

Instead, mining firms are going to have to look to either LNG or hydrogen-powered trucks. LNG can cut emissions by 30% to 50% compared to diesel, but LNG is not as energy dense as diesel and creates the need for new supply chains. Hydrogen may someday be the fuel of choice, but that is still many years away from being practically feasible, let alone economically feasible.8 In the absence of economic feasibility, the environmental sustainability of deploying hydrogen-powered haul trucks is of little value as mining businesses, with their thin margins, cannot stay in businesses.

Those interested in learning more or investing in this trend should look at: Sandvik, Epiroc (formerly Atlas Copco), Caterpillar, Komatsu, Metso Outotec.

Renewable Power

The process by which copper-bearing ore is turned into usable metal dominates electricity use at copper mines. In underground mining, ventilation also consumes significant sources of electricity. The low-hanging fruit of fleet and equipment electrification will add to the electricity demand at mines. Currently, mines that can attach themselves to electrical grids do so, but mines that cannot, due typically to the mine's location, most often operate with the support of diesel power generators provided by companies such as Aggreko.

BHP and Anglo American, two large global miners, have provided investors with an excellent example of what one should look for from management teams. Both firms have switched to powering mines via renewable power purchasing agreements at iron ore and copper operations in South America. Teck Chile is following their lead and expects their Quebrada Blanca copper mine to run on 100% renewable PPAs by 2025. The world's next great copper mine, Ivanhoe's Kamoa Kakula project, will source 100% of its electricity from hydropower. This has led Kakula's projected emissions per ton of copper concentrate to be 88% less than global averages. Kakula will have the lowest carbon footprint of any copper mine on the planet.

Process Decarbonization and Efficiency

Mineral processing is the largest consumer of energy in the copper value chain and is the largest source of emissions. While most of the emissions from energy consumption can be offset by electricity sourcing changes, efficiency is another important source and is often the most economically feasible and sustainable. Processing advancements include technologies to improve crushing and grinding efficiencies, separation and concentrate drying, optimization of processing performance, in addition to measurement technologies to interconnect systems across plant operations and dry processing technologies.

Processing ore typically requires extensive grinding and breaking down of ore. On average, 53% of a mine site's energy consumption is attributed to crushing and grinding ores and accounts for almost 10% of a mine's production cost. Innovative processing technologies, such as high-pressure grinding rolls, can reduce a mines' energy consumption by 40%, improving environmental and economic sustainability and reducing downstream water consumption.

Another processing technology that could significantly reduce emissions is In-Situ recovery, which refers to the recovery of valuable metals from ore deposits via the circulation of fluid underground and the metal's recovery from the liquid at the surface. ISR can reduce emissions and mitigate the impact of mining options on the physical environment at the surface. The Florence Copper ISR project in Arizona, currently being developed by Taseko, is a compelling example of what might be possible with ISR technology as it continues to evolve. The energy consumption per pound of copper will likely be 57% lower than a conventional open pit. The water use will be 92% lower, and the carbon emissions will be 83% lower. Simultaneously, according to Wood Mackenzie, the Florence Copper project will be one of the world's lowest capital intensity copper projects and the second lowest in North America.9

Several junior or mid-tier miners are currently building, developing, and advancing ISR copper mining projects to commercial production. They include Excelsior Mining, Taseko, Thor Mining, Gunnison Copper.

Firms involved in improving mineral processing more broadly include Weir, Neles, Alfa Laval, Valmet, AECI & Clariant (two specialty chemical companies, most chemical companies provide essential inputs into improved mineral processing efforts) and Astec Industries.

[1] Energy Transition 101: Getting Back to Basics for Transition to a Low-Carbon Economy, World Economic Forum

[2] For example, replacing the energy output from a single 100-MW natural gas-fired turbine (producing enough electricity to power roughly 75,000 homes), requires at least 20 wind turbines, each one about the size of the Washington Monument, occupying some 10 square miles of land. That single 100-MW wind farm—never mind the thousands of them we need, requires roughly 30,000 tons of iron ore, 50,000 tons of concrete, 900 tons of nonrecyclable plastics and between 254 and 675 tons of copper. With solar hardware, the tonnage in cement, steel, and glass is 150% greater than for wind, for the same energy output.

[3] The small changes that have come to pass have been incremental. Given the high-risk nature of mining, this is the preferred means of transformation.

[4] According to the Ecoinvet 3.3 Database.

[5] Haul Truck Decarbonization Coming Soon, Mining Journal.

[6] Zero Emission Copper Mine of the Future, University of Sydney Warren Centre

[7] The largest fully electric haul truck is a dump truck capable of carrying a load of 65 tons called the eDumper.

[8] For a more complete summary of what drives the challenges faced in adopting hydrogen at scale, please see recent commentary here and here.

[9] Capital Intensity is the Initial CapEx/Production Capacity of a project.