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Anglo American CEO: Miners need to decarbonize to harness rising demand in low-carbon future

03 December 2021 Max Tingyao Lin

With global decarbonization efforts set to trigger strong demand for metals and minerals, miners must reduce emissions to play their part in a low-carbon future, according to a senior industry figure.

To limit global warming to 1.5 degrees Celsius above pre-industrial levels and avoid climate disasters, the UN estimates global emissions need to fall by half by 2030 and reach net zero before the midcentury.

"As we look towards a cleaner, greener global economy…mining is essential to that low-carbon future," Anglo American CEO Mark Cutifani said in the Mine and Money London conference this week. "The metals and minerals we produce are needed for the world to decarbonize."

Copper, nickel, and steel produced from iron are essential in manufacturing solar panels and wind turbines, while lithium, nickel, cobalt, platinum, and manganese are vital in batteries and fuel cells.

A May 2020 World Bank Group report said more than 3 billion metric tons (mt) of minerals and metals would be required to make renewable facilities by 2050 if the world is to steer clear of climate catastrophes.

But Cutifani admitted the mining sector is facing the challenges of cutting overall emissions while expanding operations.

"We must reduce carbon emissions and protect the ability of the planet to absorb the carbon we will still emit," he said.

"Up until now, our industry has solved the supply challenge by scaling everything up—bigger was better. That is clearly no longer sustainable, nor is it acceptable."

Last year, consultancy McKinsey & Co. estimated miners were responsible 4%-7% of global GHG emissions, equivalent to 1.9 billion-5.1 billion mt of CO2 equivalent (CO2e) annually. Of them, 1% were CO2 from mining operations, and the remaining were fugitive methane during coal mining.

However, when Scope 3 indirect emissions were taken into consideration, the mining sector accounted for 28% of global emissions mainly due to the combustion of coal.

In Cutifani's view, miners should minimize their environmental impact by precisely targeting the products in demand via digitalization, automation, new separation techniques, and artificial intelligence.

"The future of mining is about precision ... to target only the metal or mineral, with radically less waste rock, less water and energy and a smaller physical footprint, for every ounce, carat and kilo," he said.

Aggressive emissions goals

Observers said mining is one of the hard-to-abate sectors amid global decarbonization efforts, with substantial amounts of fuel required to extract the ore and then transport. The downstream operations typically involve smelting, which is energy intensive.

Moreover, mines are often in remote locations where sourcing significant amounts of renewable energy can be difficult and expensive.

For its part, Anglo American—one of the largest mining groups in the world—has adopted new blasting technologies, improved bulk sorting techniques, and initiated coarse particle recovery since 2018 in attempts to extract more metal with less waste in water and energy.

The London-headquartered miner emitted 16.1 million mt of CO2e from its operations last year, 34% below its projected business-as-usual levels. This exceeded its target of a 22% cut established in 2015.

Looking forward, Anglo American is targeting to reduce operational GHG emissions by 30% before 2030, relative to the 2016 levels of 17.9 million mt of CO2-equivalent, in absolute terms. It has aimed to achieve carbon neutrality in Scope 1 (direct) and 2 (from energy suppliers) emissions by 2040.

"We recognize our responsibility to support a transition to a low-carbon economy and have clear pathways to reach carbon-neutral operations," said Cutifani, who will retire next April.

Anglo American plans to replace its diesel-powered mine haul truck fleet—which accounts for 10%-15% of its Scope 1 emissions—with newly developed, hybrid trucks that can run on batteries and hydrogen fuel cells.

"Our hydrogen fuel-cell and battery hybrid pilot truck is being assembled in South Africa as we speak, and it will generate more power than its diesel predecessor," Cutifani said.

The 220-mt truck is due to be launched in the Mogalakwena platinum mine next year before being rolled out to five to seven sites by 2030, and for wider fleets by 2035.

Also, Cutifani said Anglo American aims to increase the proportion of renewables in its electricity mix from a little more than one-third last year to 56% in 2023.

The company wants all the electricity it uses in Chile and Brazil to come from renewable sources within this year. In South Africa, where its largest operations are based, Anglo American has teamed up with some energy firms to help initiate energy transition and reduce power outages.

"We are looking to enable a renewables grid in South Africa, aiming to unlock the value of our existing sites as locations for a geographically dispersed network of renewable energy sources across the country. Thus, generating renewable energy at scale and wheeling it through the grid to all different operational sites," Cutifani said.

Anglo American plans a combination of off-site wind farms, on-site photovoltaic farms, potential pumped hydroelectric storage, and green hydrogen production facilities in South Africa with an aim of increasing the grid capacity of renewable energy by more than 50%.

In October, the miner unveiled a target to halve Scope 3 emissions by 2040. Anglo American said this will involve decarbonizing steelmaking but has yet to provide much detail.

"We know we cannot get there alone, particularly for Scope 3, so we are working with partners along our value chains and outside our industry to find technical solutions to decarbonize entire sectors," said Cutifani, without elaborating.

While emissions from maritime transportation are generally categorized as Scope 3, Anglo American has set a separate target of carbon-neutral shipping by 2040. The company said this could be achieved by adopting new marine fuels like sustainable biofuel and green ammonia, among other options.

Opportunities and challenges

With booming commodity prices and strong demand outlook, the mining sector has garnered more interest from investors in recent quarters.

Evy Hambro, team leader for the natural resources team of BlackRock's Active Equity Group, said miners are at "a fascinating point" in the cycle.

"This cycle has all the hallmarks of being much greater duration relative to previous ones… When we think about the essential nature of resources towards the carbon transition, we are going to see decades of demand growth," Hambro said in the conference.

If the Paris Agreement's climate goal is to be reached, the International Energy Agency expects mineral demand for clean energy technologies to rise by at least four times by 2040 from 2020 levels, driven by high growth for electric vehicle-related materials like graphite, copper, and nickel in particular.

But Hambro said the end-users of mining products will increasingly take into account the miner's carbon footprint and social credentials, such as its relationship with local community, when it comes to pricing.

"You're going to need to have a great level of Integrity throughout the entire supply chain," he added. "Customers will pay different prices."

With the pricing pressure in a global market, IHS Markit's Director for Pricing and Purchasing Service John Mothersole said miners will most likely need to decarbonize or accept discounts for their products.

"I do not see how individual actors, whether large state-owned enterprises or private firms, escape the drive to decarbonize," Mothersole told Net-Zero Business Daily.

Adam Matthews, chief responsible investment officer of Church of England Pensions Board, suggested sector-wide decarbonization standards still need to be established to help investors evaluate each miner's performance.

Climate Action 100+, an initiative launched by over 615 investors with $60 trillion assets under management, has recently started to discuss net-zero targets with major mining groups.

Those investors and Anglo American, BHP, Glencore, Rio Tinto, and some others will seek to define "green revenues" and Scope 3 emissions for miners and address issues like the alignment with Paris Agreement.

While recognizing the importance of industry standards, Ayuna Nechaeva, head of Europe's primary markets at the London Stock Exchange, said governments should avoid overzealous regulations for now.

In October, her company issued a reporting guidance for listed companies that want to adopt the Taskforce for Climate Related Financial Disclosures (TCFD) framework. UK authorities have only required companies with a premium listing (usually blue-chip trading or investment firms) to follow TCFD standards, but the scope is expected to be widened from next year.

"I think it's important to not over-regulate," said Nechaeva, adding that many companies have operations in countries where emissions rules are not yet established. "For them, it will take a little longer and a little bit more effort to get [things] together."

Posted 03 December 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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