Social licence “a formative challenge” in mining
Growing concerns in relation to the environment and climate change has sparked new challenges in the ever-evolving mining industry. The industry is on the brink of a sustainable revolution thanks to changing attitudes regarding the environment.
The industry has a massive role to play in the world’s digital transformation and transition into clean energy.
Environmental concerns could make the ability to profit from a finite resource increasing difficult, especially due to the industry’s image problem.
BHP Billiton’s former Manager of External Affairs, Osvaldo Urzua, believes that the industry can make the transition with cleaner attitudes and lasting profitability.
In recent years, more private companies are moving their focus towards the value they can bring to the broader society rather than focusing solely on shareholders.
He said: "I think we've achieved a tipping point and most of the companies are heading towards this emerging approach, but it will require at least a decade to consolidate this new model”.
Urzua went on to explain that executives in the mining industry will increasingly be held accountable for the social value (or lack of) generated by business decisions surrounding sustainability.
The pressure to drive green values has never been so big, both customers and governments are pushing for a cleaner, more ethically-minded industry.
The demand for low-carbon minerals and materials from other industries is also further pushing mining to boost its growing green focus.
Urzua went on to say: "We are seeing the markets are already reacting, the car manufacturing industry is requesting minerals with low carbon footprint.”
Alan Bye, Director of Digital Value Chains at Curtin University, who also has experience as a CEO of the Cooperative Research Centre for Optimising Resource Extraction, shared his thoughts on market pressures.
He said: "Quite often total shareholder returns, and the focus of business improvement initiatives, is about the lowest cost of operation”.
He then went on to say: "As we move over the next 10 years, the licence to operate within our ecosystem is going to be the most important factor."
Dr Bye did however state that addressing the current social licence issues whilst continuing to maintain the bottom line are not mutually exclusive.
"The mining industry needs to collaborate, we need to work with other industries to build the capabilities to bring the bright future in 2030.”
Society is still very concerned about the mining industry and its traditionally unsustainable practises. Despite this, decarbonisation of the world’s economies has given the industry a massive opportunity to boost its reputation whilst creating a greener world.
As the mining industry brings in more green practises with a focus on sustainability, some metals will see an increased demand with a reduction in remind for some other raw materials.
Australian Industrial Transformation Institute Professor, Goran Roos, expanded on this saying: "In essence, we're going to move from a coal-and-petroleum-based economy, to a metal-based economy to a higher extent than today."
Dr Roos further highlighted the shift in mineral demand stating how numerous mining company portfolios are set to shift to metals used in low-carbon applications such as metals used for batteries in electric vehicles and various “rare earth” materials.
"All their importance will increase, and the reason is that these new materials, of which we'll have increasing demand and dependency on, are much more concentrated in where you can find them," he said.
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BHP deliberates ditching fossil fuels for greener mining
The world’s biggest miner, Australian-based BHP, is supposedly considering withdrawing from a multi-billion dollar contract, which would see the company generate more than US$2bn due to mounting pressure over aligning its business with ongoing climate concerns and ESG-compliance measures.
Exiting the agreement would mean BHP escalate its distancing from oil and gas and subsequently cut down on the amount of fossil fuels used by the company when mining.
It’s estimated that the petroleum business being debated upon could actually be worth around US$15bn but is still under talks to be put up for sale.
Global Mining Giant Considers Greener Future
BHP has made itself clear that it wants to avoid becoming unable to sell its assets. As competition within the market increases following higher numbers of oil giants wrestling with investors to deal with climate pressure, so too are the number of mining rivals looking to make environmental changes for the future.
However, BHP currently has the upper hand as a stalwart mining company that established itself back in the 1960s, allowing it the time to grow and dominate over other fast-appearing mining competition.
Mike Henry, BHP Chief Executive, has an optimistic outlook for the future of oil and gas despite worries over rising demand to align his business with the Paris Climate Agreement. Henry argues that prices remain promising due to a lack of industry-wide investment.
BHP’s petroleum business won’t be easy to say goodbye to. Forecasted to generate around 6% of profits during the ongoing financial year (US$2bn), and around US$1.6bn revenue produced by BHP petroleum in the six months leading to December 2020, BHP is due to take a hit no matter what agreement they choose.
On the other hand, distancing itself from thermal coal and petroleum would arguably aid the company’s case to possible - and valuable - investors who may be required to fund BHP’s increased output to places such as Australia and Mexico in the near future.
BHP considers cutting billion-dollar contract to aid climate
An exit away from petroleum has the potential to be “a powerful corporate catalyst,” says Dominic Kane, Analyst at JP Morgan.
“We believe an exit would likely ring-fence BHP’s exceptional cash flows for non-fossil fuel organic growth, mergers and acquisitions and generous shareholder distributions since BHP could avoid a major new capital investment phase this decade in petroleum.”
BHP is also set to sanction a giant US$5.7bn Canadian potash mine in August of this year, already seeing potash as a long-term substitute for gas and oil going into the future. The company has also previously announced plans to abandon its 80% share in its joint endeavour with Mitsui, owner of two lower-quality mines in Queensland, Australia.
BHP is scheduled to report its annual results on August 17, after which it may become clearer on whether the company will choose to focus its shift to a low-carbon economy or whether it will stay with its current contract into the coming year.