Gold miners on track to meet 2030 emissions targets - report
The global gold industry* is broadly on track to align with a 2°C climate target by the end of the current decade. However, more action is required if the industry is to meet – and surpass – the 1.5°C mark, according to a new report from Wood Mackenzie.
Gold production is getting greener
To assess the pace of the greening of gold, Wood Mackenzie’s analysis plots the forecast progress of gold miners out to 2030 against the reduction in emissions required to align with the 2°C and 1.5°C targets.
To date, the cleaner energy projects that have been implemented and planned are anticipated to result in savings of over 3Mt CO2 equivalent per year, which is 5.5% of the gold industry’s total 2019 emissions. This is equivalent to removing approximately 654 thousand internal combustion engine cars ** from the roads.
According to estimates taken from Wood Mackenzie’s Emissions Benchmarking Tool, the gold industry emitted over 55Mt of CO2 equivalent in 2019 in scope 1 and 2 emissions, which is approximately 0.2% of total global carbon emissions. Though this is small in comparison to other areas within the energy sector, gold miners must not become complacent in the drive towards a more sustainable mining sector.
Focus on the environment as part of ESG efforts is greater than ever before
Rory Townsend, Wood Mackenzie Head of Gold Research, commented: “The gold industry cannot afford to rest on their laurels. The focus on the “E” in ESG has never been greater and with COP26 taking place later this year, we expect the spotlight on sustainability to intensify.
“Miners who are not striving to reduce their environmental footprints are likely to lose favour among investors and struggle to secure project financing. Proof that this is not a box-ticking exercise is evidenced by several miners executing sustainability-linked credit facilities, such as those agreed by Newmont in March and Polymetal increasing theirs in May.”
The location of gold assets in operation is expected to be an important determining factor in reducing emissions, with several carbon-intensive mines due to go offline before 2030. However, in the past 12 months, mine life extensions are materialising alongside the elevated gold price at companies such as Equinox, Alamos and Yamana. Ultimately, if mine life extensions continue, Wood Mackenzie says the industry may need to see even more aggressive action to reduce emissions to align with carbon reduction targets.
Townsend added: “It is apparent that some mines have a lot more ground to cover than others. Those that are beholden to carbon-intensive grids could struggle unless the process to approve onsite renewable alternatives accelerates markedly.
“The focus on carbon emissions in the gold sector is here to stay. While cleaner energy projects are coming thick and fast, the bulk of progress so far has come from 15 companies. To change the perception of the industry, however, it needs to be a collective effort. This is an opportunity for miners to boost their green credentials, particularly at a time when other asset classes, such as cryptocurrency, are having their sustainability commitments drawn into question.”
*Gold industry refers to 339 large-scale gold mines, or 60% of total gold mine supply. Gold production originating from primarily copper, zinc and nickel mines is excluded from this analysis. Additionally, this does not include an assumption for small-scale, informal, artisanal or illegal mining due to the opaque nature of supply.
** A typical internal combustion engine passenger vehicle as disclosed by the EPA
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.