Capital expenditure of mining companies is increasingly being aimed at renewable energy projects and associated grid development – a trend that is likely to continue throughout this year, financial risk management, solutions and insights company Fitch Solutions commodities analyst Amelia Haines says.
She notes that the use of renewable energy to accommodate current and future energy needs will be the key strategy used by miners to reduce costs this year, as it can reduce costs in the long term, while also having the benefit of reducing threats to energy security.
Major mining companies are playing the biggest role in terms rolling out major energy projects, with iron-ore miner Fortescue Metals having announced a decarbonisation strategy in September 2022 that sets out planned investment of $6.2-billion by 2030. The miner states that this investment will result in operating cost savings of $3-billion by 2030.
This investment, as well as plans to add about $7-billion by Rio Tinto and about $4-billion by BHP by 2030, “infer a trend we will likely see throughout the mining and metal sector that will boost investment in green energy”, says Haines.
Aside from the benefits of a reduction in costs, she says that, as renewable energy projects come online, companies are also motivated to meet decarbonisation targets as they are under growing pressure from governments, investors and environmentalists.
“To remain competitive in global markets, miners must evolve to ensure operations have a limited impact on the environment,” says Haines.
She adds that as progress is made in reducing greenhouse-gas emissions over the years, renewable energy development offers the benefit of reducing the impact of supply chain disruptions and geopolitical threats to energy security, shielding company profits from energy costs.
“We maintain the view that miners will prioritize renewable energy deployment at operations over the years to address high input costs and reduce their environmental footprints,” says Haines.
ENVIRONMENT, SOCIAL & GOVERNANCE
Another key trend is the managing of social issues involved with mining in the modern age, she points out. “Managing social conflicts are now a top risk to mining projects.”
“The route for improving the social dimension of environment, social and governance is a little more ambiguous than making progress towards decarbonisation, but it is just as important.
“There are a myriad of social concerns that must be addressed to mitigate exposure to social risks, with local community impact and human and labour rights leading the pack,” says Haines.
In 2022, the mining industry experienced an increase in mining protests in key markets as grievances grow in conjunction with the influx of new projects being developed to meet surging critical mineral demand, she points out.
“Miners have long been criticised for contaminating water supplies, damaging indigenous and biodiverse lands without considering the impact on local communities and their surrounding environment,” says Haines.
As a result, she points out that industrial action against miners has become common, often causing a contraction in output at mining sites. “This issue is particularly prevalent in Latin America, especially in Chile and Peru, [with] a number of protests at major project sites prompted by the environmental harm and disruption caused to communities as a result of mining operations.”
For example, Haines says in 2022, copper miner Southern Copper’s Cuajone mine, in Peru, suspended operations, as protesters cut the company’s water access and blocked key railroads, arguing the mine damages environmental surroundings without providing compensation to nearby communities.
Community protests also took place at midtier base metals miner MMG’s Las Bambas mine in 2022, as local communities claimed the company failed to meet social investment commitments.
“The increased risk of community opposition impeding operations has negatively impacted our country risk score for the two countries for 2023."
“The opposition to mining we see this year as a consequence of the unstable political environment both countries are currently under,” she says.
More generally, Fitch Solutions sees the threat of community protests rising across key markets globally. “Thus, companies will need to make an effort into to make to meeting community expectations and building trust,” notes Haines.