ESG Focus: Water Emissions And Copper Mining

ESG Focus | Mar 24 2021

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FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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Sandfire, ICAA Target Water-Related Emissions

As the UN publishes its World Water Development Report 2021 titled ‘Valuing Water’ for World Water Day, Sandfire Resources and The International Copper Association Australia launch a project to deal with water emissions.

-Valuing water on the cards
-Water accounts for 20% of emissions
-Water dependent copper industry rushes for solutions
-A case study in both additionality and circularity

By Sarah Mills

World Water Day fell on March 22 this week, so it seemed fitting to give readers an update on what will soon become one of the most critical ESG issues.

To commemorate World Water Day, the United Nations published the 2021 edition of its World Water Development Report, entitled ‘Valuing Water’ – a harbinger of what is to come for corporations globally.

“Recognising, measuring and expressing water’s worth, and incorporating it into decision-making are fundamental to achieving sustainable and equitable water resources management and the UN’s Sustainable Development Goals for 2030,” says the report.

“Those who control how water is valued control how it is used. 

“Values are a central aspect of power and equity in water resources governance. The failure to fully value water in all its different uses is considered a root cause, or a symptom, of the political neglect of water and its mismanagement. 

“All too often, the value of water, or its full suite of multiple values, is not prominent in decision-making at all.”

The report leaves little doubt that that is all about to change; and it is likely to start with water-related emissions.

[Note: CO2 and other nasties are emitted not just into the air but also into soil and water.]

The International Copper Association Australia (ICAA) also chose World Water Day to announce the industry’s efforts to improve its water management, offering an opportune case study on just this subject.

Zero Emissions project addresses additionality and circularity

Copper miners Sandfire Resources ((SFR)) and Anglo American have combined forces with the ICAA and the Global Copper Alliance to create the Zero Emissions project.

The ICAA titled the press release a ‘Water Led Path to Zero Emission Mining’.

Water-related emissions is an area to which green investors are rapidly turning, given climate change is going to be the first cab off the ESG rank – well before water per se.

Water accounts for 20% of industry emissions but is also critical to the copper industry’s operations, a major issue given the industry is vulnerable to a new user-pays model for water.

The Zero Emissions project is focused on six processes: baseline water balance; dewatering of mine sites; desalination; tailings and recycling.

The project is interesting from an ESG perspective because it speaks to material ESG concepts of additionality and circularity, while killing two birds with one stone (water and emissions) – the type of innovation that is considered likely to yield the coveted sustainability premium.

The project is in the research stage, examining systemic problems, individual issues, global innovations and options, and expects to hand down a report in May.

The report will isolate the industry’s 6-7 main technological challenges; which will be narrowed down to three critical challenges.

The industry then plans to take the project to various Federal and State governments in the hope of engaging in a collaboration on an in-situ incubator project, possibly in NSW’s central west.

Smaller producers take collaborative approach to compete

It is interesting that Sandfire Resources and Anglo American have funded the project and not two of Australia’s biggest copper producers BHP and Rio Tinto. 

The majors are likely to keep any developments that will give them a competitive advantage in-house; but water is largely considered such an intractable, yet pressing problem that a collaborative approach is considered by many as the best solution.

Emissions are also a major issue. For example, while electric cars boast far lower emissions over their lifetime, building a Tesla Model 3 generates more emissions to build than a Rav4, according to the Wall Street Journal, because of the metals needed for its lithium-ion battery. 

Even though copper is not the major component in a lithium-ion battery it is also used in other parts of an electric vehicle. It is estimated that the production emissions of copper have to fall by a factor of roughly five by 2050, if not more, if climate targets are to be reached. 

The Zero Emissions project is a good path for smaller producers with lower economies of scale given they will need to find innovative ways to remain competitive destinations for ESG capital in a world of user-pays and water pricing.

Water is the critical issue for copper industry's Social Licence to Operate

The copper industry’s water management, or lack thereof, has, in the past, been highly controversial and a source of reputational damage.

Problems have ranged from highly contaminating tailings disasters such as BHP Group’s ((BHP)) Ok-Tedi, and more recently the Rio Tinto’s ((RIO)) Panguna mine in Bougainville in Papua New Guinea; and Grasberg mine in West Papua; to competition with communities for water resources in drought-prone areas, such as in Chile.

In an ESG world, these past failures represent risks for investors. 

A 2020 report titled Cut and run: How Britain’s top two mining companies have wrecked ecosystems without being held to account by the justice advocate London Mining Network singles out BHP and Rio Tinto’s activities in the global south as requiring restitution; and argues they should not be allowed to offload those responsibilities onto governments or via shelf companies.

The network calls for much stricter regulation of transnational mining companies and supports international efforts to establish a United Nations Binding Treaty on corporations, arbitrated by an independent body; although how they will ensure independence defies explanation given the parlous records of many independent arbitrators in many industries in the past.

Amnesty International has singled out BHP and Rio Tinto for human rights violations and environmental destruction, particularly those arising from tailings. 

Even were companies protected against restitution for past offences, regulations enforcing accountability for clean-ups of existing mines would come at a cost.

Nor would it necessarily protect against future offences and clean-ups.

Amnesty International notes that the Rio Tinto’s QIT Minerals Madagascar mine has breached the limits of an environmental buffer zone – sound familiar?

Pushing boundaries at Juukan Gorge did not work out well for Rio Tinto in Australia; and it may be that investors can expect more pressure to bear on “pushy” miners in future.

Copper has been designated a critical transition metal, so perhaps majors expect they can shelter behind that fact. 

That and the fact that, unlike steel, there is simply not enough recyclable copper in the West to meet demand, let alone Asia. 

But already BHP and Rio Tinto are encountering opposition; the US government recently rescinding US Forestry approval for their joint venture Resolute Copper’s Oak Flat mine on Apache land in Arizona.

The US Government’s final decision on Oak Flat in about six months time will provide investors with a clearer view of the expectations for copper miners globally; as well as likely policy and the likely longevity of copper's influence in the transition.

In the meantime, the industry will have to move fast to lift its ESG credentials and it will be interesting to see what future the Zero Emissions project yields.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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