Miners love acronyms. Abbreviations like LOM, NDT, PFS and JORC all add up to a veritable alphabet soup of terms that miners use to converse in daily.
A new acronym was thrown in the mix about five years ago: ESG. The term was first mentioned in the 2006 United Nation's Principles for Responsible Investment report, and things have picked up pace in that short time.
Global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management.
Now more than ever, institutional and retail investors are not just aware of ESG issues, but they are making decisions on where to put their money based on them.
This article discusses ESG with representatives from ICMM, S&P Global, E25 and Blackstone Minerals.
Beyond the Acronym
Environmental, social, and governance (ESG) criteria are standards for a company's operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
According to Aidan Davy, Chief Operating Officer of the International Council of Mining and Metals (ICMM), the E, S and G are inextricably interconnected.
"Rightly, there has been a focus on the 'E', but companies must be on top of all three if they are to continue to access capital and drive change in the industry. Concerns about the ESG impact of mining are now no longer confined to a small number of 'responsible' investors but are increasingly factors considered by all," said Mr Davy.
While the mining industry can be a powerful catalyst of long-term sustainable development, calls for greater transparency, disclosure, and accountability across the sector have increased.
Minh Hoang, a Singapore-based analyst at credit rating agency - S&P Global Ratings – says that ESG risks and opportunities can affect the capacity and willingness of an entity to meet its financial commitments. This includes the impact of - and their contribution to - matters like climate change, pollution, resource depletion; their effectiveness in maintaining employee and community relations; and their adherence to legal and regulatory requirements.
ESG has Reached a Tipping Point
The S&P Analyst says that ESG risk and measures are now a key focus for investment decisions going as far as to say that ESG factors are now being scrutinised closely as a company's financial policies and financial management practices.
"The degree of adoption and restrictions as to the investments an investor may or may not hold remains subject to each investment mandate. Nevertheless, we believe the growing importance of ESG in the resources sector is undeniable," said Mr Hoang.
Offering a slightly different opinion Andrew Strickland, Head of Project Development at Blackstone Minerals, says that the financial and economic drivers remain the highest priority for investors when deciding where to allocate their capital.
However, saying that “there is a much better understanding that project viability and economics are intrinsically linked to ESG.”
“The extent to which a company can genuinely adhere to best practices will affect the markets in which it can operate and the attractiveness of its products,” said Mr Strickland.
Juukan Gorge and what the Mining Industry can Learn
In May 2020, Rio Tinto destroyed two ancient and sacred rock shelters in the Pilbara region of Western Australia as part of an iron ore mine expansion.
The blasts, while legal, deeply distressed the traditional owners and led to a public outcry and national inquiry, ultimately costing three top executives their jobs. They also increased investor pressure on the industry to address heritage management practices.
According to Davy, the Juukan Gorge tragedy shone a spotlight on the industry’s approach to social performance and cultural heritage.
“We must learn from this tragedy, talk openly about what happened, and work together to help strengthen management approaches to successful community engagement – ICMM have a role to play in supporting this,” said Davy.
ICMM members, including 28 mining and metals companies operating across the globe, alongside 36 national and regional commodity associations, must conform to several related commitments in ICMM's Indigenous Peoples and Mining position statement. Implementation support is provided through ICMM's Good Practice Guide to Indigenous Peoples and Mining, which was informed by stakeholders through public consultation.
For S&P Global Ratings' Mr Hoang, Rio Tinto's issue in the Pilbara brought to the fore a cultural aspect of ESG that had previously received less attention. It resulted in fellow iron ore producers BHP and FMG also addressing blasting issues or the potential blasting of Aboriginal heritage sites in the Pilbara.
“The entire mining industry has been put on notice since the blasting of the Juukan Gorge cave. The Western Australian Government is said to be working on new legislation that is expected to be introduced to parliament this year to address fundamental issues in the outdated state-based Aboriginal heritage legislation. Whether or not this ultimately results in broader industry reform is yet to be seen; however, we believe it will certainly have an impact on the wider industry,” said Mr Hoang.
The Mining Industry’s Biggest ESG Obstacles
The industry is exposed to considerable ESG risks, among which it may be challenging to establish a hierarchy. Governance factors tend to be more company-specific and can be influenced by a jurisdiction in which a company operates. Environmental and social issues remain at the centre of mining-related ESG obstacles.
“In our view, material environmental risks include pollution (air, water including groundwater, soil) and waste (including hazardous waste) occurring in the extraction, processing, and transformation of minerals. Land and biodiversity risks due to the highly disruptive nature of mining and the significant costs associated with remediation. The greenhouse gas (GHG) emissions stemming from the industry's energy intensity and the use of minerals as raw materials in other industries. For example, coal mining is particularly exposed given the considerable scope 3 emissions associated with coal combustion,” said Mr Hoang.
Companies are already taking determined steps to manage their own carbon footprints. By switching to more efficient fuels and moving to renewable energy resources, ICMM members' scope 1 and 2 emissions have dropped by 6% over the last three years.
"At ICMM, we are accelerating further reductions through our Innovation for Cleaner, Safer Vehicles initiative given that mining vehicles account for roughly a third of scope 1 emissions,” said Mr Davy.
This initiative is a unique supply chain collaboration, bringing together ICMM’s 28 member companies and some of the world’s largest original equipment manufacturers (OEMs) to work together in a non-competitive space to accelerate the development of a new generation of mining vehicles.
"The real challenge facing the industry is scope 3 emissions. Many of our members have made pledges on scope 3 and have value chain initiatives underway to tackle downstream CO2 emissions. We are currently working with members to develop a consistent approach to measuring and reporting on scope 3 emissions so that going forward, all stakeholders can more easily assess progress," said Mr Davy.
More than 200 years after slavery was abolished in the British Empire, modern slavery has emerged as a growing problem affecting an estimated 40.3 million people worldwide, 10 million of whom are children.
Modern slavery is prevalent in the minerals sourcing sector, and currently, it is difficult – if not impossible – for corporations to identify poor practice in their suppliers. While there are laws to prevent it, in many cases, these laws can not be adequately enforced, even with extensive due diligence processes.
According to Mr Hoang, steps are increasingly being taken to strengthen and further address governance practices of modern slavery across the sector.
“In Australia, the larger miners with revenues of greater than $100 million now have a mandatory statutory modern slavery reporting requirement under the Australian Modern Slavery Act 2018. The act requires companies to review and report on the risk of modern slavery in their operations and supply chain,” said Mr Huong.
Mr Strickland echoes those thoughts, saying that for the last three years, Australia's Modern Day Slavery Act has sharpened the focus of the industry and their human rights compliance through the scrutiny of their governance structures, HR policies and procedures, and practices within their supply chain. As a result, the mining industry now has more substantial expectations around disclosures of anti-slavery initiatives to support human rights due diligence.
“Increased investor expectations have helped to shine a spotlight on an issue that can be hidden in plain sight; however, this shouldn’t be the sole motivator for companies to increase their due diligence of human rights issues in their operations.
"The Walk Free Foundation estimates nearly 25 million people are enslaved in Asia-Pacific alone.
"So, the onus is on us at Blackstone to ensure our Vietnamese operations and suppliers are safe and respect human rights. On a practical level for Blackstone and our mining peers, that means education and capacity building around the issues with our employees, suppliers and our investors, as well as ensuring a culture where human rights are promoted, and associated risks are managed,” said Mr Strickland.
More than just a Buzzword
ESG is becoming an essential input into future investment decisions and will increasingly form part of decisions that will shape the future allocation of capital. The extent and means in which it is adopted may vary. Still, according to S&P Global Ratings, it is already having an impact on mining companies' ability to access or raise funding.
Allan Feinberg, Managing Director, Remuneration & Reward Services at BDO Australia, writes that the industry needs to stop viewing ESG as a ‘nice to have’ and start viewing it as an essential part of business strategy and risk management, which can have a direct impact on financials.
Assuming 15% growth, half the pace of the past five years, ESG assets under management could climb to more than a third of the projected $140.5 trillion global total by 2025 or about $53 trillion, based on analysis conducted by Bloomberg.
In the competition for capital, being acutely aware of ESG opportunities and risks is only going to continue to grow in importance for mining companies and businesses within their value chain, or they risk being left high and dry and when searching for funding.
MINERS WITH ESG ON THEIR MINDS
Justin Brown Managing Director, E25
E25 has committed to integrating renewable energy into its mine grid to reach its zero-carbon manganese target. Can you explain how you will do this and what the timeline is?
The Butcherbird Project is spoilt for choice with respect to energy supply. The Goldfields Gas Pipeline runs straight through the Project, but we have also done extensive work on the local wind and solar resources with more than 12 months of real-time data collected from the site. Modelling using the data has clearly shown that the most cost-effective way to power the expansion of the mine is using a high percentage of renewable energy coupled with some gas-powered generation.
Work is ongoing to move towards a 100% renewable energy solution in time. This will likely involve some battery storage.
Manganese is increasing in importance in EV batteries. Why have nickel and cobalt fallen out of favour?
Nickel, cobalt and manganese all make excellent battery materials. Manganese has been used in batteries since the 1800s. However, the principal issues now are around scarcity, ethics and the environment. There is not a lot of cobalt going around, so it is expensive, and it is also mainly produced in jurisdictions with questionable environmental and ethical track records.
Nickel is less problematic and slightly cheaper, but there is simply not enough nickel being produced to provide the volume of material required to allow battery makers to meet their targets. High nickel cathodes have thermal stability challenges that can create safety problems.
Manganese is the cheapest of the three and the most abundant, making it the best candidate to be the mainstay of future battery production.
Do miners need to be aware of the green credentials of their processing partners further downstream to maintain their social license to operate, and would you choose not to go into business with a company if their ethics didn't pass the pub test?
I think this is becoming the case. My sense is that the ultimate end users will demand that car and grid storage battery makers have obvious visibility on their supply chains, in other words, "supply chain transparency". I think all of the players along this supply chain will need to demonstrate their environmental credentials to be successful.
Andrew Strickland Head of Project Development, Blackstone Minerals
Can you tell me about the Ta Khoa project in Vietnam?
The Ta Khoa Nickel-Copper-PGE Project is Blackstone's flagship project under development in the Son La Provence in northern Vietnam. The Project operated as the Ban Phuc Nickel Mine from 2016 to 2017, where high-grade nickel ore was treated from the Ban Phuc underground ore body. The operation was placed into care and maintenance in 2017, and the remaining site infrastructure includes administration buildings, a 200 person camp and 450ktpa Nickel Concentrator.
The new development project comprises of the major Ban Phuc disseminated sulfide orebody, multiple smaller massive sulfide exploration targets, and upstream mineral beneficiation coupled with downstream hydrometallurgical refining processes. The integrated operation will produce an NCM battery precursor product for sale into the lithium-ion battery market, along with various other by-products, including copper cathode and PGE's.
Blackstone will look to leverage partnerships with crucial nickel sulfide concentrate producers to develop downstream processing suitable for the treatment of both Blackstone and third-party nickel concentrates.
Operations will look to utilise the excellent hydro-power infrastructure in northern Vietnam to minimise our carbon footprint in the pursuit of a carbon-neutral development strategy. Studies are underway to assess the potential for a fully electrified mining fleet and other low carbon mining strategies.
The Project is described to be built to 'Australian Standards.' Why is this important?
When speaking of our existing 450ktpa concentrator in Vietnam, we refer to it having been built to Australian standards. The plant was designed by various Australian engineers, including global companies like Knight Piesold, Bateman Engineering and MetPlant. The plant was then constructed by Vietnamese contractors managed by Australian construction experts.
This is important as the design standards employed by these engineers are of a first world standard concerning safety, environment, maintainability and operability. Had this facility been built to a lower standard, Blackstone may have been required to make significant changes to bring it to a standard suitable for responsible operation. As it stands, the plant is in excellent condition, and Blackstone has minimal rectification works before this plant can be recommissioned.
Nickel Sulphate demand is set to exceed 900,000t by 2029. What’s driving this demand?
Nickel sulphate is a crucial input into the cathode for a battery that goes into an electric vehicle. Nickel's chemical properties enhance the range of electric cars, which has historically been a significant barrier to entry for consumers. In recent times the chemistry of batteries has also gravitated to higher nickel content (and lower cobalt content), contributing to increases in projected demand.