The future of carbon in the mining industry

While many in the mining industry still have serious doubts about climate change and man’s part in it, it isn’t stopping any of the top companies from preparing for what is being seen as inevitable carbon emission regulation.

“Regardless of whether some believe or don’t believe that human activity is contributing to global warming, the reality for our industry is that there will be a regulatory imperative to manage our green house gas emissions,” says Omar Jabara, director of communications for Newmont Mining (NMC-T, NEM-N). “So if you want to stay in the mining business you will have to adapt and if you don’t you will no longer be in business.”

While such strong words may ring uncomfortably in the ears of some, the big players in the industry have been following such a maxim for some time now.

The acid rain dilemma of the 1980s lead to a cap and trade system with sulphuric acid, a scheme that proponents of cap and trade for carbon often point to as a successful case study.

Due to their coal assets companies like Rio Tinto (RTP-N, RIO-L) and BHP Billiton (BHP-N, BLT-L) gained experience in that system and carried it over to become industry leaders on the carbon emission issue.

Following their lead, the gold sector is now stepping up, with senior producers – Newmont chief among them — leading the charge.

The 2008 report by the leading authority on carbon emissions, the Carbon Disclosure Project (CDP), ranked BHP Billiton, Alcoa and the Rio Tinto as the best in the mining business at implementing carbon related policies.

Newmont was in fifth spot amongst all global miners but first amongst gold miners with a score of 66 out of 100.

Only companies amongst the 500 largest market caps in the world were part of the survey, leaving Barrick Gold (ABX-T, ABX-N) and Goldcorp (G-T, GG-N) as the lone Canadian Representatives — their respective scores were 53 and 38.

The voluntary survey was conducted by Price Waterhouse Coopers for CDP, a not-for-profit organization which holds the largest database of corporate climate change information in the world.

Newmont, Barrick and Goldcorp all said they agreed to be part of the survey as a way to begin getting on top of their carbon emissions – which in and of itself is no small task.

The first step in addressing emissions is to get a firm grip on just how much you, as a company, are emitting. And while companies are getting better at calculating how much they emit on site, carbon footprint calculations also require emissions associated with bringing all materials in and out of a given project.

But while all three companies continue to grapple with understanding their total emissions such difficult calculations aren’t stopping them from pushing ahead on other initiatives.

All three gold miners trumpeted greater energy efficiency and using renewable energy as keys to their current strategies.

John Allan, vice president of sustainable development at Goldcorp, cites two reasons for the early focus on energy.

“The first thing is that achieving better efficiency and generating more renewable power has a direct a payoff for us in reducing cost,” he says. “And secondly, with it, we get an emission reduction. So rather than getting caught up in guessing what regulations may be, our focus is on how to be efficient so regardless of where the regulation ends up, we’re still getting benefits.”

As Allan alludes to, developing a carbon emission strategy has been further complicated by the fact that nobody yet knows exactly what shape regulations will take in North America.

U.S. President Barrack Obama stumped on a cap and trade system that would set hard caps, which if exceeded, would have to be made up for by a company’s purchasing carbon offsets in the carbon market.

As for Canada, Prime Minister Stephen Harper dodged Canada’s Kyoto commitments, introduced his own intensity based carbon emission plan (in contradistinction to the hard cap), but then put the plan on hold reasoning that it was better to see what the Americans came up with first so that Canada could synchronize it’s regulations with those.

Despite such political dilly-dallying, there is an emerging consensus that a cap and trade system, similar to the one already in place in Europe and the one which will shortly be implemented in Australia, will be the likely outcome.

Experts on the issue say that U.N. brokered climate talks in Copenhagen, scheduled for December of this year, will likely be a key date with regulations in North America following shortly after the meetings wrap up.

In the meantime, as Goldcorp’s CDP score reflects, the company still has some catching up to do with its larger peers in anticipation of what is on its way.

While it has implemented a number of energy saving technologies at many of its projects, it’s most ambitious project is still underway in Guatemala where it has completed a feasibility study a geothermal power plant that would, if built, supply energy for its nearby Cerro Blanco mine.

At Barrick the scale of its energy efficiency and renewable energy program is more advanced.

The company kicked into a higher gear back in 2005 when it built a 115 megawatt natural gas power plant in Nevada. After that it went on to build a geothermal and solar powered administration building in the state, and in Chile it is in the process of building a 20 megawatt wind farm. It also has installed a two megawatt wind turbine near its Veladero mine in Argentina.

But it is Newmont, as its high CDP score indicates, that has pushed things the furthest so far.

While it too has numerous energy efficiency and renewable energy projects, what is perhaps most telling of the company’s early commitment to the carbon issue is its participation in the carbon offset market.

It is the only one of the big three to have already purchased offsets, something that will likely be required of mining companies in the near future.

Newmont announced that it will buy 100,000 tonnes worth of carbon offsets for two of its mines in Australia and while specific dollar amounts are not yet known, it will likely cost Newmont between US$1.5 and US$2 million.

While spending a couple of million when a company isn’t yet required to do so may make some executives squirm, Newmont sees it as a chance to define its brand in positive terms while at the same time giving it a head start in understanding a complex carbon market.

Jabara says such moves are part of a corporate strategy which recognizes that dwindling gold resources will push companies into ever more marginal regions, where governmental and community relationships will be integral to successful mining.

A company that can best establish itself as a steward of the environment will have a much more social and political capital to work with, he says.

“The theory of evolution states quite clearly and correctly that those that are able to survive aren’t necessarily the strongest or the fittest, but those that are best able to adapt,” Jabara says. “Newmont has been around since 1921, that’s 88 years, and if you look at our history the one reason we’re still in business while a lot of others went out of business is that as a company we’ve been able to adapt and innovate.”

To help companies along in their quest to adapt and innovate in a changing business environment Valerie Chort, the national leader of corporate responsibility and sustainability at Deloitte, lays out some key fundamentals that should be a part of any mining company’s carbon strategy.

“They need to understand if carbon is an asset or a liability. They need to understand their carbon position in terms of how much they emit, then they need to understand their compliance options,” she says.

After those initial steps are carried out companies will then have to fold their carbon imprint into their growth strategies.

If a company has an aggressive acquisition plan over the next five years it will have to consider how much more carbon emissions it would be accumulating and how such emissions would affect its bottom line if it has to go out into the carbon market to purchase offsets.

Bill Williams, vice president of environment for Barrick, says banks are already asking such questions. In the case of Barrick, Williams says it wasn’t around acquisitions but around the company’s rejuvenation of the Pueblo Viejo project in the Dominican Republic.

Yet another indication of what the coming landscape will look like, and a possible ominous warning for any executives that let their own feelings about climate change hold them back from fully embracing a low carbon business model.