Mining’s Carbon-Taxed Future

While many in the mining industry still have serious doubts about global warming and our species’ part in it, that isn’t stopping any of the top companies from preparing for what is being seen as the inevitable regulation of carbon emissions.

“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 greenhouse-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 miners, the big players in the industry have been following such a maxim for some time now.

The acid rain dilemma of the 1980s led to a cap-and-trade system for sulphuric acid gases generated by burning coal, a scheme that proponents of a similar system for carbon emissions 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 emissions issue.

Following their lead is the gold subsector, with senior producers — Newmont chief among them — setting the pace for the gold miners.

The 2008 report by the leading authority on carbon emissions, the Carbon Disclosure Project (CDP), ranked BHP Billiton, Alcoa (AA-N) and 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 the world’s 500 largest companies (by market cap) were part of the survey, leaving Barrick Gold(ABX-T, ABX-N)and Goldcorp (G-T, GG-N)– with respective scores of 53 and 38 — as the lone Canadian representatives.

The voluntary survey was conducted by PriceWaterhouseCoopers for CDP, a not-for-profit organization that holds the largest database of corporate carbon em-mission information in the world.

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

The first step in addressing emissions is for companies to tally up how much they are emitting. And while companies are getting better at calculating their onsite emissions, carbon footprint calculations also require the inclusion of emissions generated by bringing materials in and out of a given project site.

As the three gold companies continue to grapple with understanding their total emissions, such difficult calculations aren’t stopping them from pushing ahead on other initiatives.

All three trumpeted greater energy efficiency and using renewable energy as keys to their current carbon 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 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 complicated by the fact that nobody knows exactly what shape regulations will take in North America.

U. S. President Barack Obama has proposed a cap-and-trade system that would set hard caps for companies, who would have to purchase carbon offsets if they exceeded those limits.

In Canada, Prime Minister Stephen Harper dodged Canada’s Kyoto Accord commitments, introduced his own intensity-based carbon-emission plan, and then put the plan on hold, reasoning that it was better to wait for the U. S. to take the lead so Canada could synchronize its regulations with its neighbour’s.

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

Experts on the issue say that UNbrokered climate talks in Copenhagen, scheduled for December, will likely be a key date — with North American regulations following shortly thereafter.

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 to come.

Still, the company has introduced energy saving technologies at many of its projects. Its most ambitious project in this regard is under way in Guatemala, where it has completed a feasibility study for a geothermal power plant that would, if built, supply energy for its Cerro Blanco mine.

Barrick’s energy efficiency and clean or renewable energy program is larger than Goldcorp’s, and more advanced.

The company kicked into a higher gear 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 building a 20-megawatt wind farm. It also has installed a 2-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 many 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 three companies 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, although specific dollar amounts are not yet known, it will likely cost US$1.5-2 million.

That Newmont would make a significant large cash outlay on a voluntary basis might seem excessive to other companies, but the gold giant sees it as a chance to positively define its brand among global-warming proponents and at the same time, get a head start in understanding a complex carbon market.

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

A company that can best establish itself as a steward of the environment will have 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, Deloitte’s national leader of corporate responsibility and sustainability, lays out some 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 then have to factor carbon emmissions into their growth strategies.

If a company has an aggressive acquisition plan over the next five years, it will have to consider how those acquisitions would
affect its carbon exposure and bottom line.

Bill Williams, vice-president of environment for Barrick, says bankers are already asking such questions — In Barrick’s case, around the company’s rejuvenation of the Pueblo Viejo gold project in the Dominican Republic, rather than about any acquisitions.

Yet another indication of what the coming corporate landscape will look like, and a possible warning for any executives that let their skepticism about global warming hold them back from developing a low-carbon business model.