With ZAR304 billion in annual mining sales at risk due to trade partners’ carbon reduction pledges and reduced local demand, South African mining is under growing pressure to manage its environmental impact and carbon footprint. Mining in South Africa is carbon intensive, and the country’s vulnerability to climate-related catastrophes presents a unique mix of risks and opportunities for mining businesses.
“While individual mining businesses are aware of the risks that climate change poses to the sector, and actions are being taken to mitigate the environmental impact of operations, climate change disruptions require a more collective and targeted response,” says Hans Kuipers, Managing Director and Partner at Boston Consulting Group (BCG), Johannesburg.
Mining companies can adapt their operations, adjust their portfolios, and climate-proof their business to take advantage of the opportunities that exist in the short and long term. It is becoming increasingly important that they take a holistic approach to managing climate risk, and to do it promptly and jointly. The industry may wind up paying a bigger price if no such efforts are taken.
Three challenges facing South African mining
The first challenge is a trade risk as South Africa is among the top 20 most carbon-intensive economies in the world on an emissions-per-GDP basis. As key trade partners implement low-carbon obligations and with many of the country’s largest export markets already having established net-zero targets, the South African economy will face increasing trade pressure to reduce emissions in line with export partner commitments. It is critical to evaluate how important trading partners’ net-zero commitments and net-zero carbon growth trajectories will affect South Africa’s competitiveness in global markets.
The second challenge is reduced demand for thermal coal and platinum group metals, two of the four most lucrative minerals in South Africa’s commodity footprint. Thermal coal will form part of the energy mix in a just transtion but will be under increased pressure to be phased out globally in the coming years. Clean energies will become important drivers of new demand and shift value pools in commodity markets to other commodities like lithium, nickel, and manganese.
”Mining companies will need to analyse the risks that the commodities in their portfolios face and determine whether its geologically feasible to tap into shifting value pools and mine the minerals that will be needed in the future,” says Tycho Möncks, Managing Director and Partner at BCG, Johannesburg.
The third challenge is the impact of local climate change. Physical changes in the operational environment and along the value chain will force mining businesses to adjust, posing a threat to mining infrastructure. Water shortages will increase CAPEX while also increasing the danger of stranded mining assets and operational interruptions. Local mining companies will need to build resilience against the physical risks of local climate change.
Addressing these challenges
Firstly, mining executives should focus on developing a climate-conscious, scenario-based business strategy that addresses what impact climate change will have, what effect these changes will have on their companies and which new developments could be turned into new business opportunities. “This will help them gauge the various implications for the company’s portfolio and build effective response strategies both for the near term and looking further into the future,” says Kuipers.
Secondly, mining executives need to climate proof their operations and run future scenarios to assess the potential consequences of climate-proofing their operations. The more diverse the response choices they have, the better they will be able to develop plans for managing the impact of climate change on their operations, which vary greatly depending on commodities, geographical regions, and mining processes.
The three questions they need to address are; how they can directly and indirectly reduce their carbon emissions footprint, modernise their operations to ensure operational resilience to the effects of climate change and how they can make climate change an intrinsic part of their business decisions, with incentives and rewards in place to encourage them.
Reducing Scope 2 emissions; electricity, heat, and steam from third-party suppliers, will be vital to any emissions-reduction programme as approximately 77% of Scope 1 and 2 emissions in South African mining are from the electricity supply. Mining companies have announced renewable generation totalling approximately 6GW, indicating that the industry sees both the cost and environmental benefits of a self-generation strategy
“To enable the transformation required to solve climate concerns, all stakeholders will need to work together conscientiously and remove any hurdles,” says Kuipers . The various stakeholders can design a greener mining industry – and one that is more competitive on the global stage – by working together.