Energy strategy and global uncertainty: insights from miners

Miners are used to fluctuating business conditions, from the divergent legislations they work in to the notorious volatility of commodity prices. Because of that, they tend to run their companies in a conservative manner, planning for the long haul and maintaining the necessary financial buffers. In a time of global pandemic, this strategy is paying off: even with various operations forced to shut down, mining companies are proving very resilient to the coronavirus crisis. But this conservativeness is also one of the reasons why it takes so long for the industry to adopt new technologies, including renewable power, electric vehicles and hydrogen. In this article, five mining companies tell us exactly how they handle energy decisions, and to what extent their energy strategy is being affected by Covid-19.

When it comes to assessing energy decisions, the type and number of teams involved vary from miner to miner, but the initiative can come from corporate management as much as from individual sites.

“We take an integrated approach to decision-making, involving the site team, technical team, management, supply chain, as well as the corporate team for larger and more strategic projects,” says Sunil Kumar, Director, Energy Strategy at Kinross Gold. “Initiatives for energy efficiency projects can come from the corporate energy team or the site teams, with the latter having the direct responsibility for energy operating costs, labour, profits, etc, for their site. When there are new technologies or strategic initiatives, then it might start at the corporate level. It’s a very collaborative approach.”

This top-down, bottom-up approach is also used by Newmont Goldcorp, a company that consistently ranks near the top of mining sustainability indices. Frank Roberto, Senior Manager, Process Innovation at the firm, explains: “Consideration of renewable energy options can start in two possible ways: I’m in the processing and metallurgy team, and we consider renewable power options fairly early as we start to design a project and hopefully by the time we’re ready to get into the engineering of the project, we’ll have some options to present to our value assurance team. At the same time, our regions and our mines themselves have the option to consider renewable power opportunities.” He gives the example of the Akyem mine in Ghana, where the team was very proactive about considering solar power. This resulted in the deployment of a small solar installation at the camp, and today Newmont Goldcorp is in talks with the Ghanaian government to purchase power from a 13 MW state-owned solar project.

But whoever is involved in decisions, the process follows the same pattern for all miners: first, they look at a variety of sources to assess long-term power costs for their operations, as well as the energy options available. According to Kumar, this assessment can include conversations with utilities or energy suppliers to understand generation, demand and the resulting price projections. It can also involve working with local consultants to provide energy market forecasts. As for fuel price projections, Kinross relies on external market studies for crude oil prices with adjustments for local market pricing. Once an initial assessment has been completed, miners reach out to the market to determine the best cost-benefit solution.

Justin Brown, Managing Director of Element25, which is completing its pre-feasibility study for a wholly owned manganese project in Western Australia, explains: ”We did quite a lot of work on a study which looked at the modelling of the combination of wind, solar and gas that we would likely use as a solution. And then we went to an RFP process which got some direct information from the market on the likely cost of those solutions, and now we’re watching the trends in the further reduction of costs through bigger turbine sizes, cheaper solar panels, etc. We’re not going to really know what the final price will be until the final tender process, but we’ve seen a distinct downward trend in costs for renewables.”

Unsurprisingly, the first thing miners look at when evaluating energy solutions is cost. In some areas, renewables can already be cheaper than fossil fuels: that’s the case in the Pilbara, the Western Australian region where Element25 is developing its manganese mine. “In terms of scale, we’re going to use as much renewables as we can support from a technical point of view because we know it’s cheaper, and we also know that it provides protection from the price variations of fossil fuels and from future carbon taxes from the government. We’re looking at a very long mine life so it’s important for us to have that protection,” adds Brown.

In other places, it may be harder to find the business case for renewable solutions. For its remote Tanami Mines in Australia’s Northern Territory, which used to run on trucked heavy fuel oil, Newmont Goldcorp considered a wide range of options, including solar hybrids and even small nuclear solutions. In the end, the company opted for the construction of a gas pipeline. “We start looking at a broad range of options early on, and compare them based on economic feasibility, technical maturity and timeline constraints. But in the end, with every project we work on, as we get more mature and closer to implementation, people are always looking for ways to make the project more economically feasible,” says Roberto.

Though it isn’t carbon neutral, the gas pipeline in question will result in the reduction of GHG emissions in the area, and not just from Newmont Goldcorp: Prodigy Gold, a new miner developing operations in the region, is also looking at switching from diesel to gas, now that the option is available.

Interestingly, in some cases miners may opt for a renewable option even if it is more expensive than traditional energy generation: that’s the case of Coeur Mining’s Wharf Mine in South Dakota, which is considering switching to wind-powered electricity. Korie Hickel, the company’s ESG, Community and Government Relations Manager, explains that factors other than cost are starting to weigh more heavily in the decision process. “We are looking at options to increase our renewable energy sources that may or may not bring an increase in costs. GHG emissions and carbon footprint considerations are increasingly important to us as well as to our stockholders,” she says.

It appears that climate activism in the public and shareholder communities is starting to influence business decisions and can even tip the balance from an almost viable to a viable business case. These examples are still rare, but industry participants expect them to become more and more frequent as time goes on. Prodigy Gold’s Managing Director, Matt Briggs, explains: “Typically, shareholders are asking for more reporting of the full spread of climate emissions as part of ESG — this has really increased the amount of reporting we’ve done in the past 12 to 18 months. But when you ask shareholders whether it’s changing where they put their dollars, margins still talk more highly than the environmental considerations at the moment. As things mature, we’ll see more dollars following the good will, and that will drive the industry to change more rapidly.”

Of course, the introduction of carbon taxes would be the most efficient way to reconcile financial considerations and climate activism.

While it may seem like the world is ripe with renewable energy options, the truth is that once the location and individual requirements of a mine are taken into consideration, in addition to the capital position and size of each miner, the choices tend to be drastically reduced. For Prodigy Gold for instance, mobility is key. “We have a million ounces of gold resources and we’re exploring for more discoveries to choose the right location for a processing site. The location of the resources would be a part of optimizing the power supply and what form it would have. We currently have field camps where we use some portable solar systems, and we’ve considered putting solar panels to power the camp, but with the mobility that we need, contrasted with the power supply that we require, renewable energy is still a challenge,” explains Briggs.

And as Tier 1 miners’ announcements of the construction of giant solar plants and procurement of hundreds of gigawatts of renewable power take center stage in the news, smaller miners are still dependent on partnerships with the market in order to increase the options available to them. Coeur Mining’s Hickel says: “A lot of it comes down to what is available and our options are very limited. We’re a smaller company than many so we don’t have a lot of extra capital to fund projects all on our own, especially with the lack of opportunity for payback. So we really look to partner with other groups who can build and provide the power, so that we don’t have to generate it or maintain it on our own, and we’re happy to be the main customer.”

She gives the example of Coeur’s Kensington Mine in Alaska: offgrid, wholly reliant on diesel, but located on federal land and with a three-year mine life. “The permitting process would probably take longer than our current life of mine.”

At the end of the day, the decision to integrate renewables into a specific mine site can involve innumerable factors, among which the cost of the solution and time to implementation, life of mine, and a potential carbon price. So for suppliers, it is important to get in early in the process, understand the specificity of each site and each miner’s requirements, and be prepared to innovate commercially in order to share risk.