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Posts Tagged ‘climate change’

Xstrata retains leadership in Dow Jones Sustainability Index

September 20, 2011 Comments off

“The main sustainability issue facing the mining industry is that of declining ore grades, which implies that over time, more mineral ore needs to be extracted and processed in order to produce the same amount of metal. This is likely to exacerbate many of the environmental and social issues facing the mining & metals industry going forward. Some of the prominent environmental issues include mineral waste management, as well as the management of key inputs such as energy and water. Social issues are mainly centered around the health & safety of workers and general labor conditions. Issues such as land rights, population relocations, the use of private security forces to protect mining assets, and mine closure also remain very controversial. As with other extractive industries, the mining space is particularly susceptible to corruption, bribery and other breaches of the Codes of Conduct”

Source: Dow Jones Sustainability Index Review 2011, September 2011

Observations:

  • Xstrata tops the Dow Jones Sustainability Index for the basic resources sector for the second year in a row.
  • Most important changes of the index for the mining industry are the inclusion of Newcrest and Kinross, and the removal from the index of ArcelorMittal and Goldcorp.
  • Assessment criteria include economic, environmental, and social topics. Full list of criteria can be found here.

Implications:

  • Inclusion in the DJSI is mainly a marketing issue; it does not have direct operational or financial consequences. Many countries do require foreign investors to adhere to global reporting initiatives to ensure a certain level of sustainability, but DSJI requires a much broader set of policies.
  • Xstrata especially scores higher than industry average in terms of climate strategy, mineral waste management, human capital development, and standards for suppliers. The benchmark report will certainly be used by some companies to prioritize areas for improvement.

©2011 | Wilfred Visser | thebusinessofmining.com

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The coal boom: burning ambitions

February 1, 2011 Comments off

“The IEA estimates that China, which generates more than 70% of its electricity with coal, will build 600 gigawatts (GW) of coal-fired power capacity in the next quarter-century—as much as is currently generated with coal in America, Japan and the European Union put together. China’s efforts to improve coal supplies include the building of a new east-west passenger railway line, set to open in 2013, which should free existing tracks for coal transport. New high-speed and light railways across the country may alleviate bottlenecks further. But for the foreseeable future the country will depend on ships laden with foreign coal. … America, the world’s second-biggest coal producer after China, has mammoth reserves and a power industry that is turning against coal. Environmental regulations and cheap shale gas will leave miners looking for new markets overseas.”

The Economist's analysis of global coal reserves

Source: The Economist, January 27 2011

Observations:

  • The IEA’s Global Energy Outlook 2010 foresees a stabilization of the global coal fired electricity generation around 2020 at 11TWh, approx. 40% above current level.
  • China’s share of global coal production has increased from 25% in 1995 to 39% in 2008. Still the country recently turned into a net coal importer, especially facing high demand for imported metallurgical coal.

Implications:

  • China’s coal reserves are definitely not infinite. The 38yrs lifetime calculated by the Economist will be a reason for the Chinese government to eliminate the coal-dependence for electricity generation long before 2050. However, the climate change battle will be fought in the era of growing coal consumption in China.
  • India still has a lot of coal reserves and the government is trying to create alignment in the national coal mining sector to enable increased output. However, imports from Indonesia, South Africa, Australia and potentially the USA will certainly be needed in India to enable a building boom like China has experienced in the past decade.

©2011 | Wilfred Visser | thebusinessofmining.com

Riversdale: Scramble in Africa

January 3, 2011 Comments off

“Rio Tinto, one of the world’s biggest mining companies, has certainly seen something it fancies in Riversdale, an Australia-based firm that operates mines in Mozambique which produce both coking and thermal coal. Two days before Christmas Rio bumped up its offer for the firm to $3.9 billion. The bid says much about Rio’s ambitions and the battle that giant mining firms will face in getting their hands on the world’s mineral resources. …

Not all miners reckon that attempting mammoth mergers is the best use of their bulging wallets. Yet the remaining option of pursuing smaller, bolt-on acquisitions comes with problems too. Firms of the size of Riversdale are small enough for any number of potential bidders to be able to contemplate buying them.”

Source: The Economist, December 28 2010

Observations:

  • The Economist notices the risk of overpaying for ‘small’ acquisitions like Riversdale as many potential bidders can start a bidding war for the target.
  • A government backed Indian consortium, Vale, NMDC and Tata (a current shareholder) might emerge as competing bidders for Riversdale. A combined effort in which the Indians put in part of the >$1bln required infrastructure investment and obtain long term contracts to buy the coal might be drafted.

Implications:

  • Rio Tinto’s strategy in the coal business is to secure a portfolio of world class assets (large, long life, low cost). It recently divested its share in American Cloud Peak Energy and Jacobs Ranch, trying to invest in larger assets that are closer to the Asian growth markets. If the investments in Oyu Tolgoi’s Copper asset in Mongolia prove successful, the company might consider buying into the nearby Tavan Tolgoi Coal asset.
  • In the aftermath of Cancun’s climate discussions the debate over the mining industry’s role in reducing carbon emissions is heating up. Should miners play an active role in reducing coal supply or is the miner’s only task to supply the natural resources the downstream industry needs?

©2011 | Wilfred Visser | thebusinessofmining.com

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