The world’s largest copper mine will be powered by renewable energy within a few years under a new supply deal, BHP (BHP) announced this week. Escondida will run off wind, solar and hydroelectric energy by the mid-2020s, through deals signed with Chilean power providers.
BHP will also move the Spence copper mine to renewables. The decision requires breaking existing fossil fuel supply contracts, and BHP has forecast a provision of $780m (£604m) for the six months to December 31 to cover these costs.
The broader picture here – that copper used in the greater electrification of the world should be mined and processed in a sustainable way – fits with BHP chief executive Andrew Mackenzie’s engagement with investors pushing for emissions cuts in the extractives sector. Mr Mackenzie has also pledged to try to cap the emissions of BHP customers, known as scope 3, which mostly come from the company’s iron ore buyers in China. Moving Escondida and Spence to renewable energy will get rid of “virtually all” their scope 2 emissions, which are recorded as the emissions linked to the electricity used by a project or company. Escondida’s scope 2 emissions in the 12 months to 30 June were 2.1m tonnes carbon dioxide equivalent (CO2e).
Investec natural resources head Tom Nelson said mining investors were used to write-downs, and the size of this decision was small compared with the consequences of inaction in the face of climate change. “It's nothing like the write-downs some of these groups are going to make on potentially stranded hydrocarbon assets in the decades to come,” he said. “We hold BHP in very high regard, on a number of these issues.”
BHP’s renewable approach will also save money. The major miner forecasts a 20 per cent saving on energy costs under the new contracts. Since 2014, the combined unit cost for power and water at Escondida has gone up 9¢ per pound (lb), around 10 per cent of the overall costs. These have hovered around $1 per lb in recent years, so cost-cutting has been significant in other areas.
Reducing the expense of power and water will see major savings as Escondida and Spence will likely be in operation for decades. The company is also cutting costs by reducing aquifer water consumption through a new $4bn (£3.1bn) desalination plant. Escondida is by far BHP’s biggest water user – its annual ‘withdrawal’ is double the next largest operation at almost 180,000 megalitres a year.
Mr Nelson said Investec’s working theory was that extractive companies’ responses to changing regulations and investor expectations would see a clear divide between winners and losers.
“[BHP] would be an example of a mining company that we think [is committed to addressing climate change],” he said. “Are the management at Glencore so committed? It will be pretty Darwinian.”
BHP’s competitors – Glencore (GLEN) included – have also made plenty of noise on these issues this year. Rio Tinto (RIO) continues to talk up its coal asset sales and copper production (although it is still committed to building a coal mine and power plant at Oyu Tolgoi), while Glencore will cap coal production at current levels. Anglo American (AAL) is building a major new copper mine north of Escondida in Peru, Quellaveco, which will go into production in 2022. It has already signed a contract with Enel to power its Chile copper mines with renewable energy for a decade from 2021, but has not outlined the Quellaveco power plan beyond saying long-term contracts had been signed.
