BHP Launches Climate-Change Initiative

BHP has made an announcement that might prove to be important in eventually improving the image of the global mining industry. Meanwhile, a report warns that miners are still not taking water shortages seriously.

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BHP has set an industry first by promising cuts in greenhouse gas emissions from its products even after they have been sold. The move is one of a series of commitments announced last week by chief executive Andrew Mackenzie, and outlined in a letter to the Financial Times. BHP will also spend US$400 million over the next five years on measures to reduce carbon emissions, and has announced plans to tie executive pay more closely to environmental targets.

BHP's announcement means that the company will tackle the emissions of the customers for its iron ore and coking coal, as well as its own operations (which include oil and gas businesses). BHP is currently reviewing the options for its thermal coal business (a sector that Rio exited last year).

In his letter to the FT, Mr Mackenzie noted that the mining industry has "made the world a better place", and stressed the "uncomfortable truth" that most solutions to global warming will require more mined resources rather than less. Because of this, he wrote, the simplistic call for divestment from all resource companies is fundamentally wrong, and instead miners must be "part of the solution" and should "play a leading role in fighting climate change".

Mr Mackenzie conceded that the cost of tackling climate change will be high, but warned that the price of failing to do so will be higher still. He said BHP is making clear commitments to meet the challenge, and that "it is time for others to do the same".

ESG Issues

South Korea's POSCO recently became the first steelmaker to issue an environmental, social and governance, or ESG, bond. The launch is expected to encourage other companies in the metals and mining sector to make similar issuances. POSCO raised US$500 million to expand its investments in electric vehicle battery metals and renewable energy projects.

Analysts expect many more companies in the mining sector to issue debt aimed at financing corporate activities related to the environment, social responsibility and to governance improvement. However, a report by S&P Global Ratings suggests that metals and mining companies may face challenges in articulating the sustainability credentials of the financed projects. The report noted that mineral extraction and smelting "are among the most power-intensive and environmentally-disruptive industrial processes", and that "environmental risks for companies in the metals and mining sector are among the highest across all sectors".

Meanwhile, a new report from the Carbon Disclosure Project concluded that the metals and mining sector "is not working at the pace and scale necessary to deal with water-security issues challenging the industry". The report notes that the sector is among the most water-intensive industries in the world and remains exposed to various "large, short-term, high probability risks" driven by the physical effects of worsening water security.

Metals Markets

A disappointing week on commodity markets saw most of the major metals fall in value, with nickel being the main loser, down 4.0% to close in London on Friday at US$14,110/t after a 9.1% price hike the previous week. Aluminium, copper and iron ore all fell by over 2% to US$1,809/t, US$5,956/t and US$118.8/t respectively. Zinc was the exception last week, up 0.6% at 2,439/t.

Gold was slightly down overall on the week, but the price ranged from a six-year high of US$1,431/oz to a low of US$1,413/oz, both on Thursday, July 25. Gold has started the new week at around US$1,420/oz having been US$1,427/oz a week ago. The precious metal remains buoyed by fears over the global economy and falling interest rates.

The Federal Reserve is widely expected to cut US interest rates this week. If so, this will be the first reduction in US interest rates since 2008, and signal a remarkable reversal from the tightening cycle that was introduced last year despite a strengthening domestic economy and record low unemployment. What has changed is the Fed's evaluation of the risk to an economy facing a trade dispute with China and declining economic growth elsewhere.

Industry in the eurozone is facing increasingly difficulty and the purchasing managers' index for manufacturing was at a six-year low in July. This follows disappointing factory activity in Germany and France, which are the eurozone's two biggest economies. German manufacturing was described as being in "freefall" by the IFO Business Climate survey.

The head of the European Central Bank, Mario Draghi, has hinted at new measures to boost the eurozone economy before he departs in October. The ECB is reported to be looking at a range of measures, including rate cuts and another package of quantitative easing. The news meant the euro fell to a new two-month low and bond yields in Europe plumbed new depths, with the German 10-year yield hitting a record low of minus 0.43%.

In an update of its World Economic Outlook, the IMF forecast that global growth would be only 3.2% this year, which is the weakest for a decade. The IMF warned last week that Brexit ranks alongside US trade policy as one of the chief threats to the world economy. Fortunately, with regard to the latter, the Trump administration has announced plans to reignite trade talks with China. Senior US officials are due to travel to Shanghai on July 30 to continue the negotiations.

In the mining sector, the Zambia government has announced that it will pursue its planned liquidation of Konkola Copper Mines Plc despite a court ruling in South Africa that granted
Vedanta Resources Ltd an urgent interdict halting the process until a final decision is made through arbitration. Zambia Mines Minister Richard Musukwa said that foreign judgments are not binding in the country unless they are registered in local courts. Earlier this month the Zambia government announced plans to compel mining companies to give local suppliers a fair share of procurement. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.