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CDP Investor Research
Digging deepExploring how miners are facing up to
the low-carbon challenge?
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CDP is the only global environmental disclosure system
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~6,000Companies in 87 countries reporting –
over half the world’s market cap
~570Cities sharing best practices
~100Global corporate supply chains – US$3 trillion in
annual procurement
over 800Institutional investors requesting
information – a third of the
world’s investable capital
> 100 USD trillion AUM
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Using investor authority to drive corporate action
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Investors
Corporations
Authority
Information
Information
Authority
Disclosure is a powerful way to
drive investment in research and
development, and to motivate
finance and creative approaches.
Ali Zaidi, Associate Director, White House Office
of Management and Budget
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CDP’s Reimagining Disclosure Initiative
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SectorsEnergy
Transport Materials
Agriculture
Task Force on Climate-related
Financial Disclosures
Adoptrecommendations
EvolutionForward looking
Align across climate, water & forests
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CDP Investor Research Series
{ Focus on high-emitting industries: autos, electric utilities, diversified chemicals, diversified mining, cement, steel, and oil & gas.
{ Flags material climate issues (carbon and water) and the potential impact on financial performance.
{ Combines climate metrics to create a League Table and company level summary pages.
{ Research series voted most innovative research product & no. 1 climate change research house in both 2015 and 2016 by the Extel Independent Research in Responsible Investment Survey.
Page 5
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CDP Research Aligns with TCFD Framework
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Source: Task Force on Climate-related Financial Disclosure
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Risks and opportunities for Mining Companies{ Miners have reduced costs, emissions and energy
intensity of operations since 2010.
{ 45% of CAPEX spent on “low-carbon” commodities that will drive the low-carbon economy; however, 25% spent on fossil fuels.
{ Companies carbon exposure in value chains significant –Scope 3 emissions are up to 30x higher than operational (Scope 1+2) emissions.
{ China’s incoming ETS may lead to structural changes in seaborne commodity consumption.
{ A quarter of mining production will be in regions suffering from high water stress or arid conditions by 2030.
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Commodity demand scenario (indexed 1995)
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Summary of metrics within the League Table
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Key area in League Table Metrics Key area weighting
Transition risks
i) Emissions intensity of operations
30%ii) Energy intensity of operationsiii) Value chain (Scope 3) emissions exposureiv) Production costs v) Earnings (EBITDA) split by commodity
Physical risks
i) Asset exposure to water stress risk
30%ii) Water withdrawal intensity of operationsiii) Water recycling and fresh surface water useiv) Water governance and policy
Transition opportunities
i) CAPEX split by commodity
20%ii) CAPEX intensity of operationsiii) Capital (balance sheet) flexibilityiv) R&D spend and technology innovationv) Renewable energy use
Climate governance and strategy
i) Carbon regulation supportiveness
20%
ii) Emissions reduction targetsiii) Carbon emissions data verification iv) Climate-related remunerationv) Use of an internal carbon pricevi) CDP score
{ Detailed methodology in
full report.
{ 20 individual metrics used
across several strands of
climate themes.
{ Data sources: CDP
responses, company
reports, World Resource
Institute and GlobalData.
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League Table summary
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2017 League
Table rank
2015 League
Table rankCompany League Table
scoreManaging
transition risksManaging
physical risksTransition
opportunities
Climate governance &
strategy1 1 Vale 4.90 A A C D
2 n/a Boliden 4.96 A B B C
3 2 BHP 5.28 B A C B
4 4 Rio Tinto 5.82 B C A C
5 11 Glencore 5.88 C B B C
6 n/a South32 6.15 D B D A
7 6 Antofagasta 6.29 C C B C
8 5 Teck 6.60 D B E B
9 7 Anglo American 7.07 E B D D
10 8 Freeport-McMoRan 7.17 C D D D
11 10 First Quantum Minerals 7.79 B E C E
12 9 Vedanta Resources 8.02 E E D C
US$294bnin market capitalization
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Comparing miners using copper equivalent production
{ Industry terminology that combines production from several commodities into single output figure.
{ Uses relative commodities prices to scale production into ‘equivalent units of copper’.
{ Allows for normalising indicators across group of diversified miners.
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Average annual price US$ / t (2010-2016) Copper equivalent price Production (kt) Copper equivalent production (kt)
Copper 7,000 1.00 200 200
Cokingcoal 161 0.02 5,000 115
Aluminium 1,950 0.28 750 208
Total 523
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Transition risks summary
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Metrics:
{Emissions intensity
{Energy intensity
{Value chain (Scope 3) emissions exposure
{Production costs
{Earnings (EBITDA) split by commodity
Company Managingtransitionrisksrank
Managingtransitionrisksgrade
Vale 1 A
Boliden 2 A
Rio Tinto 3 B
BHP 4 B
First Quantum Minerals 5 B
Freeport-McMoRan 6 C
Glencore 7 C
Antofagasta 8 C
South32 9 D
Teck 10 D
Vedanta Resources 11 E
Anglo American 12 E
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A quarter of mining emissions covered by carbon pricing{ Current implemented carbon
pricing schemes cover
approx. 13% of global GHG
emissions.
{ Over 25% of company
operational emissions
exposed to carbon pricing
schemes for company
sample (see page 14 of
report).
{ New and incoming carbon
pricing schemes: China, Canada, S. Africa & Chile.
Page 12
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Commodity sensitivity to carbon pricing
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{ See more on page 14 in the full report
Miner emissions (t CO₂ / t product)
% commodity lifecycle CO₂
emissions
Carbon cost of miner emissions
(US$ per t product)
Value chain
emissions(t CO₂ /t product)
% commodity lifecycle CO₂
emissions
Carbon cost of value chain emissions
(US$ / t product)
Average commodity price (USD/t product)
Lifecycle carbon cost
as % of selling price
Miner's CO₂cost as % of commodity
price
Consumer's CO₂cost as % of
commodity price
Carbon price needed for 10%
commodity price increase (US$/t CO₂)
Ironore 0.03 2% 0.75 1.46 98% 36.5 95 39% 0.8% 38.4% 6
Thermalcoal 0.09 4% 2.25 2.10 96% 52.5 75 73% 3.0% 70.0% 3
Copper 4 96% 100 0.15 4% 3.75 7,000 2% 1.5% 0.1% 157
Country Policy + date Price level Major commodities
Canada Country wide emissions tax, 2018 CAD10 (US$7.5)/t, rising to CAD50 (US$38)/t in 2022. Copper, coal, zinc
Chile Electricity generation emissions tax, 2017 US$5/t Copper, gold, nickel, lithium
South Africa Country wide emissions tax, 2018 ZAR120/t (US$9.5/t) Coal, iron ore, gold, PGMs
China Country ETS, 2017 Unclear Coal, iron ore, copper
{ Using carbon price of US$25/t CO₂:
{ Incoming and recent carbon pricing policies:
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Most miners have cut operational emissions intensity{ Nine of 12 companies have
reduced emissions intensity
and eight have cut energy
intensity of operations since
2010.
{ Measures consistent with
industry cost cutting drive
since 2013.
{ Vedanta and South32 have
significantly higher
emissions intensity levels
relative to peers.
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Scope 3 emissions and Chinese ETS highlight value chain risk
{ Estimated Scope 3 emissions for
all 12 companies in 2016 is
2,365mt CO₂, equal to India’s
annual carbon emissions.
{ Coal, oil & gas and iron ore
producers have highest Scope 3
intensities.
{ BHP and Rio have Scope 3
footprints of 600mt CO₂.
{ Prospect of more carbon pricing
in commodity consuming
countries poses a significant risk.
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Miners have moved down the cost curve since 2013
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{ Majority of companies
sit relatively low on
the industry copper
equivalent ‘cost
curve’.
{ All companies have
cut operational costs
since 2013. Average
reduction of 10% p.a.
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Less of miners’ earnings coming from fossil fuels
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{ On average company
earnings from
commodities needed in
low-carbon transition
exceed EBITDA from
fossil fuels.
{ Nine companies
produce oil, gas, met
coal or thermal coal.
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Water stress already an issue for the mining sector
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Company production split by geographyGlobal water stress for mining
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And already costing money to rectify
Antofagasta: “The use of surface water will generally no
longer be feasible for new greenfield projects in Chile.”
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Drought severity risk
Company Status
Antofagasta- LosPelambres US$470minvestment
BHP/RioTinto- Escondida US$3.3bninvestment
SouthernCopper- TiaMaria Minedevelopmenthalted
AngloAmerican- LosBronces 30ktlostcopperproductionin2014
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Water resilience summary
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Metrics:
{ Asset exposure to water stress
{ Water withdrawal intensity
{ Water recycled & fresh surface water use
{ Water governance & policy
Company Waterresiliencerank Waterresiliencegrade
Vale 1 A
BHP 2 A
Boliden 3 B
Anglo American 4 B
Teck 5 B
Glencore 6 B
South32 7 B
Antofagasta 8 C
Rio Tinto 9 C
Freeport-McMoRan 10 D
First Quantum Minerals 11 E
Vedanta Resources 12 E
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Baseline water stress set to be high by 2030
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{ By 2030, 27% of
production and up to
US$50bn of revenues is
likely to be exposed to high
levels of water stress risk.
{ Most exposed regions are
Chile, South Africa, U.S.
and Australia.
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Water recycling becoming more important for miners
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{ Eight of the 12 companies
have water recycling rates >
50%.
{ BHP and Antofagasta have
lowest fresh surface water
use.
{ Desalination and recycling
infrastructure becoming
increasingly important to
mitigate against water stress
exposure.
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Transition opportunities
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Electrification, batteries and EVs to drive commodity demand
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EV deployment scenarios to 2030 Lithium-ion battery components
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Transition opportunities summary
Company Transitionopportunitiesrank
Transitionopportunitiesgrade
Rio Tinto 1 A
Boliden 2 B
Antofagasta 3 B
Glencore 4 B
First Quantum Minerals 5 C
Vale 6 C
BHP 7 C
Freeport-McMoRan 8 D
Anglo American 9 D
Vedanta Resources 10 D
South32 11 D
Teck 12 E
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Metrics:
{ CAPEX split by commodity
{ CAPEX intensity
{ Capital flexibility
{ R&D and innovation
{ Renewable energy use
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More capital spent on ‘low-carbon’ metals than fossil fuels{ Companies to the left have
higher share of CAPEX spent on “low-carbon” commodities.
{ 45% of total CAPEX spent on “low-carbon” commodities; however, 25% on fossil fuels.
{ Miners in general shifting away from thermal coal (except for Glencore).
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Miners still reliant on fossil fuel energy sources
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{ The bulk of miners’
energy needs currently
comes from fossil fuels.
{ Six companies source >
20% of energy from
renewables, with Boliden
the highest at 42%.
{ Energy accounts for up
to 75% of miners’
emissions and up to 30%
of operational cost base.
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Climate governance and strategy
Page 28
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Climate governance & strategy summary
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Metrics:
{ Carbon regulation supportiveness
{ Emissions reduction targets
{ Emissions verification
{ Climate-related remuneration
{ Use of internal carbon price
{ CDP score
Company Climategovernance&strategyrank
Climategovernance&strategygrade
South32 1 ABHP 2 BTeck 3 BAntofagasta 4 CVedanta Resources 5 CGlencore 6 CBoliden 7 CRio Tinto 8 CAnglo American 9 DFreeport-McMoRan 10 DVale 11 DFirst Quantum Minerals 12 E
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Carbon regulation engagement varies across companies
{ Poor engagement on climate-policy by whole sector and evidence that some miners remain opposed to strands of climate policy.
{ South African carbon tax highlights difference in South32 and Anglo American policy engagement.
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Investor climate scenario testing still developing
BHP 2015 Glencore 2016
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Internal carbon prices and exec remuneration
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Climate-related remuneration
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‘Aiming for A’ shareholder resolutions
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{ See page 32 of full report
Company ClimatePublications OperationalCO2 targets Portfolioresilienceassessment LowcarbonR&D ClimateKPIsin
remuneration Publicpolicyposition
BHP 2015,2016Flatabsoluteemissionsuntil2017.
Fourscenarios,outcomesforcommoditygroupsandestimatedimpactoncompanyEBITDA.
Refertometric4ofTransitionOpportunities.
Yes,withinHealth,Safety,EnvironmentandCommunity.
Refertometric1ofClimategovernance&strategysection.
RioTinto 2017
Emissionsintensityreductiontargetoutto2020.
Threescenarios– Limitedaction,RegionalDifferencesandCo-operativeoutcomes.Descriptionofscenariosonlyin2017cliamtereport.
Refertometric4ofTransitionOpportunities. No.
Refertometric1ofthisClimategovernance&strategysection.
AngloAmerican 2017
Existing22%absoluteemissionstargetbasedrelativetoBAUemissionsby2020.
Descriptionofexpectedquantitativescenariosworktobepublishedin2018.
Refertometric4ofTransitionOpportunities.
CEO’sbonusislinkedtoachievingemissionstargetearly.
Refertometric1ofthisClimategovernance&strategysection.
Glencore 2016,2017
Newgroup-wide5%emissionsintensitytargetby2020.
Threescenarios– Delayed,CommittedandAmbitiousaction.Indiciativedirectionalimpactsoncommoditiesdisclosed.
Refertometric4ofTransitionOpportunities.
CarbonrelatedcompensationKPIssetatassetlevel.
Refertometric1ofthisClimategovernance&strategysection.
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Physical risks of climate change
Page 34
In recent years, the north-eastern region of Australia has been hit with several weather events that have
caused disruption to mining operations:
{ In 2011, Cyclone Yasi caused torrential rain in the Bowen Basin of Queensland where BHP, Glencore,
Anglo American and Rio Tinto operate. Severe flooding disrupted production for over six months,
causing output from the region to fall by a third.
{ In 2013, Cyclone Oswald hit the region causing long-term damage to roads and rail networks. Miners
were forced to look for alternative ways to export coal from the southern part of the Bowen Basin.
{ In March 2017, BHP and Glencore ceased production as Cyclone Debbie hit the region. BHP, along
with four other companies declared force majeure, and was unable to meet its contracted export
commitments. It was estimated that about 13mt of coking coal production from Australia was lost due to
damage to rail links.
