CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
Mining companies that are accelerating their carbon-abatement strategies will strengthen their business profiles by making their operations more resilient to future challenges, a new analysis released by Fitch Ratings states.
According to the credit rating agency, major miners updated their climate-change agendas in 2021, driven by anticipated government policies to implement the Paris Agreement pledges and investor demands. In fact, all global miners, including Rio Tinto, Anglo American and BHP, set emission-reduction targets linked to Scope 1, 2 and 3 emissions.
“Rio Tinto and Anglo American’s abatement targets for Scope 1 and Scope 2 are ambitious compared to peers,” the review reads. “We do not expect their climate change initiatives to materially affect their financial profiles over the next few years, particularly considering their substantial financial flexibility and very conservative debt levels. This will strengthen their business profiles as such improvements make operations able to withstand future challenges and potential regulatory changes – such as the progressive global deployment of carbon schemes.”
Rio Tinto significantly increased its abatement targets in October 2021, committing $7.5 billion for decarbonization capital investment over 2022-2030. The higher capital budget is mostly linked to the implementation of the ELYSIS project, which will decarbonize the aluminum smelting process, and the company’s investment for the rapid deployment of around 1GW of solar and renewables in the Pilbara region in Australia, with supporting storage.
“Anodes and reductants required across the aluminum value chain set free around six million tonnes of Scope 1 carbon across Rio Tinto’s portfolio (2020; on an equity basis). Rio Tinto and Alcoa Corporation are striving for the commercialization of the ELYSIS technology from 2024 to eliminate those emissions from the aluminum smelting process,” the report mentions. “Deployment of the ELYSIS technology in aluminum will allow for a tangible step-change for Rio Tinto’s Scope 1 and 3 carbon footprint and the wider aluminum value chain inside the 2020s – particularly compared to steelmaking decarbonization initiatives across the mining sector.”
Beyond Rio, Fitch’s experts point out that most miners’ Scope 3 emissions are linked to the onward processing or consumption of products such as iron ore, met coal, thermal coal, bauxite and alumina.
Yet, as is Rio, majors like BHP and Anglo American are committed to maintaining strong balance sheets despite the capital they are allocating towards decarbonization investments and growth.
“We expect them to scale back dividends or growth capex if their financial metrics start deteriorating, be it due to weaker commodity markets or changing cost structures linked to climate change policies, and to steer their financial profiles in line with existing rating sensitivities,” Fitch says. “BHP and Anglo American have clearly communicated gearing targets linked to relative or absolute net debt, which are incorporated in our rating analysis. Rio Tinto does not have an explicit debt target but defines an ‘A’ category rating as its comfort zone.”
But for Fitch Ratings, miners are not the only ones who are to do their part when it comes to decarbonizing the mining value chain. Governments must step in as well.
“Government policies across the globe are vital for decarbonization, but particularly China’s as it represents more than 55% of global steel consumption and over 50% of base metals, according to data from CRU Group – and an even higher share of emissions due to greater use of blast furnaces for steel and coal-fired power for aluminum smelting.”
