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How ASX miners are creating opportunities for sustainable investors

Miners are investing billions to achieve net zero carbon emissions, creating new opportunities across the supply chain for sustainable investors, says Pendal’s ELISE MCKAY

AUSTRALIA’S mining industry is investing billions as part of a push to achieve net zero carbon emissions, creating new opportunities across the mining supply chain for sustainable investors, says Pendal’s Elise McKay.

Iron ore miner Fortescue Metals Group has committed to net zero operational emissions by 2030.

BHP is seeking a 30 per cent reduction in operational emissions by 2030 and Rio is targeting a 15 per cent reduction by 2025 and a 50 per cent reduction by 2030.

“We visited 15 different companies across the mining supply chain in Perth last week and one of the key standouts was the extent to which there’s a huge focus on getting to zero emissions,” says McKay, an investment analyst in Pendal’s Australian equities team.

“About 40 to 50 per cent of mining company emissions are from diesel in mobile equipment so it’s a big problem that needs to be solved — and solved quickly.”

It’s perhaps not surprising that mining companies are at the forefront of sustainability planning.

“It’s a broad generalisation, but companies that tend to be the most forward thinking in terms of ESG are typically the ones that have the biggest problems to solve,” says McKay.

Pendal equities analyst Elise McKay
Pendal equities analyst Elise McKay

“The miners are right up there. They have big problems that need to be solved and that’s a threat to their ability to continue to operate unless they can address these issues.”

Reducing haulage emissions

Haulage emissions — pollution from big mining trucks — is one area miners are focused on.

Solutions are focused on two broad directions and it’s unclear which will be more effective, says McKay.

Majors like BHP, Rio and Newmont have announced partnerships with NYSE-listed Caterpillar, the world’s largest maker of construction and mining equipment, which is distributed locally by Westrac, owned by ASX-listed Seven Group.

Caterpillar is trialling zero-emission trucks on mine sites by 2024 and intends to have them for sale by 2027.

But Fortescue’s 2030 net zero commitment suggests that time frame is too slow.

Instead, it recently announced the acquisition of Williams Advanced Engineering, a battery systems developer with its roots in the revered F1 racing team.

Pendal Horizon Fund

A concentrated Aussie equities portfolio aligned with the transition to a sustainable, future economy

“They’re working together on the power units that will go into a truck,” says McKay, and intend to retrofit existing trucks to get to zero emissions vehicles earlier.

There are some important problems to be solved – basic functions like cooling systems and weight distribution are different for battery powered trucks and need to be designed around.

“And these are regions that are typically not liked by electric vehicles – the Pilbara is hot, it’s dusty and there’s a lot of rain. The technology needs to cope with these types of conditions.”

The construction of the truck itself also has to meet zero emissions requirements so companies are now exploring green steel solutions such as those made with renewable energy.

And even fundamental operational issues need to be addressed – diesel trucks can be refuelled in less than 20 minutes and may only need refuelling once a day, but batteries only last one to three hours.

“How can you recharge 10 times a day without having massive hits to productivity?” says McKay. One near-term solution to reducing emissions is more autonomous vehicles, which use less energy to run and can be run more productively. 

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Where to look for opportunities

So how can investors assess the opportunity of mining net zero?

“What’s really interesting is how it all flows through the supply chain,” says McKay.

“Seven’s Westrac, for example, owns the Caterpillar dealership in WA and has the leading market share in the west for mining equipment and autonomous vehicles.

“But is there a threat there? How does it change their relationships with customers?

“Do those customer relationships become stickier because they’re working on whole of mine-site solutions? Is there an opportunity to extend their product strategy?”

About Elise McKay and Pendal Australian share funds

Elise is an investment analyst with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.

She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.

Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.

Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management. 

Contact a Pendal key account manager here

This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at June 29, 2022. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.

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