The mine of the future won’t be cheap

To put it bluntly, it’s been a hell of a year.

In the editorial in our December 2020 issue, I wrote about the promise of the two leading – but not yet approved, much less manufactured – Covid-19 vaccines from Pfizer and Moderna.

A year later, everyone in Canada and the U.S. who wants to be vaccinated has been, with the roll-out now starting for children under 12. More vulnerable populations are now eligible for booster shots.

It’s worth reflecting on how quickly things have changed. And although Covid-19 has not gone away, we are adapting.

At the same time as it deals with the human resource, travel, and supply chain issues that the pandemic has given rise to, the mining industry is adapting to another enormous challenge: decarbonization. While not as acute a crisis, the energy transition is a disruptive and transformational force that is increasing in urgency. (Just look at B.C.’s experience this year with fires and floods.)

There is not a facet of the mining business that won’t be affected by this transition, and now that the largest miners have formally set net zero goals for 2050, they must now outline their plans to get there.

One thing is clear – it won’t be cheap. Neither is the status quo however: McKinsey & Co. estimates that the cost of capital for miners with the lowest ESG scores can be 20-25% higher than those at the top end.

Over time, the cost of new technologies will decline.

In its report, The 2030 Decarbonization Challenge, Deloitte noted that energy storage, which is key to large-scale adoption of renewable energy, has become less expensive over the past decade. According to Bloomberg New Energy Finance (BNEF) data, average market prices for battery packs fell by 86% from US$1,100/kilowatt hour (kWh) in 2010 to US$156/kWh in 2019, with further reductions expected.

And while electric trucks are still more expensive than diesel, McKinsey says that the math will work out differently in time.

“We estimate that by 2030, total cost of ownership for a battery electric or fuel cell haulage truck will be approximately 20%, and 10% lower (respectively) than existing diesel trucks,” the management consulting firm said a June 2021 article. Despite higher upfront vehicle and infrastructure costs, the overall cost is expected to be lower thanks to 20-30% lower maintenance costs and 40-60% lower fuel costs.

In the meantime, miners will have to plan their decarbonization pathways carefully.

Availability of low-carbon equipment could also become an issue as Mark Fellows of Skarn Associates warned miners at CMJ’s Reimagine Mining Symposium in October.

“It’s easy to envisage how the equipment manufacturers’ order books are going to get pretty blocked out by the major mining companies as low carbon mobile equipment becomes available. There’s going to be a hell of a logjam when it comes to sourcing that equipment,” he said.

Turn to page 21 (or our features section) for more insights on decarbonization and coverage of the symposium, and check out Costmine’s advice on incorporating ESG considerations into costing on page 28. 

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