ANALYSIS - Climate Change Poses Disaster Scenario for Miners

ANALYSIS - Climate Change Poses Disaster Scenario for Miners

PlanetArk UK

14th September 2006

LONDON - Flooded railway lines and storms destroying open-pit mines are among the challenges mining firms will face in the future as climate change grips the planet.

Scientists say the build-up of greenhouse heat-trapping gases (GHG) will bring more droughts, heat waves and powerful storms. It also will speed the spread of deserts and could raise sea levels by almost a metre by 2100.

"Undoubtedly miners are being financially and physically affected by climate change," said Rob Lake, responsible for investments in the mining sector at Henderson Global Investors, managing around 63 billion pounds (US$118 billion).

He said interruptions to production from floodings of railway lines and storms destroying open pit mines would be more frequent in the future.

"There is a challenge in the planning and to capital costs of some of their projects," Lake said, adding that how industry responds could affect future success in attracting investment.

Carbon dioxide (CO2) is the main gas released by burning fossil fuels in power plants, factories and cars. It is seen as the main cause of global warming.

Global emissions of CO2 look likely to increase and may hit 43.7 billion tonnes in 2030, up from 25 billion tonnes in 2003, the Energy Information Administration said in an annual review.

Laurel Green, Group Climate Change Executive at Rio Tinto the second largest diversified miner, expected the weather to become more extreme in future. She said Rio was working hard to understand its impact on the firm.

"We operate projects that are supposed to last 30-50 years and in order to stay in business we have to make sure our operations will last that period of time," she said.

The company was developing "low emissions pathways" for its products to reduce the intensity of GHG emissions in its coal combustion, metals smelting and electricity operations.

"It is very hard to say or forecast the costs this has for our business," Green said.

WEATHER DERIVATIVES GROW

Traders in weather derivatives say they've seen a surge in interest from mining companies to hedge against extreme weather.

"Floodings and storms are the main risks for the mining industry," Alex Schippers, Global Head of Weather and Insurance Derivatives at ABN Amro in Amsterdam, said.

The interest from the mining sector is rising as it faces large risks, such as floodings of tailing dams, he said.

Monitoring climate change, the Northern Alaska Environmental Center's Executive Director David van den Berg said Alaskan diamond miners faced transportation troubles, as engineers have not factored in the rapid increase in temperatures.

When a road is built over permafrost, thawing affects the stability of the gravel, making the road less safe, he said.

MINERS MUST SAVE ENERGY

Miners contribute to GHGs emissions by consuming large quantities of oil, gas and coal in their production processes.

Energy on average may account for up to one-quarter of total processing costs.

In the making of primary aluminium, energy can be as high as one-third of the total production cost, Patrick Atkins, Director of Technology Innovating Energy at the world's top aluminium producer Alcoa said.

In 2005, 75 percent of Rio Tinto's 27 million tonnes of CO2 equivalent emissions derived from its energy use.

For Lehman Brother's newly launched Socially Responsive Fund, energy efficiency is a top theme.

"Companies that offer energy efficient products and have integrated energy efficiency into their manufacturing process... will have a financial advantage," Ingrid Dott, managing director of the US$1 billion fund, said.

In the short term, energy efficiency could reduce costs, but in the longer term costlier measures are necessary.

"Greater cost efficiency would mean greater energy efficiency, which should mean lower GHG emissions," research director John Meyer at Numis Securities said.

But eventually it is necessary to develop more complex fixes, such as anode technologies reducing CO2 gas emissions from light metal processing, Green said.

Story by Anna Stablum

REUTERS NEWS SERVICE