Deloitte Australia's latest mining report claims a “growth opportunity” awaits the industry in the low-carbon energy transition
The changing climate is affecting miners all over the world – but there could be various low-carbon opportunities available to West Australian firms.
The nation, which is home to four of the world’s 10 biggest coal mines, is the biggest coal exporter in the world and the third-largest exporter of fossil fuels overall.
But, as several countries and businesses join the efforts to help clean up the global economy, the latest mining and metals report by Deloitte Australia claims a “growth opportunity” awaits the industry in the low-carbon energy transition.
The accountancy firm’s analysis, titled The next great economic opportunity for WA: Transitioning to low-carbon mining, notes that 2020 has seen a shift whereby climate change is not only impacting global miners but also the mid-market.
Companies failing to take action are “already starting to suffer the consequences”
John O’Brien, Deloitte Australia’s partner of financial advisory and co-author of the report, said companies failing to take action as part of the transition are “already starting to suffer the consequences”.
He added: “This is no longer about being one of the good guys, this is about immediate financial impacts. Mid-market players face higher debt costs, reduced investor options and falling valuations.
“Banks are already charging more for debt provided to companies that have the potential to go against their own shareholder demands.
“Many equity investors can no longer touch high emissions stocks, leaving companies with less demand for their stock.
“Investors need to ensure they avoid being behind the market in terms of valuation and investment. The write-offs of 2020 have made the reality of stranded assets an accepted risk for investors.”
Alternatively, O’Brien points out that companies that are taking action to set a strategy for the next 10 years are “being rewarded with concessional loans and increasing valuations”.
“As the transition to a low-carbon future accelerates, financiers are moving away from twentieth century business models, technologies and infrastructure, towards increased investment in clean energy, transport and smart infrastructure – and the commodities that will underpin them.”
“Companies and their executives that assume the markets have not changed on this issue – or even have backed-off due to COVID pressures – will be found wanting.
“Understanding this topic now and setting your company up for future fund-raising success is critical for the mid-market.”
“Once-in-a-century opportunity” for West Australian miners
Deloitte’s report notes that West Australia (WA) has generated “incredible wealth” for the country, because it has been “ahead of the trends” and is “ready to scale up as markets come to fruition”.
It added that the capability to follow the money and scale the right products at the right time presents an “incredible opportunity” for the state, as every economy transforms
to low carbon over the next thirty years.
Deloitte believes demand patterns are going to “change irrevocably”, with favoured solutions such as electrified transport, energy storage or industrial decarbonisation set to see demand for enabling commodities “skyrocket” over time.
“WA is in pole position in terms of the commodities needed to enable the world to transition,” said the report.
“As these changes occur, old ways of manufacturing will decline and new methods with different materials will emerge. This presents an even larger value-add opportunity for the state.
“Adding value not just from an extraction and export perspective but also broadening activity through the value-chain such as manufacturing, reclamation and repurposing.
“Not only can we supply the world with the commodities it needs but we can build new industries to utilise these commodities and ship high value solutions directly into markets.”
Deloitte claims this is a “once-in-a-century opportunity” that could propel the state into a position of “even greater global prominence” – but the accountancy firm notes that harnessing this potential will require a concerted effort.
It highlights four distinct opportunities that play “hand-in-hand with decarbonisation” – including battery supply chains, hydrogen, digital operations, and integrated energy solutions.
Low-carbon risks and opportunities being felt by mid-market West Australian miners
The report said that the risks and opportunities that are being felt now by the mid-market will “only increase over the short term” and that “companies standing still will suffer”.
It underlines three initial steps that can be taken by firms in order to understand the challenge ahead and to communicate progress to stakeholders.
The first action is for companies to understand the current and forecast emissions profile of their operations and products – and to compare them to accepted emissions reduction scenarios. The report said this allows boards to understand the options for “setting public targets” and the “emissions abatement challenge that might be set”.
With the options clear, Deloitte’s second step states that an initial view of the “least-cost actions” required to meet the targets can be taken. It notes that many of these early actions are the “low hanging fruit” that comes with financial benefits, as well as emissions reductions – and that this can all be done without any detailed project assessment.
The final action involves setting abatement targetsbecause once an understanding of the options and associated costs is understood, then it is possible to set public targets.
The analysis said these three steps can set a company on a pathway that will be seen by the market as “genuine and beneficial”. While the actual decarbonisation projects need to follow, it added that they can be delivered once the opportunities arise and markets demand.
“Embedding rational and strategic thinking into the decision-making processes of capital allocation and operating maintenance frameworks is critical, and the sooner this is done, the better,” the report notes.
“Making capital expenditure decisions in 2020 that lock in high emissions operating procedures will be seen as ignorant at best in just a few years.
“Ensuring every decision considers the lens of reducing long term emissions and increasing optionality will conversely be seen as highly strategic and advantageous.”
Deloitte believes that any new or expanded mining operation that is being planned this year should look to start its operations fully enabled to become a “net-zero mine”.