Rio Tinto: Be Prepared for the Flood
Due to the wide geographic distribution of mining operations, climate change will have complex impacts on the sector. In 2010, 40 mines in Australia were affected by floods, including disruptions in transporting coal from mines to coastal ports for exports.
Due to the wide geographic distribution of mining operations, climate change, including temperature and precipitation shifts as well as more frequent and severe extreme weather events, will have complex impacts on the sector. Climactic conditions will affect the stability and effectiveness of infrastructure and equipment, environmental protection and site closure practices, and the availability of transportation routes(1). Climate change may also impact the stability and cost of water and energy supplies, which in turn can affect the costs of extraction, which is often water- and energy-intensive(2). Heavy rain and increased erosion may affect slope stability near opencast mines, and rising sea level may make coastal facilities harder to access.
Rio Tinto Limited, the second largest Australian mining company with a US$99 billion market capitalization, has already suffered from the effects of climate change. In 2010 and 2011, approximately forty mines in Australia were affected by floods, including disruptions in transporting coal from mines to coastal ports for exports. Rio Tinto had to declare force majeure on supplies of aluminum from its Boyne smelting division in Australia’s Queensland state, which is Australia’s largest aluminum smelting operation capable of producing 558,000 tons annually(3). Additionally, the closure of the port of Brisbane prevented significant deliveries to some domestic and international customers, which caused Rio Tinto even more problems.
After these bad experiences, Rio Tinto has been adopting certain business practices across the entire value chain, from the design of a new project to the transportation of materials to the end consumer. As Rio Tinto’s latest Climate change report puts it: “climate change risks are also taken into account in the way we design and develop new projects. This is important, because the project stage offers opportunities to improve long-term climate resilience that are either impracticable or too expensive to retrofit once an asset is operational”(4). Companies are investing in better ways to manage energy supply, cost, and financial risks as well. They are also taking advantage of new revenue streams from carbon credits. Rio Tinto is investing in the development of carbon capture and storage technologies.
As part of Rio Tinto’s strategy to combat climate change, they have pursued projects to improve their haul truck efficiency. An example of one of these projects is Rio Tinto’s Coal Australia Dhanna Yurubaya project, in which simple software changes to haul trucks were developed in partnership with equipment manufacturer Komatsu, delivering fuel efficiency savings of approximately five per cent. These changes have been rolled out across the mine’s whole fleet of electric drive trucks, and the initiative is now being replicated at its iron ore operations in Western Australia(4).
Another example of strategies Rio Tinto is now implementing for its projects can be seen on Rio Tinto’s Kennecott copper operation in Salt Lake City, Utah, which produces about 15 per cent of US copper supply. To understand how climate change will affect the mine, Rio Tinto sponsored impact studies and modelling exercises at the University of Utah. The results pointed to future changes in the timing and volume of water run-off, with less precipitation likely to fall as snow and more as rainfall, and more frequent high-intensity storms. Kennecott is using this work to inform the way it uses water. Improvements to water planning, monitoring and infrastructure are under way and Kennecott is also looking to reduce the use of high-quality water, substituting with lower-quality sources where possible(4).
In my opinion, Rio Tinto and other mining companies should explore how investments in ecosystem services can improve local resilience. For example, investment in integrated watershed management programs, enhancement of local water supplies, and protection of existing sources can help secure the availability of sufficient clean water to meet company and community needs, even in light of increasing scarcity and competition. Through participatory and integrated resource management practices, companies can engage host communities as partners in resource management, monitoring, and enhancement.
In my mind, both the mining and the transformation of metals and coal have historically contributed significantly to the current climate change issues we are suffering. Can mining companies do something to significantly reduce their impact on the environment or are they going to continue to be part of the problem. Can they address some of the inherent risks to the supply chain of their current operations in a costly fashion, or will they have to focus on preventive actions for new projects only? Is Rio Tinto really acting against climate change, or is it a public relations game?
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References:
(1) Julia Nelson, Ryan Schuchard, “Adapting to Climate Change: A Guide for the Mining Industry”, BSR
(2) Gledhill, R., D. Hamza-Goodacre, and L. Ping Low, “Business-not-as-usual: Tackling the impact of climate change on supply chain risk”, PWC – Resilience: A Journal of Strategy and Risk (2013)
(3) Reuters Staff, “UPDATE 2-Rio declares force majeure on Boyne aluminium” (2011)
(4) Rio Tinto Climate Change Report (2016)
Very interesting article. I find the discussion around the effects of climate change on mining companies, very interesting because of the affects that these industries have had on the climate. I would not expect them to be on the for front of climate change but am encouraged by their use fuel efficient vehicles.
I think that mining companies reduce their risk of exposure to natural events, like the recent flood in Australia by diversifying their mining operations around the world. I see no other way to mitigate the effects of climate change besides investing heavily in their onsite infrastructure to prepare for flood and drainage events.
I completely agree that given the impact mining companies have had on the environment historically, they should be held accountable for (i) minimizing the environmental impacts of new projects and (ii) minimizing the environmental impacts of their existing supply chain practices. However, I would be interested to know if it is possible for these steps to be economic for mining companies. Can the cost of making their operations less environmentally destructive and/or the cost of preparedness for future environmental events (storms, floods, etc) be outweighed by the potential benefits (i.e., lower remediation expenses, lower disaster recovery costs, etc)? Or will mining companies only take these preventative and/or corrective measures if they are forced to?
Very interesting take on the impact of climate change on the mining industry. My experience in the industry had given me a slightly different take on the challenges and potential solutions.
1) Minimizing climate change: there is significant appetite for most Western mining companies to reduce environmental impact and improve efficiency. Some of it is PR related, but there are also significant economic advantages to improved efficiency. We’ve seen massive capital investment (e.g. hundreds of millions in Pilbara to switch to autonomous vehicles) in areas where the are cost efficiencies to be gained. This will have an impact on CO2 emissions and energy use. Unfortunately, many environmental mitigation strategies (e.g. wastewater treatment) offer minimal economic upside. This poses a serious adoption challenge given most minerals are commodities, and position on the cost curve is critical to sustained success. This is compounded by the lack of global standardization in environmental regulations. The path forward to more environmentally friendly mining is likely through international cooperation around standards to set a level playing field that encourages investment, or at least does not punish early adopters.
2) Mitigating risks: High profile environmental impacts have absolutely started to influence thinking around risk management, especially flooding. The industry approach appears to be centering around greater integration of key risk areas. For example, many Australian mines are exploring ways to gain greater control of rail to allow them to prioritize their shipments and participate more directly in disaster planning and recovery efforts. Some are even exploring in-sourcing power production to reduce risk exposure. While these strategies risk lower returns on capital, they are viewed as essential insurance to prevent loss of production.
Great article! Unfortunately, the mining industry is just another example of an industry that has fallen into the vicious cycle of contributing to and suffering from global climate change.
@ChiCon17 – I appreciate your take on the future of the mining industry, given your experience with the topic. I do agree with you that in this highly-commoditized market, it seems unlikely that any one mining company can make significant changes. Change will have to be an industry-wide endeavor that multiple companies buy into.
@SN – You pose an interesting question when you ask if it is possible to effectively retrofit old projects to mitigate risk or will new risk mitigation only take place for future projects. McKinsey offers several suggestions for how digitization might help to improve mining in the future [1]. I would venture to guess that a lot of these digital solutions could be applied to existing mines in addition to the new ones. Some of their proposals include embedding sensors in the mines to improve data capture and using machine learning to better predict future events [1]. Although McKinsey does not specifically call this out, I wonder if some of this new digital technology can be put towards predicting natural disasters and guarding against them.
[1] Geraghty, Ryan, Ferran Pujol, Richard Sellschop, and Hugh Durrant-Whyte. “How Digital Innovation Can Improve Mining Productivity.” McKinsey & Company. N.p., Nov. 2015. Web. 01 Dec. 2017. .