Energy and Mines Magazine Issue 21

ENERGY STRATEGY IN GLOBAL UNCERTAINTY How Miners Procure Energy in a Pandemic AUSTRALIAN MINES’ PATH TO 100% CARBON NEUTRAL FINE TUNING INTEGRATED MICROGRIDS FOR MINES

Issue

21

June

2020

Photo Courtesy Couer Mining 2

ENERGY AND MINES MAGAZINE

story

Energy strategy and global uncertainty: insights from miners

3

M

iners are used to fluctuating business conditions, from the divergent legislations they work in to the notorious volatility of commodity prices. Because of that, they tend to run their companies in a conservative manner, planning for the long haul and maintaining the necessary financial buffers. In a time of global pandemic, this strategy is paying off: even with various operations forced to shut down, mining companies are proving very resilient to the coronavirus crisis. But this conservativeness is also one of the reasons why it takes so long for the industry to adopt new technologies, including renewable power, electric vehicles and hydrogen. In this article, five mining companies tell us exactly how they handle energy decisions, and to what extent their energy strategy is being affected by Covid-19.

Integrated approach When it comes to assessing energy decisions, the type and number of teams involved vary from miner to miner, but the initiative can come from corporate management as much as from individual sites.

“We take an integrated approach to decision-making, involving the site team, technical team, management, supply chain, as well as the corporate team for larger and more strategic projects,” says Sunil Kumar, Director, Energy Strategy at Kinross Gold. “Initiatives for energy efficiency projects can come from the corporate energy team or the site teams, with the latter having the direct responsibility for energy operating costs, labour, profits, etc, for their site. When there are new technologies or strategic initiatives, then it might start at the corporate level. It’s a very collaborative approach.”

This top-down, bottom-up approach is also used by Newmont Goldcorp, a company that consistently ranks near the top of mining sustainability indices. Frank Roberto, Senior Manager, Process Innovation at the firm, explains: “Consideration of renewable energy options can start in two possible ways: I’m in the processing and 4

Initiatives for energy efficiency projects can come from the corporate energy team or the site teams, with the latter having the direct responsibility for energy operating costs, labour, profits, etc, for their site.

SUNIL KUMAR Director, Energy Strategy, Kinross Gold ENERGY AND MINES MAGAZINE

Kinross Gold Hydro Plant Brazil 5

6

ENERGY AND MINES MAGAZINE

metallurgy team, and we consider renewable power options fairly early as we start to design a project and hopefully by the time we’re ready to get into the engineering of the project, we’ll have some options to present to our value assurance team. At the same time, our regions and our mines themselves have the option to consider renewable power opportunities.” He gives the example of the Akyem mine in Ghana, where the team was very proactive about considering solar power. This resulted in the deployment of a small solar installation at the camp, and today Newmont Goldcorp is in talks with the Ghanaian government to purchase power from a 13 MW state-owned solar project.

But whoever is involved in decisions, the process follows the same pattern for all miners: first, they look at a variety of sources to assess long-term power costs for their operations, as well as the energy options available. According to Kumar, this assessment can include conversations with utilities or energy suppliers to understand generation, demand and the resulting price projections. It can also involve working with local consultants to provide energy market forecasts. As for fuel price projections, Kinross relies on external market studies for crude oil prices with adjustments for local market pricing. Once an initial assessment has been completed, miners reach out to the market to determine the best cost-benefit solution.

We’ve seen a distinct downward trend in costs for renewables JUSTIN BROWN Managing Director, Element25

Justin Brown, Managing Director of Element25, which is completing its pre-feasibility study for a wholly owned manganese project in Western Australia, explains: ”We did quite a lot of work on a study which looked at the modelling of the combination of wind, solar and gas that we would likely use as a solution. And then we went to an RFP process which got some direct information from the market on the likely cost of those solutions, and now we’re watching the trends in the further reduction of costs through bigger turbine sizes, cheaper solar panels, etc. We’re not going to really know what the final price will be until the final tender process, but we’ve seen a distinct downward trend in costs for renewables.”

7

Emerging priorities Unsurprisingly, the first thing miners look at when evaluating energy solutions is cost. In some areas, renewables can already be cheaper than fossil fuels: that’s the case in the Pilbara, the Western Australian region where Element25 is developing its manganese mine. “In terms of scale, we’re going to use as much renewables as we can support from a technical point of view because we know it’s cheaper, and we also know that it provides protection from the price variations of fossil fuels and from future carbon taxes from the government.

We’re looking at a very long mine life so it’s important for us to have that protection,” adds Brown.

In other places, it may be harder to find the business case for renewable solutions. For its remote Tanami Mines in Australia’s Northern Territory, which used to run on trucked heavy fuel oil, Newmont Goldcorp considered a wide range of options, including solar hybrids and even small nuclear solutions. In the end, the company opted for the construction of a gas pipeline. “We start looking at a broad range of options early on, and compare them based on economic feasibility, technical maturity and timeline constraints. But in the end, with every project we work on, as we get more mature and closer to implementation, people are always looking for ways to make the project more economically feasible,” says Roberto.

Though it isn’t carbon neutral, the gas pipeline in question will result in the reduction of GHG emissions in the area, and not just from Newmont Goldcorp: Prodigy Gold, a new miner developing operations in the region, is also looking at switching from diesel to gas, now that the option is available.

Interestingly, in some cases miners may opt for a renewable option even if it is more expensive than traditional energy generation: that’s the case of Coeur Mining’s Wharf Mine in South Dakota, which is considering switching to wind-powered electricity. Korie Hickel, the company’s ESG, Community and Government Relations Manager, 8

People are always looking for ways to make the project more economically feasible FRANK ROBERTO Senior Manager Process Innovation Newmont Goldcorp ENERGY AND MINES MAGAZINE

9

Photo Courtesy Prodigy Gold 10

ENERGY AND MINES MAGAZINE

explains that factors other than cost are starting to weigh more heavily in the decision process. “We are looking at options to increase our renewable energy sources that may or may not bring an increase in costs. GHG emissions and carbon footprint considerations are increasingly important to us as well as to our stockholders,” she says.

It appears that climate activism in the public and shareholder communities is starting to influence business decisions and can even tip the balance from an almost viable to a viable business case. These examples are still rare, but industry participants expect them to become more and more frequent as time goes on. Prodigy Gold’s Managing Director, Matt Briggs, explains: “Typically, shareholders are asking for more reporting of the full spread of climate emissions as part of ESG — this has really increased the amount of reporting we’ve done in the past 12 to 18 months. But when you ask shareholders whether it’s changing where they put their dollars, margins still talk more highly than the environmental considerations at the moment.

As things mature, we’ll see more dollars following the good will, and that will drive the industry to change more rapidly.”

Of course, the introduction of carbon taxes would be the most efficient way to reconcile financial considerations and climate activism.

As things mature, we’ll see more dollars following the good will, and that will drive the industry to change more rapidly MATT BRIGGS Managing Director Prodigy Gold

Limited options While it may seem like the world is ripe with renewable energy options, the truth is that once the location and individual requirements of a mine are taken into consideration, in addition to the capital position and size of each miner, the choices tend to be drastically reduced.

For Prodigy Gold for instance, mobility is key. “We have a million ounces of gold resources and we’re exploring for more discoveries to choose the right location for a processing site. The location of the resources would be a part of optimizing the power supply and what form it would have. We currently have field camps where we use some 11

portable solar systems, and we’ve considered putting solar panels to power the camp, but with the mobility that we need, contrasted with the power supply that we require, renewable energy is still a challenge,” explains Briggs.

And as Tier 1 miners’ announcements of the construction of giant solar plants and procurement of hundreds of gigawatts of renewable power take center stage in the news, smaller miners are still dependent on partnerships with the market in order to increase the options available to them. Coeur Mining’s Hickel says: “A lot of it comes down to what is available and our options are very limited.

We’re a smaller company than many so we don’t have a lot of extra capital to fund projects all on our own, especially with the lack of opportunity for payback. So we really look to partner with other groups who can build and provide the power, so that we don’t have to generate it or maintain it on our own, and we’re happy to be the main customer.”

She gives the example of Coeur’s Kensington Mine in Alaska: offgrid, wholly reliant on diesel, but located on federal land and with a three-year mine life. “The permitting process would probably take longer than our current life of mine.”

At the end of the day, the decision to integrate renewables into a specific mine site can involve innumerable factors, among which the cost of the solution and time to implementation, life of mine, and a potential carbon price. So for suppliers, it is important to get in early in the process, understand the specificity of each site and each miner’s requirements, and be prepared to innovate commercially in order to share risk.

12

GHG emissions and carbon footprint considerations are increasingly important to us as well as to our stockholders KORIE HICKEL Community and Government Relations Manager Coeur Mining ENERGY AND MINES MAGAZINE

Photo Courtesy Coeur Mining 13

Covid-19 and low oil prices:

what impact for miners’ energy strategy?

T

he coronavirus crisis has had an undeniable impact on the mining sector: social distancing measures have forced miners to limit the number of workers present on a site or introduce quarantines, slowing down operations around the world.

Upon implementing lockdowns, some countries took some time to decide whether they considered mining essential or not, forcing operations to stop, at least temporarily: that was the case in South Africa, Italy, Mongolia, and some parts of Canada, Mexico, Peru and Argentina, to name a few.

Energy decisions made before the crisis are not expected to be affected, even though implementation may be delayed. For example, work has slowed down at the laboratory studying variable mining applications for Element25. “Energy-wise, what’s slowed down is the work that Murdoch University is doing for us with some co-funding from ARENA on how to allow the design of our plant load to follow the renewable energy generation patterns,” says Managing Director Justin Brown. “That work has unfortunately stopped for now, and we’re not too sure how long it will take for it to be activated again. We don’t think it will change the overall strategy in the longer term, this is just the short-term impact.”

But the global emergency has pushed miners into survival mode, with new projects and investments being placed on hold to focus on first necessities. This, coupled with the hit companies’ bottom lines have taken as a result of partial closures, is set to influence the number and scale of renewable energy projects undertaken in the coming months. This trend could also be accentuated by the medium-term drop in oil prices: following plummeting demand as a result of global travel restrictions, the US Energy Information Administration (EIA) predicts that crude oil prices will average US$33 a barrel for 2020 and US$46 in 2021, dramatically down from the 2019 average of US$64 per barrel.

“Unfortunately, the low oil price has come with the complete shutdown of our operations so we’re not getting any benefit,” explains Matt

14

ENERGY AND MINES MAGAZINE

Briggs, Managing Director of Prodigy Gold, which is currently reliant on diesel for the exploration of its resource in Northern Australia.

“But there’s talk of a long-term recession, which would likely drive low oil prices for the longer term, which would get us more efficient use of cash in exploration and a higher margin between commodity prices and costs.”

But because of its volatility, the short-term price of oil is generally taken with a pinch of salt in miners’ boardrooms, and energy decisions tend to be taken with a long-term view. Sunil Kumar, Director, Energy Strategy at Kinross Gold, doesn’t believe the drop in crude prices is going to have a significant impact on the company’s strategy. “We take a prudent approach and use a long-term view of energy prices when looking at making investment decisions. When we do financial modelling we’re not using today’s spot energy price.

Although oil prices are very low right now, we will use higher values for project evaluation.”

15

interview

Australian Mines Ltd’s path to carbon neutrality: hydro, solar and electrification

18

ENERGY AND MINES MAGAZINE

Photo Courtesy Stock 19

A

ustralian Mines Limited has committed to becoming 100% carbon-neutral by the end of the year, and will achieve this through a combination of hydro and solar power, mobile electrification and carbon offsetting activities.

In an exclusive interview with Energy and Mines, the company’s Managing Director, Benjamin Bell, revealed that its Sconi nickel and cobalt project, currently under development in northern Queensland, Australia, will be powered by the nearby Kidston hydroelectric and solar plant.

Located in a decommissioned gold mine 280 km north of Townsville, the Kidston Pumped Storage Project is led by Genex Power and partly funded by the Australian Renewable Agency (ARENA), and will deliver up to 330 MW of clean power into the grid, and is now in the final phases of construction.

“There’s increased demand for renewable energy up in that region, so the public infrastructure is growing there. We get the benefits of using a grid system, so our cost of production won’t be significantly different whether we use renewable energy or traditional coal-powered energy. There’s a bit more of a CAPEX cost upfront, but the OPEX offsets that,” explained Bell.

In addition to using clean energy for its operations, Sconi will have a solar-powered camp for about 300 workers, and will electrify movements on its site. “Our site is quite compact, so we are looking at ways of reducing the amount of vehicles by replacing trucks with conveyor belts, for example,” he said, adding that the company will be looking at electric options for the vehicles it cannot displace.

Australian Mines Ltd is currently going through a final audit process in collaboration with the Australian government. Results will be published in June, and will include details on the power solution, mine electrification, and the amount of GHG emissions that will have to be offset to achieve carbon neutrality. “We can’t obviously cut all of our carbon emissions, some of it we have to offset through support towards UN programs and the like. But we’re trying to reduce our actual footprint rather than paying to offset it,” points out Bell.

20

ENERGY AND MINES MAGAZINE

Queensland (Stock)

According to him, the main reason for going down the decarbonization path is to maintain coherent values: “We don’t want to be a company that sells into the EV market but doesn’t reflect the same values internally,” he says. “We don’t expect to charge a higher premium, we don’t expect it to make any difference in selling the product. We just think it’s the right thing to do.”

Australian Mines Ltd aims to be one of the world’s cheapest producers of nickel and cobalt sulphates, by refining the metals directly at the mine site to provide a finished product to battery manufacturers for electric vehicles. The company is a member of the Initiative for Responsible Mining (IRMA), and will be certified Carbon-Neutral under the Australian Government’s Climate Active Program. Throughout the current audit process, the company is also negotiating commercial contracts with providers and offtakers.

Construction is then expected to begin by the end of 2020, with a two-year build time before operations can start.

The Australian company is the latest mineral supplier to the EV market to make the decision to go 100% carbon-neutral: another example is Quebec’s Nouveau Monde Graphite, which plans to be the world’s first all-electric open-pit mine. In both cases, the proximity to a hydroelectric grid seems to give a significant advantage to the mine’s green ambitions.

“We don’t want to be a company that sells into the EV market but doesn’t reflect the same values internally” BENJAMIN BELL Managing Director Australian Mines Ltd 21

Resolute mining Syama Project Photo Courtesy Resolute Mining 22

ENERGY AND MINES MAGAZINE

interview

Fine-tuning integrated microgrids for mines

R

enewable microgrids are becoming increasingly popular, as the cost of solar and wind energy continues to drop, and carbon reduction targets take more of a center stage for miners. For now, thermal power is still necessary for baseload and back-up, but its part in the hybrid energy mix can be reduced significantly through the smart integration of diesel or gas with renewables and energy storage.

Aggreko recently signed a 16-year contract to build, operate and maintain a hybrid power plant (thermal, solar, batteries) at Resolute’s Syama gold mine in Mali — the world’s largest offgrid hybrid power system, expected to save Resolute US$10mn in energy cost in the first year of operation.

Stage one is expected to be completed in 2020 and will comprise three 10 MW thermal Wärtsilä Modular Blocks and a 10 MW battery storage system, that will provide spinning reserve displacement and outbalance sudden jumps in load. The second stage will consist of the installation of an additional 10 MW Wärtsilä Modular Block in 2022 and the addition of 20 MW solar PV power in 2023. The project will reduce Resolute’s total cost of energy (TCOE) by 40% and their carbon emission by approximately 20%.

The project’s pricing was structured with a combination of fixed and variable charges, and includes an incentive programme where 23

Granny Smith Mine

Aggreko shares between 25% to 50% of the resulting fuel savings if improved efficiencies for key performances indicators in the contract are achieved. “This provides us with an incentive to further reduce the cost of power for Resolute, and we share that cost benefit directly with our customer,” says Rod Saffy, Aggreko’s Head of Mining.

Additionally, the company is installing and operating Gold Fields’ Granny Smith gas, solar and battery solution in Western Australia.

The 8 MW solar facility and 2 MW of battery storage is estimated to reduce Gold Fields’ fuel consumption by 10-13% and their carbon emissions by 11.6%.

Storage for diesel displacement According to Saffy, almost all long-term power tenders now include an element of renewables. “Finding ways to integrate renewables into power generation is increasingly becoming a priority. Not only are renewables good for taking up and managing spinning reserve from a cost point of view, the reduction in emissions from using renewables is becoming an increasingly important reason for shifting,” he explains.

In the past year, Aggreko has seen an increase in the number of photovoltaic installations, as well as an increased interest in wind turbines for power generation and battery storage to help miners manage the spinning reserve component of their power load.

24

ENERGY AND MINES MAGAZINE

The growing trend towards renewables is gathering pace but thermal power still has an important role to play as a baseline power source in order to cope with demands when the sun is not shining or the wind is not blowing,” says Saffy. “At Aggreko, we are working with mining customers to give them the best renewable solutions to reduce their fossil fuel consumption. An example of this is the introduction of microgrid systems, which integrate battery energy storage with renewable generation, helping to avoid the intermittency of supply that can occur with renewable energy.”

For instance, the company has just supplied 1 MW of battery energy storage for spinning reserve for the Yamana’s Cerro Moro gold mine in Argentina. The battery has replaced one of the ten engines of the existing 10 MW diesel station already operated by Aggreko, under the same contract. “Displacing thermal generation with battery storage like we have done at the Cerro Moro gold mine is a repeatable and scalable solution and we are looking to expand this across our global mining business,” notes Saffy.

Digital element key to further renewables adoption Of course, many challenges remain on the pathway to mine decarbonization. Projects with a short life of mine find it difficult to get a return on renewables. Restriction on real estate and the fact that significant amounts of work needs to be done on the land to ensure it meets environmental, social and government regulations are also potential barriers, according to Saffy.

But the environmental and reputational pressure felt by the mining sector will keep moving the needle in the right direction. Saffy predicts that the digital element involved in the dispatch and management of power generation will be increasingly important moving forward. “For example, we currently offer the ability to monitor the performance of a power station from a mobile phone and also control the power station remotely, making management of energy more accessible and measurable,” he says.

“At the same time, renewable solutions are here to stay and will form a bigger and bigger part of our product offering,” concludes Saffy.

“Finding ways to integrate renewables into power generation is increasingly becoming a priority” ROD SAFFY Head of Mining Aggreko 25