By: Nghiinomenwa Erastus
Тhird-party analyses show that the outlook for gold and copper is neutral-to-positive in a low-decarbonisation scenario and consistently positive for high decarbonisation ambition.
This is according to the report prepared by Dundee Precious Metal on the impact of climate change on its business based on the recommendations of the Task Force for Climate-related Financial Disclosures.
Dundee PM owns and operates the country copper smelter- the smelter activity dominates the country export and import of copper- making the dark mineral the most traded by Namibia.
The report also presents the risk (transition and physical) and opportunities related to climate change.
“Copper use in renewable energy combined with gold’s relatively low emissions intensity as a long-term investment puts us in a good position in a future low-carbon world,” the company revealed.
Third-party analyses show that a low-carbon world will demand significant copper as an input in the renewable energy infrastructure and other critical components.
With the world gradually transitioning, Namibia could be well-positioned as it already has gold and copper reserves and has a smelter to import the two concentrates.
Dundee PM’s Tsumeb smelter is one of the few that can process complex gold-cop- per concentrates.
“This places DPM in a good strategic business position, as decreasing ore grades and increasing future demand can be expected to increase the demand for toll smelter services such as ours,” the company wrote.
The expectation of growing demand will also require the smelting of complex concentrates as offered by the Tsumeb facility.
Copper is also a significant by-product of Dundee gold production, offering additional upside potential for the company.
Despite the company’s strategic position to benefit from the transition, Namibia has an ambitious climate pledge but almost entirely contingent on access to international finance.
The company analysis shows that global gold demand is driven primarily by luxury goods and investment, and it can be expected to be somewhat decoupled from climate-driven market uncertainties.
Furthermore, gold has historically performed well in times of market uncertainty, including in the ongoing Covid-19 pandemic compared to other asset classes.
This implies that gold may benefit from climate-driven volatility and its relative robustness to climate risks is also a potential opportunity.
The report explained that gold has a relatively low intensity of greenhouse gasses (GHG) per unit of value compared to other metals.
According to the company analysis, the majority of gold’s GHG footprint stems from its primary production (mining, milling and smelting), with emissions from downstream refining and processing into final products being negligible (less than 1%).
In terms of transition risks and, in particular, carbon pricing (payment for carbon emission), the primary gold sector with lower GHG emissions per unit mass would also mean higher competitiveness due to lower carbon costs.
Copper is a key constituent in the global economy – it is an excellent conductor of both heat and electricity, it is corrosion-resistant, antibacterial, and highly recyclable.
Its usage in manufacturing renewable energy components and electric cars offers it more insulation from climate change-induced changes.
For Dundee PM, copper is a significant by-product of their gold business. Its importance as a critical material may offer additional upside in light of future decarbonisation goals, wrote the company.
Meeting the goals of the Paris Agreement requires the substantial deployment of renewable energy technologies, energy efficiency, and electrification of heating, transport and industry.
The Tsumeb smelter, one of the few in the world that can handle complex gold-copper concentrates, also faces transition risks.
The company analysis revealed that the transition risks are highly materialised through the indirect exposure to the recently adopted South African carbon tax due to Namibia’s dependence on energy imports. The company is relatively energy-intensive on power.
“We are indirectly exposed to carbon pricing for our Bulgarian and Namibian operations,” the report read.
Carbon tax levels are currently low and are not expected to increase significantly in the medium term.
Emissions Trading System (ETS) prices have increased approximately fivefold since 2017.
This has been felt through electricity prices, but the effect has been buffered due to the free allocation of emissions quotas, meaning that emissions’ costs have been partially offset.
For the smelter in Namibia, the country imports a significant share of its electricity, primarily from South Africa, where carbon taxation was introduced in 2019.
Current carbon tax levels in South Africa are low – nominally US$8,5 per tonne.
The International Energy Agency projects a two-times increase in carbon pricing.
The company’s internal analysis of the effect of carbon pricing on Tsumeb operations indicates that while carbon pricing risk exposure exists, it is currently small, and its future development is uncertain.
Future growth of carbon pricing risk depends on South African climate policy in the medium and long term, which is seen by third party organisations as highly insufficient.
Secondly, blocking mining projects has been observed as potentially high risk on GHG grounds.
Although currently limited to coal projects, which is outside of DPM’s business, this indicates the overall direction for the mining sector as a whole.
The company reported that it has been accounting for GHG since 2011 and has published its performance in its biennial Sustainability Reports.
At Tsumeb, the company indicated in the report that it had achieved a 53% reduction in Scope 1 and 2 GHG emissions intensity between 2012 and 2019.
The company highlighted that developments in the Namibia policy environment are critical for the Tsumeb smelter.
To counter its strong reliance on electricity imports, Namibia has pledged an 89% reduction of GHG emissions toward 2030, including increasing electricity production from renewables from 33% to 70%.
Furthermore, as 47% of Namibia’s population lacks access to electricity, significant energy-related investments are required to ensure universal access to affordable, reliable, and modern energy services by 2030 (SDG 7).
The report indicated that 90% of Namibia’s GHG reduction commitments are conditional on access to international climate finance, making the outlook uncertain.
South Africa’s GHG reduction pledge has been rated as ‘highly insufficient for meeting the goals of the Paris Agreement8’.
At present, this outlook is uncertain, but South Africa has signalled a reliance on carbon-intensive sectors (instead of previously planned renewables investment) for its current recovery measures.
The company wrote that transition to a low carbon economy is another layer of complexity that it is committed to embedding into its corporate structure and associated frameworks, policies, and standards throughout the organisation.
Namibia, which houses the Tsumeb smelter, is considered the country with the highest solar PV potential in the world.
It plans to increase its share of renewables from 33% to 70% toward 2030, though conditional on access to international finance.
Dundee reported that they previously explored the potential deployment of solar PV for their Tsumeb smelter, but this has been hampered by existing issues in the country’s energy sector, including regulatory uncertainty concerning feed-in tariffs.
However, their assessment of carbon pricing exposure lends additional credence to renewable energy’s potential for improving operational efficiency and self-sufficiency.
Dundee PM acquired the Tsumeb operation in 2010, with heavy reliance on coal.
The company reported that most emissions reductions achieved since then are a result of major reductions in the use of coal, driven by process optimisation and substitution with lower-emissions fuels.
Direct (Scope 2) emissions from electricity consumption have increased over time due to the emission factor of the electricity mix in Namibia and the internalisation of some of the previously outsourced processes.
Given that electricity accounts for most of Tsumeb’s emissions, the company reported that the country transition presents a significant emissions reduction potential via the transition to renewable energy sources. Email: erastus@thevillager.com.na
