QUINTIN HOBBS AND DUANE NEWMAN: The green agenda to set the tone for the 2024 Mining Indaba

When delegates gather for the Mining Indaba next week it won’t just be the splendid sunshine and wines of Cape Town foreign visitors will hanker for — it will be the once-in-a-lifetime chance to join Africa in a new green revolution.

Global warming affects all industries and all countries. The World Economic Forum’s Global Risks Report 2023 noted that “climate change and climatic events are the top global risks the world will face over the next decade.”

There are several factors at play, all affecting how mining companies plan for their future, greener operations. In the face of pressure from governments and all its stakeholders, the mining sector is battling to find ways to reduce emissions, primarily through a move to renewable energy.

In parallel, the unreliable power supply from Eskom, and some counterparts elsewhere in Africa, means that mining firms need to either develop green power provision at their mines or contract out such provision to private green energy generators.

While Eskom is transiting to greener production and some of its large clients are exporting to countries that are exposed to carbon border adjustments, it is still heavily reliant on its fleet of ageing power stations, meaning the power it sells is carbon-heavy, adding to the importance of self-generation in the mining sector.

One important theme of the Mining Indaba will be that while there are new challenges, there are also exciting new green opportunities. In reflecting on the complex challenges ahead, a recent EY publication on the top 10 business risks and opportunities for mining and metals in 2024 noted that “miners are expected to provide minerals for the energy transition, while also reducing greenhouse gas emissions.”

Transition minerals continue to attract large investment flows. Mining companies are reshaping their portfolios to gain greater exposure to transition minerals. The rapidly growing and evolving carbon trading markets have been relatively slow to have an effect in Africa, but we have seen a recent rapid spread in these financial products on this continent.

We are seeing more initiatives in the voluntary market — where carbon emitters can offset their emissions by purchasing carbon credits stemming from projects designed to curb greenhouse gas emissions. Many of the member countries of the world’s largest free trade bloc, the African Continental Free Trade Area (AfCFTA), are seeking to boost their manufacturing footprint through a rapid expansion in beneficiation.  

Africa has vast mineral resources and extensive reserves of many of the minerals required for the development of batteries and other green energy hardware, such as copper, lithium and vanadium. Africa can therefore be at the forefront of the wave of capital funding the development of new transition mineral projects and mines. 

The key challenge for African countries is to position themselves as attractive destinations for this global capital, including the now important sustainability and environmental, social & governance (ESG) requirements that are prerequisites for funders. 

In this context, miners should ensure they source high-quality carbon credits and provide transparency about their activities to reduce direct emissions. They must be wary of charges of greenwashing, defined as making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly.

The EY report notes that land-based carbon credits via nature are being considered as a priority, as they can also provide a positive biodiversity benefit. For example, Rio Tinto is exploring the role nature-based solutions and offsets can play in the decarbonisation journey. The scale of the first round of projects is significant, with the potential to generate up to 1-million tonnes of offsets per year by 2030.

As governments double down on energy transition goals, many are introducing initiatives aimed at fast-tracking renewables while also reducing reliance on other countries, particularly strategic rivals and in critical sectors.

There are also concerns that climate change-related regulations and subsidies in developed countries will worsen the global wealth divide, particularly for those countries without resource wealth. 

Resource-rich countries in Africa, and elsewhere, have an opportunity to play the big powers off against each other as countries scramble for influence in, and access to, mineral resources in emerging markets.

At the recent COP28 gathering in Dubai progress was disappointing. Disagreements over technical aspects hindered consensus. The delay has implications for voluntary carbon markets, imposing roadblocks for market-based private sector engagement.

The carbon market is potentially quite a big source of financing for greening Africa, with high growth potential. The biggest buyers of carbon credits are expected to be from the Middle East, with increased demand from countries that are not otherwise going to meet their obligations. This will assist Africa to monetise its carbon reductions while using greener power to produce more beneficiated products.

There is an enormous opportunity for businesses to leverage the carbon markets to generate revenue streams. The World Bank has already committed to building and supporting the scaling of high-integrity carbon markets. This is supported by the Glasgow Financial Alliance for Net Zero, a global coalition of leading financial institutions that was formed during the COP26 climate conference in Glasgow that is committed to accelerating the decarbonisation of the economy.

The challenge is to ensure that Africa’s carbon markets can be speedily expanded to facilitate a growing carbon trade, while also meeting the highest global standards of governance and integrity.  

Whatever the weather in Cape Town it will be impossible to ignore the climate and environmental imperatives. If the climate crisis can be turned into new green business opportunities, the mining sector in Africa may be able to convincingly shed its reputation as a sunset industry.

• Hobbs is strategy & transactions leader, and Newman sustainability tax partner, at EY SA.