South32 to manage 'just transition' to path to net-zero emissions by 2050

South32 Ltd.'s plan to halve Scope 1 and 2 emissions by fiscal 2035 was made to allow time to support local communities who rely on some of its key emitting assets through the transition, according to CEO Graham Kerr.

Kerr told a May 18 analyst call that South32 plans to meet its 2035 target by decarbonizing existing operations, securing green energy, designing growth projects to be carbon neutral, and adopting low carbon technology.

He said energy is a "big contributor" to those emissions, particularly at South32's Hillside aluminum and Worsley alumina refineries in South Africa and Western Australia, respectively.

Kerr referred to a presentation slide showing Hillside and Worsley accounting for 53% and 16%, respectively, of South32's Scope 1 and 2 emissions in fiscal 2020. Hillside's electricity source is primarily coal, as is Worsley's energy source.

Those two assets, along with the Mozal aluminum smelter in Mozambique and the Illawarra metallurgical coal project in Australia's New South Wales, account for 90% of South32's Scope 1 and 2 emissions, according to a same-day video the company released.

Kerr said in the video that South32 is on track to meet its first short-term target of holding its Scope 1 emissions below its fiscal 2015 baseline through to fiscal 2021.

South32's Hillside aluminum operation, South Africa. Source: South32 Ltd.

"Part of the reason we talk about 2035 is we're conscious about managing our way through this process, because Hillside is an important part of the South African economy," Kerr said. Roughly 30% of Hillside's product gets sold downstream, which then creates more jobs in South Africa, he added.

Kerr said setting a date of 2035 "gives us time to actually get this right."

South32 will review its emission reduction approach every five years from 2021, in line with the Intergovernmental Panel on Climate Change's updated scientific reports, to "ensure we make a pragmatic and affordable transition toward the global goal of achieving net-zero emissions by 2050," its updated website states.

South32 is working with other parties in South Africa, including public electricity utility Eskom, to "see how they go on the energy source work they're doing on things like wind and solar, which we think offers a large opportunity" in the country, Kerr said.

Eskom, South Africa's biggest greenhouse gas producer that uses coal for about 90% of its power production, has an "aspirational vision" to reach net-zero emissions by 2050, Bloomberg reported in November 2020.

In fleshing out South32's own work on emissions reduction, Kerr cited a project that the company is referring to internally as "Greenshoots" at Hillside, which focuses on energy efficiency. He also cited South32's studies that are looking into ensuring Hillside also benefits from the AP3XLE energy efficiency technology, which has already been rolled out at Mozal.

South32 is targeting a final investment decision in the first half of fiscal 2022 on applying AP3XLE at Hillside, according to the company's fiscal 2021 half-year financial results.

In Western Australia, the mud washing project at Worsley has the ability to have a "big impact" on not only energy intensity and requirements, but also water use, Kerr said, and studies are progressing to that end. Longer term, South32 is looking at converting Worsley's energy source from coal to gas, which the company is already working on.

When Citi Research analyst Paul McTaggart said on the call that "gas probably doesn't cut the mustard for many people" as a completely green energy source, Kerr confirmed that South32 "absolutely" believes gas is merely transitional.

In this regard, Kerr said South32 would look at solar and potentially hydrogen options for Worsley.

"The transition from coal to gas is also not going to happen overnight, because we need to manage a just transition around Collie," he said, referring to the once-strong coal hub in Western Australia's southwest region that still feeds the Worsley plant.

The company is also "very conscious" of the suppliers of the coal that feeds Worsley, he said.

Kerr's words echoed those of Western Australia Premier Mark McGowan in December 2020 when announcing his government's plan to support workers in Collie and the wider community through a "just transition" away from emissions-intensive industries.