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Mine developers will be 'left behind' without net-zero emissions strategy


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Mine developers will be 'left behind' without net-zero emissions strategy

  • Author Kip Keen
  • Theme Metals

➤ Arizona Sonoran Copper Company Inc.'s plan to develop the Cactus copper project as a net-zero mine will boost the company's bottom line, President and CEO George Ogilvie told S&P Global Market Intelligence.

➤ The net-zero plan should drive a higher valuation for the company, Ogilvie said.

➤ While net-zero production plans may come with higher costs, end users of metals such as copper will increasingly demand carbon-conscious production.

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George Ogilvie, president and CEO of Arizona Sonoran Copper Company.
Source: George Ogilvie

After a Nov. 16, 2021, IPO, Arizona Sonoran Copper Company outlined plans to develop the Cactus copper project in Arizona as a net-zero operation. The company hired Minviro Ltd., a London-based environmental consulting firm, to assess its climate strategy. The climate-focused strategy comes as major mining companies increasingly commit to net-zero emissions and investors scrutinize their impact on global warming. S&P Global Market Intelligence interviewed Arizona Sonoran President and CEO George Ogilvie on Nov. 30 about the challenges and benefits that come with a net-zero emissions project.

Ogilvie cast net-zero strategies as critical for mine developers in attracting investors, sourcing cash and underpinning strong net asset values. As the mine developer considers options for a net-zero mine, Ogilvie said management sees potential for resource growth and the expansion of proposed copper production from 56 million pounds a year, per a 2021 preliminary economic assessment of Cactus, to something in the 100 million-pound range. The following conversation has been edited for clarity and length.

S&P Global Market Intelligence: Mining companies are increasingly making net-zero commitments amid pressure from investors and concerns over climate change. What's driving your push for a net-zero copper project?

George Ogilvie: At the end of the day, we believe companies that are striving toward a net-zero goal are ultimately going to be rewarded through a premium valuation. We follow Foran Mining Corp. [owner of undeveloped base metal assets in Canada] quite closely, which has a well-documented environmental, social and governance strategy, and typically they're trading at one times price to NAV, whereas the rest of the peer group trades at around 0.6 to 0.7 times price to NAV. So they're getting a 30% to 40% uplift right there. And we believe a lot of that is from a strong ESG strategy.

Are mine-development companies that don't pursue a net-zero plan at a disadvantage in the market when it comes to raising money, attracting investors or in terms of being a takeover target?

You're definitely going to be left behind. My general feeling is that, over time, a lot of these commodities going into renewable energy will see pricing essentially bifurcate. I see that happening with copper, nickel and lithium; these metals are going to get a premium if you can actually show that you're carbon-neutral. It makes perfect sense. What's the point of producing a pound of copper to put it in an electric vehicle and stop greenhouse gases going up in the atmosphere if, at the end of the day, you're putting even more CO2 up into the atmosphere? It's defeating the purpose.

How far are you willing to go along those lines to produce a net-zero product? That is, how do you approach the tension between pursuing net-zero and potentially incurring extra development or operating costs in doing it?

We still need to produce a pound of copper and generate profits, because ultimately that's what gets us our baseline valuation. It's a fine balancing act. But, at the same time, if we don't take this on, we will be laggards. We're not going to get investments, and that's going to negatively impact the share price. And, as I said, I think at some point down the line the pricing for these types of commodities is going to bifurcate, and you're going to get the lower end of the pricing range.

When I look at this project going forward, one of the risks that we will obviously carry is project financing. If we can develop a very strong ESG framework that is credible, we're going to have end users of our copper product raise their hand and say, 'Hey, I want to be involved with this company and I'd like to have them in my supply chain term.' They could assist us in financing this project, because they know they're going to get access to a relatively clean product.

About half the grid power in Arizona comes from renewable sources. Would you aim to use on-site solar energy for the rest if you decide to avoid carbon-intensive power?

Right now our current plan will require 8 to 10 megawatts of power to run the entire site. So we're looking at something between 5 and 10 megawatts from our own solar farm.