By Fabian Cambero
SANTIAGO, Oct 17 (Reuters) - In 2017, the world's largest
copper producer - Chile's Codelco - announced a plan to sell
"green copper" at a premium price to customers using more
sustainable practices like renewable energy and recycled water
to cut its carbon footprint.
The project has run aground however, Codelco insiders and an
executive said, as the miner realised it would struggle to
guarantee its copper's sustainability once it left the mine to
be melted down and taken to market. Without that, traders said,
higher prices were unjustifiable.
Now, the world's largest miner of the prized red metal told
Reuters it would drop the "green copper" plan piloted in one of
its smaller mines in favour of a broader initiative to make its
product more sustainable.
The move by the influential copper giant could, if
successful, pave the way for more significant industry-wide
sustainability standards for the historically high-polluting
copper mining trade, analysts said.
But the failure with more ambitious “green copper” also
represents something of a setback for Codelco, which is already
struggling with ageing mines and lower copper prices due
to the U.S.-China trade war.
Jorge Sanhueza, Codelco's newly minted chief of climate
change and traceable copper, told Reuters in an exclusive
interview at the firm's Santiago headquarters that it would
instead seek to ensure that all its production, upwards of 1.7
million tons a year, could be tracked and measured for
sustainability within two years.
"We have to get the deadlines approved by the board of
directors but this is more ambitious than what we had before,"
said Sanhueza.
Codelco's latest bid to ride the sustainable wave comes just
weeks before Chile is due to host the United Nations' annual
environmental summit, COP25, in December. Codelco did not
disclose the estimated cost of the effort.
Heavy industry globally and the South American nation's
miners particularly are under pressure from governments and
environmental groups to cut carbon emissions and make operations
less resource-hungry.
Customers are also demanding products with a lower carbon
footprint as scientific evidence mounts that emissions are
driving climate change.
NOT WORRYING ABOUT PRICE - FOR NOW
A source linked to Codelco's commercial strategy said that
the original plan had been to sell the "green copper" at a
higher price, but that initiative was shelved.
Copper traders told Reuters that Codelco had struggled to be
able to certify its copper as traceable because once the ore
left the mine, it still had to be driven to its markets, and
transformed into cathodes in smelters largely powered by coal.
"Since there was no approved, industry-wide methodology (for
sustainability) we were not willing to pay more for this
copper," one trader, who asked for anonymity so as not to affect
his commercial relationship with the firm, said. "That is why
Codelco had to continue selling its copper without attracting a
premium."
Sanhueza confirmed Codelco would set aside price
differentiation for now.
"We've refocused to an extent to be able to make a reality
the issue of traceability within the short term and from that
point move towards a copper which is produced with a lower
carbon footprint and social cost," he said.
AHEAD OF THEIR TIME
Rachel Bartels, a senior managing director at consultancy
firm Accenture, said Codelco was "ahead of their time" with its
initiative at the one small mine but the company's eagerness
could still give it an advantage.
"You need a tipping point and we're not quite there yet,"
she told Reuters in London.
"They may not get a premium for it, but they may become the
preferred supplier."
To "trace" its copper, the company has set 75 parameters
including water and clean energy use, gender equality and
compliance with international labor regulations.
As there is at present no international benchmark for
sustainable production of copper, it reviewed standards for
other products such as aluminum and used guidelines from the
industry-funded International Copper Association (ICA), Sanhueza
said.
Codelco is building a $1 billion desalination plant to
supply its operations in the north of the country, and assessing
its energy contracts for ways to strip carbon emissions from
them, albeit without a set deadline to migrate completely to
clean energies, Sanhueza said.
"The good news is that one way or another, Codelco's
contracts are going to be decarbonized," he said.
The state-owned miner faces another challenge to improve
water recycling levels in its production processes. Although
some of its mines in Chile's north have rates of almost 90%,
that drops to 54% and 62% in its key Andina and El Teniente
mines.
As well as its internal targets, Codelco and other miners
have been told by government to provide concrete plans to cut
emissions before the spotlight of COP25 arrives.
In recent weeks there has been a flurry of announcements.
BHP Group Ltd has said that the world's largest copper
mine, Escondida, will be run entirely on renewable energy while
Anglo American Plc and French utility Engie have
unveiled plans for hydrogen-powered lorries.
Juan Carlos Guajardo, head of Santiago consultancy
Plusmining, said Codelco's adventures in green copper
highlighted that the industry was still grappling with
sustainability best-practice.
"I still don't see a standard in place," he said.
(Reporting by Fabian Cambero; Additional reporting Pratima
Desai in London; Writing by Aislinn Laing; Editing by Lisa
Shumaker)
Anglo American (AAL)
