TOL - 18th Feb, 2023
The four mining companies Goldman Sachs calls an ESG buy (including one Aussie stock)
The traditionally emissions-heavy sector is working to make sustainable change and Goldman Sachs believes it’s time to recognise this.
Sustainability and mining don’t normally go hand in hand but perhaps it’s time to rethink that idea. Goldman Sachs assessed a range of companies with consistent emission reduction pathways. Metals and mining stood out. The traditionally emissions-heavy sector is working to make a change and Goldman Sachs believes it’s time to recognise this.
That’s not to say we’re talking about zero-emissions. Yet.
The scenario that Goldman Sachs is considering assumes a pathway to limiting implied temperature rises to 1.5%. The World Meteorological Organisation expects us to reach that 1.5% increase by 2026. This requires a dramatic reduction in emissions this decade in order to reach net-zero by 2050.
Drilling for impact
Metals and mining is an essential sector. The traditional forms of it have been critical to development, but newer forms remain critical for the green transition. It is an emissions heavy sector – and can be damaging on a range of environmental fronts so it hardly ranks as a surprise that it is typically filtered out of sustainable or ESG-focused portfolios.
We continue to be dependent on mining though, and this is unlikely to change any time soon. In light of our changing understanding of the environment and climate, many companies are actively working to change their operational structure for the future. The arbitrary filtering out of such companies purely on a sector basis for sustainable portfolios may be missing an opportunity.
There were four companies globally that Goldman Sachs rates as a buy that have expected emissions reductions pathway consistent with requirements to that 1.5% rise and net-zero by 2050. The firm notes that these companies tend to be underweighted for sustainability portfolios.
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Jiangxi Copper (SHA: 600362)
The Chinese-based company is involved in the mining, smelting and processing of copper. Goldman Sachs analysts expect operational efficiency to drive lower emissions. For example, Jiangxi has started to substitute fuels to reduce emissions and use more efficient treatment of gases after collection. It is targeting peak emissions by 2029 and to be carbon neutral by 2060. -
Bluescope Steel (ASX: BSL)
Bluescope currently uses efficient processes in its blast furnaces in Port Kembla, Australia and Ohio, US. It is also aiming to reline a blast furnace which will support a reduction in emissions by more than 10% by 2030. Further to this, Bluescope has increased its use of renewable energy in Australia. -
Enel SpA (BIT: ENEL)
Enel’s pipeline of renewable assets has made the company the largest renewable developer globally which this expected to be behind the reduction in emissions intensity. The company should also benefit from an increased focus in Europe on renewable energy as a result of geopolitical events. -
Energias de Portugal Europe (GR: EDP)
EDP owns a significant stake in a renewable subsidiary EDP Renovaveis and has been shifting towards renewables and away from fossil fuels generation. It is targeting becoming coal-free by 2025 and doubling solar and wind capacity. The firm retired its Spanish and Portuguese coal plants in 2021.
Three more Aussie names to watch
Goldman Sachs also pointed to two Aussie names that it remained neutral on with strong emissions-reduction pathways.
Lynas Rare Earths (ASX: LYC) and Mineral Resources (ASX: MIN).
Lynas is continuing to expand its production in the Mt Weld mine and concentrator, Kalgoorlie cracking and leaching plant in WA and rare earth refinery in Malaysia. Its emissions are typically small due to high grade operations.
“Lynas’s emissions intensity will reduce as they expand through increased efficiencies and economies of scale,” said analyst Paul Young.
Mineral Resources typically has low emissions due to the simple nature of operating and owning upstream iron ore and lithium assets. It is expected to significantly increase mining services, iron ore and lithium volumes.
“Emissions intensity will decline through economies of scale and the planned switch away from some diesel consumption to natural gas,” said Young.
Goldman Sachs also looked at companies with solid and consistent pathways for reduction, but the likelihood emissions will still rise this decade.
One Australian name was a buy in this mix: Iluka Resources (ASX: ILU)
Analysts noted it typically has a small footprint due to the nature of its upstream minerals sands processing operations in Australia. It is also installing solar farms at three of its mines. The growth of its emissions comes down to the development of new projects, which should go live between 2024-2028. After that, it should see an emissions reduction.
Time to revisit mining for sustainability?
While the idea of green metals has captured the world’s imagination when it comes to ESG, perhaps we should be taking a broader look at the efforts of the industry to transform.
“We believe the trajectory in emissions intensity reductions might potentially warrant greater recognition among sustainability investors, provided the companies demonstrate the ability to execute on their carbon footprint abatement plans,” according to the Goldman Sachs ESG report.
In any case, perhaps this is validation for the long-term holders of mining companies. The sector is far from over.
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Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and Macquarie Group. She also holds a degree in psychology which drives a continued fascination with how human behaviour drives and is driven by investments and market activity.
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Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...
Sara is a Content Editor at Livewire Markets. She is a passionate writer and reader with more than a decade of experience specific to finance and investments. Sara's background has included working at ETF Securities, BT Financial Group and...
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