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Ivanhoe Mine's Net-Zero Crusade

Ivanhoe Mines, the Canadian mining company whose shares are owned by three SKAGEN Funds, vowed in May to achieve net-zero operational greenhouse gas (GHG) emissions from its Kamoa-Kakula copper mine. Production at the reserve in the Democratic Republic of Congo (DRC) started up ahead of schedule on 26 May. The miner, which operates in Southern Africa, has committed to work with its joint venture partners – which include the DRC government – to ensure it becomes the first net-zero carbon emitter among the world’s largest copper producers.

The initiative is in support of the 2015 Paris Agreement which sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C by 2050. While no time frame has been given by Ivanhoe for reaching its net-zero target, the pledge was welcomed by investors with its share price rising over 3% on the day of the announcement.

Strong performer

Ivanhoe's shares have now risen over 30% this year[1], boosted by the Kamoa-Kakula mine opening ahead of schedule and significant rises in the price of commodities, which the company mines across its different projects (see right)[2]. The company is amongst the largest positive contributors for Kon-Tiki and Focus in 2021 and among the top ten for SKAGEN Vekst where it is a smaller position (0.9% of the portfolio versus 2.6% and 4.1% for the other two funds, respectively[3]). This follows a share price rise of over 60% last year and a gain of 80% in 2019. SKAGEN Kon-Tiki and SKAGEN Focus both first bought Ivanhoe shares in 2018.

Ivanhoe's net-zero commitment covers GHG emissions under their direct control (Scope 1) and indirect ones from purchased energy (Scope 2). The mine is already powered by renewable hydro-generated electricity, so its efforts will focus on electrifying its mining fleet with new equipment powered by electric batteries or hydrogen fuel cells.

Fredrik Bjelland, Portfolio Manager of SKAGEN Kon-Tiki, visited the DRC in 2019 when the project was under construction and highlighted the company's green credentials: "Due to their high-grade metals, all Ivanhoe projects are developed as underground mines. In addition to reducing the visible impact on nature, this technique also reduces the amount of waste generated and makes it easier to rehabilitate the area when production is complete. The company is also improving the infrastructure around the mines in order to access renewable energy to power the mining operations."

Industry challenge

In future Ivanhoe also hopes to neutralise indirect emissions from its entire value chain (Scope 3), which is important as some analysts estimate that these account for as much as 95% of the mining sector's overall emissions and are one of the biggest issues facing the industry[4]. Robert Friedland, Ivanhoe's Executive Co-Chairman, outlines the challenge: "Once we achieve net-zero Scope 1 and 2 emissions, we will turn our focus on achieving a net-zero total emissions project, which will include Scope 3 emissions. We have the opportunity to be an industry leader in the fight against climate change, and we look forward to spearheading the drive for a future free of fossil fuels, initially at Kamoa-Kakula, but eventually at all of our mines."

The copper mined from Kamoa-Kakula will also play an important role in the battle against global warming. It is a key input in producing the electric cars and renewable energy hardware required for transitioning to a low carbon future, particularly as the world faces potential shortages of the metal critical for infrastructure and economic development. Ivanhoe believes that Kamoa-Kakula will become the world’s second-largest copper mine producing over 800,000 tonnes annually if the project's phased expansion goes to plan.

Bjelland concludes: "The sustainability challenges facing the mining industry are highly complex and involve sensitive environmental, social and governance issues. Metals will inevitably play a key role in the energy transition and Kon-Tiki has long held the view that more copper is needed for the world to become greener as we will see a re-engineering of transportation, power generation and information storage."

Footnotes:

[1] As at 30 June 2021
[2] 31/12/2020 ($6.86) – 11/05/2021 ($9.37) (TSX: IVN)
[3] As at 31 May 2021
[4] Source: FT, Miners face up to climate challenge, January 2021

L'historique des rendements ne constitue aucunement une garantie quant aux rendements futurs. Les rendements futurs dépendront, entre autres, de l'évolution des marchés, de la compétence des gérants du fonds, du profil de risque du fonds et des frais de gestion. Le rendement est susceptible de devenir négatif en cas de fluctuations défavorables sur les cours de valeurs.

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