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What we are looking for

North American-listed mining companies particularly at risk from physical effects of climate change.

Teck Resources Ltd. has been in the news a lot recently, and one key dimension to the saga is its, and potential acquirer Glencore’s, desire to split their coal mining businesses from their metal mining activities. These include copper, lithium, cobalt and other minerals that are key to the manufacture of batteries and the energy transition. The desire for a split stems from a lack of investor appetite, as well as forecasts for a long-term decrease in demand for coal as the economy transitions to cleaner sources of power. These trends are known as transition risks, which is one category of climate change-related risks companies face. The other is physical risks, which are the risks coming from the tangible impacts of climate hazards. The specific hazard posing the biggest risk to the mining industry, according to LSEG’s Physical Risk Model, is water stress. Mining is a very water-intensive activity – Freeport-McMoRan Inc., for example, uses more than 1.6 billion cubic metres of water annually. We will use the LSEG Physical Risk Model to compare the relative risk from water stress faced by the 10 largest (by market cap) mining companies listed in North America.

More about London Stock Exchange Group

LSEG is a leading global financial markets infrastructure and data provider. We play a vital social and economic role in the world’s financial system. With our trusted expertise and global scale, we enable the sustainable growth and stability of our customers and their communities. We are leaders in data and analytics, capital formation and trade execution and clearing and risk management.

The Screen

  • We will compare the Physical Risk Score (a higher score indicating greater risk) from water stress for these 10 largest North American-listed miners.
  • The model assesses three different warming scenarios (coming from the UN Framework Convention on Climate Change and the Intergovernmental Panel on Climate Change): strong mitigation (an increase of less than 2 degrees), middle of the road (an increase of 2.4 degrees) and business as usual (an increase of greater than 4 degrees), on anywhere from a five- to 70-year time horizon. For this screen we will used the middle-of-the-road scenario over a 15-year time horizon.
  • We also compare the absolute water usage and water relative to enterprise value, including cash.

What we found

Mining stocks with climate risks

TickerCompany NameTRBC ActivityCountry of HQWater Stress Risk ScoreMarket Cap (USD million)Water Use Total (cubic meters)Water Use To EVIC (cubic meters / USD million)
SCCO-NSouthern Copper CorpSpecialty Mining & MetalsUSA49.255,895113,282,0002,085.7
FCX-NFreeport-McMoRan IncSpecialty Mining & MetalsUSA41.351,7851,622,354,00020,338.3
NEM-NNewmont CorporationGold MiningUSA34.437,423194,949,0003,506.4
GOLD-NBarrick Gold CorpGold MiningCanada37.533,967171,892,0003,597.0
AEM-TAgnico Eagle Mines LtdGold MiningCanada15.928,06026,827,4131,822.6
TECK-NTeck Resources LtdDiversified MiningCanada23.023,294301,654,00014,050.5
FM-TFirst Quantum Minerals LtdCopper Ore MiningCanada22.816,873263,162,00010,131.5
IVN-TIvanhoe Mines LtdDiversified MiningCanada31.710,35643,1964.2
K-TKinross Gold CorpGold MiningCanada42.76,59692,923,67810,344.8
EDV-TEndeavour Mining plcGoldUnited Kingdom25.66,36410,041,6701,471.5

Source: LSEG

The company at the highest risk from water stress – and also the largest – is Southern Copper Corp., an integrated copper producer with mining units and metallurgical facilities in Mexico and Peru, with the largest water stress risk coming from its Charcas copper and zinc mine (score of 66.8) in Mexico.

The second most at-risk company is Canadian gold miner Kinross, which owns and operates two gold and silver mines in Chile that receive scores higher than 93.

The third most at-risk company, and the one with the greatest water consumption relative to enterprise value, is Freeport-McMoRan, which is assessing feasibility on a copper mine in Chile with a score of 88.8 that it would own in a joint venture with a Chilean state-owned company.

Investors are advised to do their own research before trading in any of the securities shown.

Hugh Smith, CFA, MBA, is head of sustainable finance and investing at London Stock Exchange Group.