Mining Green Technology An oxymoron Is the future of metals green

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					     Research paper: Mining & Green Technology                                                                        Research paper

     Mining & Green Technology.
     An oxymoron?
     Is the future of metals green?
     September 2010

     Executive Summary
     Is the Metal & Mining (M&M) sector due for an image revamp? Can the sector ever be considered ‘green’?

     From a sustainability point of view, it is indisputable that the Metal & Mining (M&M) sector has an unfavourable reputation
     as a heavily polluting and environmentally damaging sector. At the same time, it is slowly being acknowledged that the sector
     is also the source of a number of raw materials which are key inputs into several green technologies associated with renewable energy,
     the reduction of GHGs and energy efficiency.

     Metals & Mining in Green Technology Applications
     What is a Green Metal?
     While environmental or ‘green’ technologies have been widely embraced as important solutions to global sustainability challenges,
     such solutions are not often associated with the Metal & Mining (M&M) sector. However, in many cases green technologies rely on
     mined metal inputs which are critical for the functioning of such applications. They are key materials for the hybrid car and electric
     vehicle industry and essential for energy efficient lights, efficient wind turbines and even automobile catalytic converters.

     While no common definition exists for green metals, a number of different factors can be assessed when considering the green
     and sustainable attributes of a metal:

     Traditional green/sustainable characteristics: proponents of the M&M sector have long contended that certain metals display
     properties which, for example, make them indefinitely recyclable. This not only reduces pressure on the scarcity of resources, but can
     also result in environmental benefits such as energy savings (e.g., aluminium). Other metals (e.g., zinc) can contribute to increased
     product lifecycles, thus extending the durability of products. Finally, some metals (such as aluminium and titanium) have lightweighting

together to the essence

    Research paper: Mining & Green Technology

    Significant raw material in green technologies: while not crucial to the actual ‘green’ technology, some metals can be a significant
    structural component in the final green product, for example, in the generation of renewable wind energy and in the bodywork
    of hybrid cars and electric vehicles.

    Critical component in novel green tech applications: what is perhaps less widely known is that certain metals are vital for the
    functioning of specific environmental technologies (e.g., hybrid cars, solar cells, wind turbines).

    Hereafter, we consider a number of vital green technology applications.

    Renewable energy applications

    Driven by climate change and energy security concerns, policy measures have emerged globally which are related to CO2 abatement,
    energy efficiency and renewable energy. In renewables, a number of key technologies are reliant on metal raw materials.

    Solar Cells: driven in part by the high cost of crystalline silicon, the use of thin-film solar cells has seen a strong resurgence in recent
    years. iSupply predicts that, by 2013, solar cells based on thin-film technology are expected to account for 35% of worldwide solar
    production, up from 14.2% in 2008.

    Wind Turbines: some of the most efficient types of wind turbines are based on the use of a permanent magnet-type generator.
    The inclusion of additional metals such as dysprosium can further enhance the performance of a permanent magnet.

    Greener transport solutions

    The concept of sustainable transport continues to gain traction as evidenced by increasingly stringent emissions regulations for
    vehicles coupled with the continued emphasis on public transport. A proliferation of cleaner and greener transport solutions has
    been witnessed.

    Hybrid Electric Vehicles (HEVs) reduce fuel consumption by combining a gasoline engine, battery-powered electric motors and brakes
    that capture energy from stopping. These processes rely on rechargeable batteries and magnets, both of which contain key metal

    •	 Rechargeable batteries: two main types of rechargeable batteries are set to dominate – the nickel-metal hydride (NiMH)
       and the lithium ion battery. Almost all full hybrids now use NiMH batteries (e.g., Toyota Prius).
    •	 Permanent magnets: at present, most HEVs use a permanent magnet brushless direct current (PMDC) motor.

    Auto catalysts convert over 90% of hydrocarbons, carbon monoxide and oxides of nitrogen from gasoline engines into less
    harmful carbon dioxide, nitrogen and water vapour. Auto catalysts are also used to reduce the pollutants in diesel exhausts.
    Many governments, including the US, Japan and the EU, continue to apply increasingly stricter vehicle emissions standards.

Research paper: Mining & Green Technology

Energy efficiency lighting solutions

A combination of regulations to phase out incandescent bulbs and preferential tax polices for companies that encourage the use
of energy-saving lights have stimulated demand for energy-saving lighting. Two types of lighting technology which are reliant
on metals have subsequently emerged: Compact Fluorescent Lights (CFLs) and Light Emitting Diodes (LEDs).
CFLs are four times more efficient and last up to 10 times longer than incandescent bulbs. LEDs also offer a number of advantages
over incandescent light sources, including lower energy consumption, longer lifetime, improved robustness, smaller size, faster
switching, and greater durability and reliability. Strategies Unlimited predicts that the LED lighting market will exceed USD 5 billion
in 2012, corresponding to a compound annual growth rate (CAGR) of 28% from 2008 to 2012.

What is the current state of affairs for green metals?
Where do green metals come from?
Are they scarce in supply?

There has been considerable coverage in recent months over concerns related to rare earth element (REE) production and supplies,
and the current domination of such supplies by one country, China. Despite having just 30% of the world’s REE reserves, China
has a virtual monopoly on the production of these metals. The main reasons for this are that China’s REE mines are relatively high
grade and low cost. Additional fears over the security of supply of these metals have been heightened by the mid-2009 announcement
by China that it aims to reduce export supply quotas of rare earths. China has been reducing export quotas by 6-7% per annum.

While all the recent attention and focus has been on REEs, it is interesting to note that single-country dominance in metal production
and supply is not just unique to these types of metals. It is the case for platinum in South Africa. In addition, the introduction of
protectionist measures, or specific local factors, could raise concerns over regularity of supply.

Some green metals are only produced as by-products during the extraction of other metals. For example, zinc is the only source in
the world of germanium, cadmium and indium. The supply of these metals is highly dependent on the availability of the main product.

Supply risks for green metals exist:

•	 Import risk, where raw materials are dependent on imports from a region or country.

•	 Production risk, with potential problems such as land access and the long lead times required to development new mines
   to produce.
•	 Environmental risk, based on indicators such as air or soil pollution, where the impact of raw materials use is measured
   from an environmental point of view.

    Research paper: Mining & Green Technology

    How is the demand for green metals likely to evolve?

    In simple terms, it is clear that the demand for green metals will be closely correlated to the demand for, and growth in, associated
    green technologies, all the more so if a significant proportion of the metal mined and produced is primarily used in these applications.

    REEs: The entire REE market saw tremendous growth during the period 2003-2008, and this has been forecast to continue.
    Growth forecasts for REEs are greater than the known potential supply coming into the market. In general, there is consensus
    that there will likely be a supply shortfall of REEs in the near future.

    Lithium: While almost all HEVs use NiMH batteries, many market commentators are bullish on lithium-ion batteries.
    With higher power-to-weight ratios and a noticeable shift to HEVs and EVs, many believe lithium-ion batteries will set the standard.

    Overcoming potential shortfalls in supply

    In recent months, concerns have been highlighted over the security of supply of certain green metals, notably REEs. This has been
    compounded by the significant upward trend in the price of certain green metals.

    A number of strategies can be identified, with differing levels of success, which seek to secure the continued supply of green metals:

    Stockpiling: at national level in China, Japan, South Korea and Europe, strategic stockpile programmes have been implemented to
    inventory a number of strategic and critical metals to safeguard their security of supply for (both) their civilian (and military) industries.
    The EU, for example, has identified 40 metals as being qualified to be considered strategic and critical for the economic preservation of
    its industrial base. This phenomenon is not unique to governments; some companies have recognised the importance of ensuring the
    continuity of supply of green metals and stockpiling has subsequently become a priority.

    Development of new production sites: this issue is of primary importance to REEs, where currently around 30% of known deposits
    are mined in China. There are a number of production sites being developed or redeveloped in countries such as Australia, Canada,
    South Africa and Greenland. Although recent developments in production sites are occurring outside of China, their growth remains
    hindered by considerable obstacles.

    Recycling: markets already exist for certain green metals including platinum, selenium, tellurium and indium. Due to the value of green
    metals, recycling makes sense on both economic and environmental grounds. However, the ability to recover and recycle green metals
    is inevitably dependent on ensuring the appropriate infrastructure (e.g. collection, smelters) as well as the appropriate technology
    to enable recovery. Finally, there needs to be a critical mass of ‘waste’ readily available for the green metal to be economically viable.

    Substitution: for the most part, the substitution of green metals for another material either does not exist or does not yield
    the same performance results. In some instances, other companies have tried to avoid the use of green metals altogether.

Research paper: Mining & Green Technology

Tackling Environmental & Sustainability Concerns

While green metals are used in certain applications that have tangible environmental benefits, the fact remains that the M&M sector
is inherently polluting. Concerns have also been raised with regard to the toxicity and health implications over the use of certain
metals. Managing societal expectations and ensuring compliance with increasingly stringent legislation are crucial to being successful.

Extraction and processing: the environmental costs associated with mining and processing activities have seen differences between
countries and regions, with developing countries on the whole having laxer environmental regulations. However, in countries such
as China, consolidation is occurring and mining costs are increasing as the pressure to operate in an environmentally prudent fashion
is being applied by the central authorities. In addition, the extraction and processing of some green metals, notably REEs, has additional
complexities and environmental implications.

More than ever, the concepts of green mining, responsible mining and sustainable mining need to be advocated and practised by
M&M companies. It is clear that the components of green mining should primarily focus on the production stage, as this is where
the main negative environmental impacts lie. Measures should include cleaner practices in the areas of protecting and remediating
the environment, as well as the development of cleaner alternatives to existing technologies for mineral extraction, mineral processing
and environmental reclamation.

Toxicity of, and health concerns surrounding, the metals used: some metals used in green applications are associated with
potentially negative health impacts. Such concerns exist with the use of cadmium in thin-film solar cells. The ability to ensure safe
collection and disposal systems at the end of a product’s life are essential to reducing health concerns.

Final Thoughts

The question remains: can the use and development of green technologies which use vital metal components offset the negative
environmental impact of mining for metals?

It remains to be seen whether the M&M can shake off its image as a sector which is only polluting and environmentally damaging
to become a sector which has the current and future potential to offer environmental benefits through products mined and
metals processed. Stakeholders need to start taking a more holistic and lifecycle approach when weighing up the pros and cons of the
M&M sector from an environmental and sustainable perspective. This will, therefore, need to be extended to fully consider the positive
environmental benefits of certain applications of M&M products in the green technology arena, and not to dismiss all such claims as

    Research paper: Mining & Green Technology

    Dexia AM’s approach

    How do we currently integrate this understanding of green metals into Dexia AM’s Sustainability Analysis?

    The exposure of a Metal & Mining company to green metals naturally falls within our Macro Analysis – which is where we seek to
    identify certain business models and products which can positively contribute to alleviating and combating major sustainability trends
    such as climate change. Thus the use of green metals as critical components in technologies which aim to substantially reduce GHG
    emissions in energy generation activities, transport and lighting products are considered highly positive.

    Within our core Best-in-Class funds our Macro Analysis allows us to identify Metal & Mining companies whose products are well-
    suited and crucial components of certain green technologies. Pure-play platinum miners are easily identifiable with companies such as
    Lonmin, while other diversified Metal & Mining companies, including Anglo American (approx. 16% of revenues) and Dowa Hold-
    ings, have exposure to platinum and related group metals. Dowa not only derives revenues from platinum and palladium, but also
    indium and tellurium – metals which are commonly used in solar cell applications. Other diversified Metal & Mining companies with
    exposure to green metals include Teck Resources (one of the world’s top indium producers) and Umicore (one of the world’s largest
    precious metal recycling facilities), which processes a number of green metals such as PGMs, indium and tellurium.

    Within our Emerging Market fund, a number of pure-play and diversified Metal & Mining companies have been identified.
    The most obvious pure-plays are in rare earth companies located in China, and include Inner Mongolia Baotou Steel Rare Earth
    High Tech Co, the largest global light-REE miner. Diversified companies are also recognising the opportunities in green metals.
    In December 2009, Jiangxi Copper signed an agreement to jointly invest 1 billion yuan for developing China’s second-largest rare
    earth deposit in Sichuan province in south-western China. Finally, Aluminium Corp of China has also recently announced it aims to
    diversify its operations by buying into rare earth assets.

    Within our Green Planet Strategy, rather than focusing on the manufacturers of green technology end-products such as solar panels
    or wind turbines, our understanding of green metals has enabled us to begin to apply our understanding of the underlying
    technologies across the entire value chain, notably on the supply side. Therefore, identifying mining suppliers of these green metals has
    the potential to widen the scope of investable companies in this fund.
    Also, understanding the complexities of the supply chain and being able to identify potential raw material shortages could further our
    understanding of green technology companies.

Research paper: Mining & Green Technology

                 Research paper: Mining & Green Technology

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    together to the essence