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KAZ Minerals supports the work of the Task Force on Climate-related Financial Disclosures which requires companies to set out how their strategy and risk assessment processes align with the challenges and opportunities presented by climate change.
The KAZ Minerals Board of Directors provides strategic direction with respect to the Group’s environmental performance.
The Group Health, Safety and Sustainability (“HSS”) Committee is responsible for the monitoring of CO2 intensity, oversight of the Group’s environmental policies, reporting, standards and compliance.
Key responsibilities of the HSS Committee include assessing the impact of health, safety and environmental issues including climate change on the Group’s stakeholders and ensuring remedial action is taken in respect of any such issues where appropriate.
General Directors of operational sites are responsible for implementing efficiency initiatives to minimise energy consumption.
The Group’s decision to invest in copper growth projects is based on a positive long term view of the copper market.
Millions of tonnes of additional copper production are required to provide the world with the copper it needs to replace depletion of existing mines, to raise living standards in developing economies, to transition away from energy systems reliant on fossil fuels and to improve energy efficiency.
The transition to a lower carbon economy will have significant implications for the copper market and securing additional supplies of copper will be essential for facilitating a reduction in global CO2 emissions. Renewable energy production generation is many times more copper intensive than power generated from conventional energy sources. Additional supplies of copper will also be required to support the growing adoption of electric vehicles.
Climate related opportunities
Opportunity 1
Opportunity type: Markets Primary climate-related opportunity driver: Access to new markets
Type of financial impact: Increased revenues through access to new and emerging markets
Description:
The risks associated with climate change often represent upside risks for copper producers. Material additional demand for copper is expected to result from the continuing transition to renewable energy generation and electric vehicle propulsion, which are both much more intensive users of copper compared to existing technologies.
Opportunity 2
Opportunity type: Products and services
Primary climate-related opportunity driver: Shift in consumer preferences
Type of financial impact: Increased revenues resulting from increased demand for products and services
Description:
Nearly 200 companies signed a climate pact at the global COP26 summit held in November 2021. Signatories to the pact announced pledges to transition away from unabated coal power generation and internal combustion engine vehicles over the next two decades. There is an increasing demand for renewable power sources, electrification is one of the main conduits for decarbonisation. Electrical vehicles are increasingly replacing conventional internal combustion vehicles.
Climate related risks
Risk 1
Risk type: Physical risk
Primary climate-related risk driver: Chronic: Rising mean temperatures
Type of financial impact: Increased direct costs
Description:
Climate change could result in an overall increase in average global temperatures but also in greater or more frequent extremes of temperature. Extremely high or low temperatures could physically impact the Group’s ability to operate its assets, unless they are properly designed, equipped and maintained to cope with extremes of temperature.
Risk 2
Risk type: Physical risk
Primary climate-related risk driver: Chronic: Changes in precipitation patterns and types
Type of financial impact: Increased direct costs
Description:
Long term changes to precipitation patterns or quantity of precipitation:
Climate change could result in a decrease or increase in precipitation levels in the locations in which the Group operates. A long term decrease in precipitation or adverse change in precipitation pattern could impact the supply of fresh water to the Group's production facilities, which is required for the processing of copper ore. Increased precipitation levels could impact operations by affecting the stability of open pits; increasing water inflow into underground mines; increasing the risk of subsidence or sinkholes; and overtopping or erosion of tailings storage facilities.
Risk 3
Risk type: Physical risk
Primary climate-related risk driver: Increased severity and frequency of extreme weather events such as cyclones and floods
Type of financial impact: Decreased revenues due to reduced production capacity
Description: Increasing frequency of extreme weather conditions such as high wind or rainfall.
High winds, storms or floods could cause physical damage to the Group's production facilities and/or reduce output in the short term if it is necessary to temporarily suspend operations.
Increased acute precipitation levels could impact operations by affecting the stability of open pits; increasing water inflow into underground mines; increasing the risk of subsidence or sinkholes; and overtopping or erosion of tailings storage facilities.
Risk 4
Risk type: Transition risk
Primary climate-related risk driver: Technology: Transitioning to lower emissions technology
Type of financial impact: Increased direct costs
Description: Disruption of energy supplies or increase in cost of energy:
Most of the Group's assets are currently in Kazakhstan where energy is largely generated from coal fired power stations with a high CO2 footprint. As international agreements and domestic regulations move towards increasing the share of higher cost renewable power generation in Kazakhstan's energy mix, it is possible that the Group's energy costs could rise from their current levels.
In an extreme scenario, coal fired power could be phased out and not adequately replaced by new renewable energy capacity which would disrupt the Group's access to the power required to run its operations.
Risk 5
Risk type: Current regulations
Primary climate-related risk driver: Increased pricing of GHG emissions
Type of financial impact: Increased indirect (operating) costs
Description:
Regulatory changes undertaken by host governments to combat climate change:
International agreements and domestic targets for reducing carbon emissions in the countries in which the Group operates could impact the Group's business. For example, Kazakhstan is developing a 2060 Long-Term Low-Carbon Development Strategy, under which the country is aiming to achieve carbon neutrality by 2060. Renewable energy sources will make up an increasing proportion of electricity generation and coal-fired power capacity will be phased out.
Risk 6
Risk type: Market
Primary climate-related risk driver: Changing customer behaviour
Type of financial impact: Decreased revenues due to reduced demand for products and services
Description: Changes to the end markets for the Group's products:
Higher demand for copper arising from actions taken to mitigate climate change could drive copper prices upwards in the short to medium term, as demand from renewable energy generation and electric vehicle adoption increases. The supply of copper could also be constrained as a result of climate change if there are physical impacts on production or operating costs, or if investment into copper mining is restricted because environmental impacts are deemed to be too high.
High copper prices could change customer behaviour by incentivising research into the substitution of copper with other materials. This could potentially lead to a significant change in the end market for the Group's products, if substitution efforts are successful.
Risk 7
Risk type: Reputation
Primary climate-related risk driver: Increased stakeholder concern or negative stakeholder feedback
Type of financial impact: Decreased access to capital
Description:
Changing investor and lender priorities regarding climate change: Stakeholders and lenders increasingly require companies to whom they are providing capital to demonstrate strong environmental, social and governance ("ESG") credentials. One of the most important areas of focus in ESG is climate change. If the Group cannot adequately demonstrate a commitment to combating climate change, reducing CO2 emissions intensity and the integration of climate change into its long term business strategy, the Group’s ability to attract lenders on attractive terms could be impacted.
Reputational harm for the mining sector as a whole could be exacerbated by tailings dam failures, high GHG emissions and high water consumption which could be linked by investors to climate change impacts or priorities.
The Board completes a robust assessment of the Group’s principal risks annually. The Group’s Risk function is responsible for the Group risk map through which principal risks are identified and assessed. Risks from across the Group’s individual risk registers are aggregated, evaluated and prioritised according to the potential severity and likelihood of occurrence. The Board and Audit Committee review the Group’s principal risks including updates on developments, their outlook and mitigating actions and controls.
One of the criteria for assessing principal, emerging or climate-related risks is the likely financial impact on the Group if the risk were to occur.
For example:
(i) Any climate-related risk which might result in physical business interruption, could have an impact on production, may require the Group to incur unplanned expenditure and could negatively impact cash flows;
(ii) Reputational damage, which could lead to problems with the Group’s licence to operate and social licence and/or have a negative financial impact on the Group;
(iii) Failure to comply with applicable environmental laws, including laws or regulations related to climate change, could ultimately lead to the suspension of the Group’s operating licences, the imposition of financial penalties or additional compliance costs.
Mitigating actions
Mitigating actions to be taken in respect of climate related risks differ depending on the risk itself. For example, long term physical risks that could impact new mining projects are evaluated during the pre-feasibility and feasibility study, and mitigating design features will be built into the equipment, layout and intended operations of the project. The Group’s Bozshakol and Aktogay mines in Kazakhstan have been designed to cope with extremes of temperature, wind and precipitation to reflect the harsh conditions in which they are expected to operate. The Group is planning to reassess the potential for more extreme weather conditions to occur at its existing operational locations and at future project sites, based on the latest available data on the potential effects of climate change.
Risks relating to the development of government policy or legislation to address climate change are monitored by the Group’s legal and government relations teams. The Group often participates in consultation exercises for proposed new legislation. The Group believes it is well placed to accommodate any climate change related regulatory changes in future, due to the modern and efficient nature of its recently commissioned mines.
Reputational risk arising from changing investor or lender attitudes towards climate change are addressed through effective communication of the Group’s underlying growth-oriented strategy (which is in part based on increased demand for copper as a result of climate change) and ongoing plans to reduce the environmental impacts of the Group’s operations.
Integrated process for managing climate-related risks
The Group Risk function assesses the Group’s principal and emerging risks on an annual basis. Group management are responsible for identifying and assessing environmental risks which are reported to the HSS Committee. When assessing climate-related risks and how they could impact on the Group’s strategy, a long-term time horizon is considered. Climate related risks are considered when making long term major business decisions, such as commencing new mining projects. The development and operation of copper mining projects is by its nature a long term undertaking. For example, it can take eight years to plan and construct a new copper project which may then operate for a period of 25 years or more. Climate related risks are also monitored on an ongoing basis to ensure the continuing safe and efficient operation of the Group’s mines.
CO2 emissions reporting
The Group reports Scope 1 and Scope 2 CO2 emissions data and three intensity metrics which can be used for comparison purposes (CO2 per unit of ore processed, CO2 per unit of copper, and CO2 per $million of revenue).
Further details on recent trends in emissions can be found in the Climate Change section of the Group’s website.
The Group has submitted its CO2 emissions data to the annual Carbon Disclosure Project (“CDP”) since 2012.
Scope 1 emissions mainly relate to mining activities at Bozshakol and Aktogay (diesel fuel) and heat energy consumption in the East Region. Scope 2 emissions are mainly a result of power consumption at the Bozshakol and Aktogay concentrators.
Reducing CO2 emissions intensity
The Group is committed to minimising the CO2 intensity of its operations as stated in its Environmental Policy. Significant reductions in CO2 intensity have already been achieved through the transition to modern open pit mining. In the longer term the Group will seek to increase the use of renewable energy sources where possible. The Government of Kazakhstan, where the majority of the Group’s assets are currently located, is developing a 2060 Long-Term Low-Carbon Development Strategy, under which the country is aiming to achieve carbon neutrality by 2060. Renewable energy sources will make up an increasing proportion of electricity generation and coal-fired power capacity will be phased out.
CO2 emissions reduction target
The group has established a target to reduce its CO2 emissions intensity by 5% from the base year of 2018, measured as CO2 emissions per unit of sulphide ore processed.
The Group’s copper output will grow during the period over which the target is set and this is likely to lead to an absolute increase in CO2 emissions. The Group has therefore adopted an intensity target to properly reflect efficiency gains from operational improvements made in the period.