Source: Nuno Marques on Unsplash

The South African gold mining industry has had its fair share of challenges, but the country still benefits from one of the world’s richest precious metal ore resources and gold mining companies well-versed in overcoming the challenges of operating in the African continent’s ninth-largest country.

South Africa has among the world’s largest gold resources. It is home to about 5,000 tons of known gold reserves, making up the vast majority of Africa’s total 6,800 known tons and well ahead of the United States’ 3,000 tons.

Since the Witwatersrand gold reef was first discovered near Johannesburg in 1886, South African gold miners have been both resilient and tenacious. They have overcome all the obstacles they have encountered, including wars, aging and increasingly deep mines, labor relations challenges, and regulatory uncertainty, by innovating and persisting in their endeavors to mine the world’s most precious mineral resource.

Most of these are typical headwinds for mining companies that operate globally. However, gold mines in South Africa have the added pressure of operating in an environment where the state electricity provider, Eskom, cannot meet electricity demand due to outdated and failing energy infrastructure.

Investing in renewable energy sources in South Africa is thus an immediate imperative, and therefore South African gold mining companies have stepped up to the challenge by investing in renewable energy projects to keep their mines operational and their miners safe underground.

Pan African Resources has led the charge as one of the first mining companies to build and commission a grid-tied utility-scale solar facility with a generating capacity of 10MW at its Evander mines and a pipeline of other investments in solar projects at its other mines. It is also continually reassessing its renewable energy strategy, widening it to include wind energy, hydropower, battery storage, and wheeling power over the national grid.

Electricity supply disruptions and climate change introduce various risks and potential costs to gold miners. With this in mind, Pan African Resources has prioritized achieving energy security and reducing production costs through its sustainability strategy, combining energy efficiency efforts and increasing its access to renewable energy sources.

Transitioning away from fossil fuels and towards sustainable energy sources is at the top of the global agenda, with 196 countries signing up to a legally binding treaty to limit the increase in the global average temperature to well below 2°C above pre-industrial levels and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels”. According to the Paris Agreement, greenhouse gas emissions must peak before 2025 at the latest and decline by 43% by 2030 to achieve these targets. The record number of weather catastrophes and record high temperatures during 2023 highlights climate change’s increasingly visible and damaging impact on the world.

The mining industry is particularly energy-intensive, traditionally relying on fossil fuels to mine, process, and operate, and responsible for 10% of global emissions. According to Nature Vault, total annual emissions from gold mines reached 126 Mt CO2 in 2019, which, according to its calculations, is equivalent to burning 300 million barrels of oil. That compares with the ​​about 70 Mt CO2 the iron ore industry emits annually, according to SP Global. Meanwhile, steel production is the single biggest contributor, responsible for 7% of global mining and metal emissions globally, according to data sourced from a KU Leuven report.

The gold mining industry is cognizant of the critical role it needs to play in alleviating its impact on climate change. Failure to do so will be unsustainable, and thus, most mining groups have embarked on a sustainability journey that includes investing in renewable energy solutions to power their operations and reduce their dependence on fossil fuels and carbon footprints.

Pan African Resources is making significant inroads in proactively diversifying its energy mix by increasing the proportion of solar energy it relies on to power its mines. Solar power is a natural first choice on the African continent because it is abundant, free, accessible, and inexhaustible and allows mines to minimize their material impact on the environment.

Reducing greenhouse gases is just one of the benefits of relying on solar energy in gold mining. Others include water conservation and the reclamation of land previously disturbed by mining sites. Solar plants need significant space; fortunately, gold mines have ample available land that requires rehabilitation. For instance, Pan African Resources’ Evander solar plant was built on vacant land previously used as hostels for mining employees. Employees now live with their families in nearby communities, further improving their quality of life.

Mines also use vast amounts of water to facilitate mining operations and Pan African Resources has recently commissioned a recycling plant that allows the vast amount of underground water to be used as mine process water. This is a significant saving as the company does not have to purchase water from the municipality, and this also makes more potable water available for additional communities. Solar-powered systems also offer the opportunity to introduce agro-voltaic projects using the land under the solar panels to grow agricultural produce.

There are several sustainability advantages to combining agriculture and photovoltaics. Turning the land under solar panels into productive agricultural land allows the sun’s energy to be used twice: powering the irrigation of crops and creating solar energy to drive the mines. Thus, it makes good use of available land and provides shade, reducing water wastage through evaporation by 20% to 30%.

Renewable energy-powered mines are undoubtedly the way of the future for the gold mining industry, with the International Renewable Energy Agency estimating that by deploying renewable energy, the mining sector could achieve a 16% reduction in energy-related emissions by 2030.

Boston Consulting Group (BCG) identifies three areas where they say mining companies can take decisive action in the short term to unlock the opportunities it believes gold mining in South Africa offers: improving exploration to uncover new resources and reserves, addressing the currently unreliable and unsustainable energy situation, and reducing the cost position of day-to-day mining activities. These can all be addressed by prioritizing innovative sustainable growth strategies incorporating renewable energy alternatives as a growing proportion of the gold mining industry’s energy mix.

Gold mining companies transitioning to renewable energy sources stand to benefit from the considerable long-term economic advantages of solar energy, too. Solar energy systems have a life span of 25 to 30 years, providing a sustainable energy supply alternative and enabling mining companies to exploit growth opportunities and cost savings from these systems for decades to come.

Renewable energy allows mines to become energy independent, generating the energy they need on-site rather than relying on electricity generated on the grid. This reduces the risks of power disruptions, an exceptionally high risk in South Africa’s case, and strips out the volatile fossil-fuel-based energy prices in response to global economic and geopolitical challenges.

Innovative exploration using modern software and modeling is a core component of Pan African Resources’ growth strategy. The mining group has bolstered its technical skills and optimized its mining and underground planning with additional mine planners and in-house ore resource geostatisticians.

BCG also considers expensive, unreliable, and unsustainable electricity a significant roadblock standing in the way of the South African gold mining industry’s success. It says South Africa’s electricity is the fourth most expensive in its sample group and among the costliest of its peer group of mining countries. With the recently approved tariff hike of about 19% by the National Electricity Regulator of South Africa (NERSA) and financial and debt burdens weighing down the utility, these costs will continue to rise. BCG shows the widening gap between electricity supply and demand through to 2030 in the graph below.

The South African power crisis is arguably the biggest risk facing the gold mining groups operating in the country, and the only way to mitigate this risk is to diversify their energy mixes, shifting their reliance on fossil fuels to satisfying the lion’s share of their energy needs using renewable energy sources.

The impact of load shedding was evident at Pan African Resource’s Evander gold operation, with grid electricity issues alone responsible for lowering production by 5% in just six months. The company’s decision to double the solar capacity at the mine will substantially reduce the risk of electricity outages, reducing production levels in the future.

A significant tailwind contributing to the business case in favor of installing solar power capacity is that the payback periods have decreased in price over the last decade due to above-inflation Eskom tariff increases. Pan African Resources’ solar facility at Evander mine, for instance, cost about R150 million to build and in 2022 was expected to pay for itself within five years – a timeline that could contract even further in line with future Eskom tariff increases and bolster the project’s return on investment, and others in the group, substantially.

South African gold mining companies like Pan African Resources have made significant progress in implementing their renewable energy strategies, demonstrating a commitment to resilient investments. Achieving energy security protects these businesses from the potential risks posed by mounting geopolitical risks. Additionally, it guards against the potential for recession in economies struggling to get back on their feet after global energy price hikes.

Even developed countries like the United States are contending with a potential recession in anticipation of higher-for-longer interest rates. At times like these, diversifying investment portfolios across geographies, sectors, and asset classes makes even more sense – and gold mining companies stand to benefit from bullion’s status as a safe haven investment. The higher the gold price goes, the greater the profitability of gold mines that have taken their energy expenses into their hands.

Mining has a particularly harsh impact on the environment, destroying ecosystems, marring landscapes, and adversely affecting soil, water, and air quality. Mining companies are also hugely energy intensive, contributing significantly to greenhouse gas emissions.

For decades, however, the industry has been putting in place initiatives to mitigate the environmental damage their operations cause by reclaiming landscapes to prevent erosion, stabilizing soils contaminated by metals or chemicals used in the mining process, and controlling air emissions.

More recently, the industry has broadened its focus to address its environmental impact caused by releasing significant greenhouse gas emissions into the atmosphere due to its electricity usage and historical reliance on fossil fuel energy.

Measures include reducing energy consumption by implementing energy efficiency initiatives (such as modern, low-emissions machinery, or electric locomotives and dump trucks underground) and rolling out renewable energy projects to reduce how much non-renewable energy they use in day-to-day operations. According to the World Gold Council, gold mining emissions could potentially decline by 4% by 2030 by shifting the energy sources from the grid to renewable energy and energy efficiency by between 2% to 8%. They envisage the following overall changes in gold mining industry emissions and the impact these would have on climate target alignment.

https://www.gold.org/download/file/15455/Gold-and-Climate-Change-The-Energy-Transition.pdf

To deliver on Pan African Resources’ overarching strategic objective to produce high-margin gold ounces in a safe, sustainable, and efficient manner while minimizing the environmental impact of our operations, the mining group has established a comprehensive decarbonization and energy management strategy that it is implementing over the next decade.

It has set ambitious targets to increase the energy generated from renewable resources to 15% by 2027, 30% by 2030, and 50% by 2035. It has already invested heavily in solar energy generation projects at its Evander Mines, which is already up and running and about to double in capacity, and Barberton Mines, which is coming on stream in June 2024.

The group has also concluded a Power Purchase Agreement (PPA) with Sturdee Energy to wheel 40 MW over the grid, and it is exploring a possible 10MW solar plant at its MTR project. In addition, it is aggressively investigating opportunities to source renewable energy PPAs from wind, hydro, and battery storage solutions.

Pan African Resources aims to achieve energy independence and is committed to limiting its carbon footprint by improving energy efficiency. In 2022, the group reduced its electricity consumption to 1.38 million GJ from 1.40 million GJ in 2021 despite increased mining tonnages. Some of the energy efficiency initiatives introduced include high-efficiency motors and compressors, and Pan African Resources is investigating battery-operated locomotives and LHDs for use underground.

Source: Pan African Resources 2023 ESG Report