Why we sold Rio Tinto for ESG reasons and bought Anglo American instead

Mining evokes images of scarred landscapes, fossil fuels and a world that ESG investors are eager to leave behind. However, it will play a vital role in the transition to a green future.

Lithium, copper, nickel and other metals extracted via mining are all used in electric vehicles. Gold and platinum, meanwhile, are essential components in semiconductors.

Abandoning mining will not be possible, so the question from an ESG point of view then becomes how can we make the previously unsustainable, sustainable?

Last year, Artemis Income exited its position in Rio Tinto, reinvesting the capital into existing holdings Anglo American and Swedish miner Boliden. The latter two possess strong ESG credentials – not just with respect to the metals they extract and their importance to the energy transition, but also with respect to their mining practices – all of which we believe will benefit their long-term profitability.

Not any old iron

Rio Tinto is heavily exposed to iron ore, the demand for which could be structurally challenged over the longer term. In addition, the company’s reputation suffered after it destroyed two ancient Aboriginal rock shelters in 2020, which led to its chair stepping down. Our view was that this act and the associated fallout made Rio Tinto’s time frame for expanding its iron ore production longer and the process more costly.

Anglo American, conversely, possesses among the best ESG credentials in its industry and has a portfolio rich in copper and platinum group metals (PGMs), all of which are crucial raw materials in the electrification and decarbonisation of the global economy. It has set ambitious emission-reduction targets, will run its South American operations on 100% renewable electricity by 2023 and aims to have a net positive impact on biodiversity across its mines and sites by 2030¹.

Testing the water

The company is also acutely aware of the importance of its social licence to operate. A good example of this is at the Quellaveco copper mine in Peru, where Anglo American has committed to hiring local people and paying for a $1 billion development fund² to be used in the surrounding area. Water is becoming a scarce resource in South America and needs to be kept free of contaminants to be used for irrigation but is also required for mining operations. Anglo American has therefore diverted the Titire river around the mine to ensure the local farming community retains a clean water supply and does not suffer from contamination.

Anglo American has reported an 11% increase in production compared with the second quarter in 2022³. The increase has been attributed to the company’s activities in Quellaveco.

The company’s chief executive Duncan Wanblad told Australian Mining: “Quellaveco has now reached commercial production levels. We also delivered a strong performance at our Minas-Rio iron ore operation in Brazil, as well as higher production from our open cut operations in steelmaking coal in Australia.”

Fair copper

Meanwhile, Boliden owns the world’s most efficient open-pit copper mine – Aitik, in northern Sweden⁴. The majority of its mines and smelting facilities are in close proximity to cheap, green hydroelectric power in Scandinavia. It too has committed to demanding emission-reduction targets and is one of the pre-eminent producers of low-carbon copper and zinc. Boliden’s copper emits less than half of the carbon dioxide per tonne produced compared with the industry average and its low-carbon zinc has among the lowest production carbon footprint of any refined zinc in the world⁵.

Mining will always have its detractors and much of the historical criticism has been just. But divesting from the industry is helpful to no one. While you can’t build a mine without having some sort of impact on the surrounding area, we feel that Anglo American and Boliden are doing their best to limit long-term damage to the environment. In this way, they are representative of how alignment with ESG goals to help build a better future doesn’t mean abandoning the companies of the past.