Epiroc and MineRP have developed a groundbreaking solution that converts ESG into a tangible currency, enabling mining companies to transact their ESG performance.
Epiroc is at the forefront of innovation in the mining industry and is constantly developing new machinery and technologies to improve operational productivity.
An industry trailblazer in so many ways, Epiroc is now focused on cracking the environmental, social and governance (ESG) code and has a new solution that could change the game.
Epiroc acquired MineRP in May last year and, in doing so, brought a leading software company into the fold. Together, the two are harnessing MineRP’s renowned digital platform to pioneer a new frontier in ESG tangibility and understanding.
“A lot of companies are going out there and putting an ESG solution on the table but we’ve thought about ESG differently,” Jacques Erasmus, MineRP business transformation and ESG executive, told Australian Resources & Investment.
“Because of our experience in designing mines, planning and executing on our platform, we came to the realisation that if companies are not infusing ESG into their day-to-day operations and, more importantly, into their decision-making, they are putting themselves at a significant disadvantage.”
When a chief executive officer of a mining company goes out to the market and makes a promise about how their company will operate and build value for its shareholders, this promise might comprise various ESG-linked pillars such as building a values-based culture, optimising capital allocation or prioritising health and safety.
The company might point to its free cash-flow numbers to demonstrate its growth efforts or provide its high-potential incident (HPI) figures to highlight the safety of its processes. But how can this organisation convert its ESG performance into a transactional form?
Leveraging MineRP’s platform, the Triple Balance Sheet was born.
“The power of our platform is to enact a company’s strategy and we do that through three lenses – the science of mining, the business of mining, and the conscience of mining,” Erasmus said.
“Why the conscience of mining? Well, ESG is intangible. ESG doesn’t have a currency and therefore it is difficult to transact it or for management to enable it because it’s always something on the side.
“But if it is given a currency, it can be transacted in a balance sheet and income statement fashion.
“Hence our Triple Balance Sheet.”
Whether it be share price, market capitalisation or net present value (NPV), there are several metrics to understand the value of a company. However, does the company’s value remain the same when its ESG performance is factored in?
Erasmus used an example to flesh out the idea.
“I have three mines – mine A, mine B and mine C – all of which produce gold. And each one of those produces one ounce of gold.” he said.
“If I were now to say that each one of mine A, B and C produces one ounce, but mine A has a minus-50 carbon footprint, mine B has a net-zero carbon footprint and mine C has a plus-50 carbon footprint.
“Let’s say gold is trading at $US1950 per ounce. If I was now a stakeholder, a new investor or a purchaser of the ounce of gold, considering what ESG has changed in value, what would the cost of mine B’s ounce of gold be?
“They would pay $US1950 as that’s the recognised value today and mine B has a zero-carbon footprint. If I were now to say, what would be the cost for mine A, remembering it has a minus-50 carbon footprint?
“I would argue it would cost significantly more than $US1950 because I’m getting more value from that ounce of gold.”
Under the Triple Balance Sheet premise, when a mine has a negative carbon footprint, because it’s ESG performance is favourable, there is now a currency linked to each ounce of gold it produces. The company can then use that to trade.
ESG currency would work the other way for a plus-carbon mine.
“If I were to go to mine C, I’m saying, sometime in the future, I have to pay carbon tax on it because it produced the ounce of gold at a positive carbon effect,” Erasmus said. “The premise we are using is by introducing ESG as a significant measure of value, we are actually changing the playing field.”
To better explain the Triple Balance Sheet, Epiroc and MineRP refer to its three core lenses – the science of mining, the business of mining, and the conscience of mining.
The science of mining showcases the unrivalled capability of the MineRP platform.
“Through the science of mining, and this is revolutionary, we are consolidating all the mining activities onto one platform. No other software does that,” Erasmus said.
“We then come up with what we call a master business schedule, which then drives everything else in the ESG space. So the platform now gives companies the capability to analyse, predict and optimise through its master business schedule.
“This is the first time we are linking mine planning to execution and we do that at a very granular level.”
Companies are then able to derive a smart bill of resource (BoR) or smart bill of material (BoM) which enables them to link their financials to their mining activities by assigning the right resource or equipment to a particular task.
This can be pre-planned or done in real-time, making the Triple Balance Sheet a dynamic platform that enables mining companies to make changes on the fly.
But how does this link back to ESG?
“We started off by saying we have a CEO promise,” Erasmus said. “We then operationalise that promise into a strategy by breaking it down into the mining activities and into the standard operating procedures (SOPs).
“This doesn’t just tackle the technical specifications, nor does it just look at the business of mining, such as the finance, procurement and so forth. It now brings in the ESG commitments.
“ESG is a very broad topic but what we have been able to do is link an ESG indicator to the SOP and to the bill of material. Therefore, we can now infuse ESG into the execution.”
The ESG indicators include environmental, community, carbon, diversity and governance. Along with forecasting the potential impact of mining activities and operational finance, through the Triple Balance Sheet companies can anticipate the ESG impact before it happens.
Companies can prevent potentially harmful ESG occurrences from transpiring in their activities, and if a company is not content in its ESG performance at any given time, changes can be made in real-time.
“From the CEO boardroom level to a mine overseer, the Triple Balance Sheet gives the ability to say, every mining action or activity has three impacts,” Erasmus said.
“It impacts the reserve and resource, which is R&R reconciliation, it impacts working capital and operational cost. Then there is an ESG element.
“We are now able to offer all three of those perspectives next to each other and provide the optionality to choose.
“For instance, if I’m a miner who only wants to buy from companies who have a net-zero footprint, I can identify companies who provide consumables, resources or equipment in a zero-carbon manner.
“But this only touches ESG: I don’t understand what impact that would have on my costing; maybe that cost me a lot more. So that can now be factored in.
“And let’s say, when I move from diesel-operated equipment to battery or hydro fuel, there is an efficiency differential. I can now build that into my life-of-mine, and considering my life of mine and my resource I’m going to mine differently, because timing now plays a role.
“I can now put those three dimensions – working capital and operational costs, R&R reconciliation, and ESG – together and see what the answer is,” he said.
“Nobody else has been able to do that and we believe that is the key. We are now offering an all-dimensional decision-making platform which considers all three critical factors and companies can decide how they want to weight it.”
The Triple Balance Sheet is currently being deployed across Epiroc and MineRP’s current client base as an update to an existing solution. The companies also understand that not all clients want to go with the big bang approach, so they have modularised the solution so it can be scaled at the client’s request.
“We have numerous scaling projects happening across the world,” Erasmus said. “The client sees the solution operating in one area and can then scale it across their business. Then as the client does the scaling, their supply chain gets all the benefits as the solution is increasingly deployed.”
Given ESG’s current bearing in the local mining industry, Epiroc’s business line manager – technology and digital, Leon Cosgrove, said the platform would become increasingly relevant in Australia.
“It’s going to be a major component of how we sell MineRP and it’s also going to be part of Epiroc’s broader digital view and our framework on how we present to our clients,” he said.
“Every client that we’ve talked to, every one of them is being questioned about how they’re going to address ESG. A lot of that is coming from a decarbonisation directive and Epiroc is leading the battery-electric vehicle space and so forth. But with this solution, we’ve reached a new level of operationalisation.”
ESG can be a complicated concept to understand, let alone operationalise. With the Triple Balance Sheet, Epiroc and MineRP are not only better informing the industry of ESG’s many intricacies, but they’ve fostered a new currency with which ESG can be made tangible and be transacted.
This feature appeared in the April issue of Australian Resources & Investment.