The Business Case: Valuing Electric Mines Summary

Electrification in mining represents a transformative shift in how the industry operates, bringing a wide range of environmental, operational, and economic benefits. As global efforts to combat climate change intensify, the mining sector is under increasing pressure to reduce its carbon footprint, enhance energy efficiency, and improve the safety and health of its workforce.

By transitioning from traditional diesel-powered machinery to electric alternatives, mining companies can significantly lower greenhouse gas emissions, reduce operational costs, and create a safer working environment, particularly in underground operations.

The Electric Mine Consortium (EMC) was created in 2020 when a group of leading mining and service companies joined forces with the ambition to accelerate progress towards the fully electrified mine.

EMC recently released a report called “Electric Mine Consortium: 2020 to 2023” which outlines their work over the past 4 years and their findings.

Below we have provided a summary of their findings related to “Chapter 4: The Business Case: Valuing Electric Mines”.

Summary of Chapter 4 –  The Business Case: Valuing Electric Mines

This chapter in the report outlines the business case for electrification, taking into considerations both the environmental and financial aspects.

The business case for electrification in mining is compelling due to its numerous benefits, such as creating a healthier and quieter work environment, attracting and retaining talent, improving access to capital, and meeting emissions reduction targets. However, the high initial capital investment and uncertainties about operational performance have been significant financial hurdles for many companies.

For instance, transitioning from diesel to battery-electric haulage in an Australian underground mine may initially show marginal to negative financial returns using current input assumptions. However, adjusting these assumptions, such as accounting for advancements in battery technology and the increasing inevitability of carbon pricing, reveals a positive financial outcome. In one case study, the net present cost (NPC) of electrification was reduced to 56% of the cost of using diesel. As battery technology improves and carbon pricing becomes a reality, the financial benefits of electrification are expected to outweigh the risks, suggesting that mining companies should seriously reconsider investments in diesel-powered equipment.

Electrification Benefits

• Work Environment Improvements: Electrification provides a healthier, quieter, and more comfortable environment, reducing employee exposure to diesel particulate matter (DPM), which is carcinogenic. This aligns with regulatory frameworks emphasizing the reduction of risks in the workplace.
• Employee Well-being: Battery electric vehicles (BEVs) are quieter, produce less heat, and eliminate harmful emissions like DPM. There’s also evidence that BEVs reduce heat and dust in the working environment, improving comfort and reducing noise-induced hearing loss, which has been historically high in mining.
• Ventilation Benefits: Reduced emissions and heat generation from BEVs lead to lower ventilation requirements, which can result in significant savings in ventilation-related operating costs.

Financial Model & Case Study

The EMC developed a financial model, in collaboration with Western Australian company Model Answer, to help mining companies analyze the financial viability of transitioning from diesel to battery electric vehicle (BEV) load and haul systems. This model was applied to two real-life mining projects, allowing companies to assess how shifting from diesel to electrification would impact the mine’s financial value.

The model uses a Net Present Cost (NPC) approach, focusing only on cost differences between diesel and BEV options. Various factors, such as mine plan, equipment performance, energy costs, and carbon pricing, were considered to provide key insights and guide further analysis. The results, after removing confidential information, were shared across the EMC to support decision-making in electrification efforts.

The case study developed is of an Australian underground hard rock mine. with the following characteristics:

• Underground gold mine in Australia.
• 12-year life, ore production averaging
• 1.8 Mtpa producing approximately 200koz gold pa.
• Truck haulage to surface via a decline.

Batteries are supplied separately to the vehicles in the form of Batteries as a Service (BaaS) Renewable energy supply in place – combination of solar and wind to generate 70% renewable energy (typical achievable at remote mine site). Charging stations added underground and progressively moved to suit BEV fleet.

The Base Case – Incremental Progress

The base case presented here represents a typical scenario when a mining company evaluates the financial comparison between diesel and battery electric vehicles (BEVs). Using 2024 data from an original equipment manufacturer (OEM), the analysis assumes diesel is tax-free and there is no carbon pricing, common for mines outside Australia’s Safeguard Mechanism. BEVs are shown to increase the net present cost (NPC) by 20%, while emissions are reduced by 60%, largely due to renewable energy use.

The capital cost of BEVs is a key factor, with BEV machines priced about 50% higher than diesel counterparts (excluding batteries). Batteries are typically leased under a “batteries as a service” (BaaS) model. While BEVs offer reduced operating costs, thanks to better energy efficiency and lower maintenance costs, these savings do not fully compensate for the higher initial capital costs, including the need for charging infrastructure. Despite the financial cost, the non-financial benefits of BEVs, such as emissions reductions, are significant.

The report identifies the most significant factors (value levers) and prioritize areas for further investigation.

• The capital cost of electric haulage and ancillary equipment is the largest value lever. A 30% reduction in equipment capital cost is enough to make the electric and diesel options financially equal. This reduction is seen as realistic and expected.
• Extending the life of electric equipment, due to simpler drivetrains and fewer moving parts, also has a significant impact, potentially reducing the need for a full equipment replacement cycle over the mine’s life.
• Battery costs and labor costs have similar leverage. Battery costs are expected to decrease over time, while labor cost savings from reduced turnover will be smaller.
• Additionally, although no green premium was included in the base case, a hypothetical 5% premium in the sensitivity analysis shows that a green premium has a significant impact on the business case.

Future scenarios – how might valuations and incentives shift

The base case presents a snapshot based on current assumptions, but these are likely to change over time. Key assumptions, such as no improvements in battery technology or the absence of carbon pricing, are unrealistic over a 12-year period. A scenario analysis approach helps to evaluate the impact of these shifts on the financial business case.

Three scenarios are considered:

1. New Technology, New Economics: Rapid advancements in battery electric vehicle (BEV) technology lead to cost parity with diesel equipment.
2. Global Carbon Pressures: Societal and government pressures drive carbon pricing and green product premiums.
3. Technology and External Pressures Align: A combination of technological improvements and carbon incentives.

Future Scenario 1 – New technology, new economics

In scenario 1, rapid advancements in BEV technology lead to reduced battery operating costs, improved productivity, and lower capital costs, making BEVs financially more attractive. Increased demand drives cost parity between BEVs and diesel vehicles, reducing the net present cost (NPC) of BEVs to 88% of diesel’s. Battery performance improves by 30%, with longer time between charges and higher cycle counts. Capital cost reductions are expected within three years due to scaled-up production, potentially supported by government incentives. Additionally, longer BEV lifecycles and a 5% reduction in labor costs enhance financial viability, making BEVs 10% more favorable than diesel equipment.

Future Scenario 2 – Global carbon pressures accelerate incentives to change

In scenario 2, BEV technology remains static at 2024 levels, but global pressures and policy incentives accelerate the shift towards electrification. Carbon pricing, removal of diesel tax rebates, and stricter emissions regulations increase the financial appeal of BEVs, reducing the NPC to 87% of diesel. A carbon price of AU$100/tCO2-e and the elimination of diesel rebates raise diesel costs, while a potential 5% green premium for low-carbon products significantly enhances the financial case. Global trends, such as carbon border mechanisms and government-led emissions reduction policies, will increasingly favor electrification in mining.

Scenario 3 – Technology and external pressures align

In scenario 3 combines the technological advancements from Scenario 1 with the global incentives of Scenario 2, creating a best-case scenario for electrification. In this scenario, the electrified BEVs have an NPC at just 56% of the diesel case, cutting load and haul costs by nearly half. This demonstrates the substantial financial upside available to companies investing in electrification. Even if only part of the scenario materializes, there is clear value in electrifying. The focus shifts from short-term risks to seizing the potential long-term benefits of electrification.

Conclusions

Chapter 4 of the report, “The Business Case: Valuing Electric Mines” is an important study that will help guide the industry. While many major mining companies have done their own analysis, which have come out negative, there is an overwhelming feeling that the economics will make more sense soon.

• Initial Capital Investment: The high upfront cost of BEVs compared to diesel-powered equipment is a major financial hurdle. However, while BEVs require capital investment, operational cost savings from reduced energy consumption and maintenance are notable in the long run.
• Technology Improvements: Battery technology is improving rapidly, reducing costs and increasing efficiency. As carbon pricing becomes inevitable, the financial returns on electrification become more attractive.
• Investment Valuation: Static financial modeling that does not account for future technology improvements and external pressures, such as carbon pricing, tends to underestimate the value of electrification. More dynamic, scenario-based approaches can reveal positive returns on electrification.

The future of electrification in mining is promising, and its implementation is crucial not only for environmental reasons but also to secure financial returns, attract talent, and meet societal and regulatory expectations. Leading mining companies must embrace and promote electrification, particularly by working with equipment manufacturers to reduce costs and by advocating for governmental support to accelerate the transition.

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