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Moritz

Zero Carbon Mine (McKinsey 1st & 2nd round)

Case information

Difficulty: Advanced

Interviewer-led

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Operations strategy

Case Prompt:

Client goal

Our client is an international mining company Global Mining Corp (GMC) that focuses on copper mining and is interested in the possibility of producing and selling “green copper”, which is the same product as normal copper but with a certified zero carbon footprint for its entire life cycle until sale. The client engaged your team to help determine the prospects for achieving net zero for their Chilean and Australian copper mines in the next 10 years and decide whether they should pursue this path.

Description of situation

The client operates open pit copper mines mostly in remote areas of Chile and Australia. In most cases, the copper ore is blasted with explosives and turned into rubble, which is then collected by heavy bulldozers in big piles, loaded by power shovels onto haul trucks, which transport the material over several kilometers to the processing site. Mobile equipment is diesel operated and very heavy, up to 400 tons for a fully loaded haul truck. During processing, a series of mechanical operations take place to break down the rubble further before chemical processes like acidic leaching are used to produce the final product: copper cathodes. This material is then transported by trucks and rail to the nearest port where it can be shipped to its final destination, depending on the customer.

Overview of All Exhibits

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Question 1

What do you think would be some of the factors affecting whether GMC should pursue the production and sale of green copper within the next 10 years?

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Question 2

The team set out to investigate different technology levers for CO2 abatement that could be implemented to achieve zero carbon for a pilot mine in Chile, which produces emissions of 100,000 tons of CO2 per annum, excluding transport away from the mine. Exhibit 1 shows these levers on an abatement curve that compares total abated tons of CO2 per lever and the corresponding cost per abated ton of CO2. What can you make of this analysis?

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Outlook is for 2030 and needs to be taken with a grain of salt when making assumptions about today
- Costs today are likely much higher today
- Certain technologies may not yet be ready today
A total of 100,000 tons CO2 can be abated, which corresponds 100% of the current mine's emission (excluding transport away from mine!):
- A new mining layout (20,000 tons CO2)
- A new energy source for mobile equipment (50,000 tons CO2) with various possible solutions that are mutually exclusive i.e. not cumulative
- Green energy for processing (30,000 tons CO2) with various possible solutions that are mutually exclusive i.e. not cumulative
New mining layout: There is only one alternative addressing the mining layout, which has a negative cost of -500US$ / ton CO2 abated (i.e. financial gain from implementing solution).
Mobile equipment: There are various solutions for decarbonizing mobile equipment. The best solution from an economic perspective is electrification via batteries with a negative cost of -450US$ / ton CO2 abated (i.e. financial gain from implementing solution). Other more costly solutions for decarbonizing mobile equipment are deprioritized from a purely financial perspective i.e. pentagraph, hydrogen fuel cell, biofuels, e-diesel.
Green electricity for processing plant: There are various solutions for decarbonizing electric power supply. The best solution from an economic perspective is electrification via on-site generation through wind + solar with -200US$ / ton CO2 abated (i.e. financial gain from implementing solution). The only other alternative i.e. green energy supply from external provider should be deprioritized from purely financial perspective.
Total cost for abatement of 100,000 tons CO2 (100% of all emissions) in 2030 is -38,500,000 US$
- -10,000,000 US$ for new mining layout (-500US$ / ton CO2 * 20,000 ton CO2)
- -22,500,000 US$ battery powered mobile equipment (-450US$ / ton CO2 * 50,000 ton CO2)
- -6,000,000 US$ for generation of green electricity (-200US$ / ton CO2 * 30,000 ton CO2)
Average CO2 abatement in 2030 is -385 US$ / ton CO2 (net benefit per ton from total cost of -38,500,000 US$ / 100,000 ton CO2)
All forecasts are for 2030 only and have high uncertainty/don't tell us anything about cost and availability of technology today

Question 3

The team acknowledges that nowadays, technology availability and cost for enabling green copper are less favorable compared to 2030. Considering the information in Exhibit 2, what is the maximum average cost per abated ton CO2 for the pilot mine in Chile today if the goal is to break even with a yearly copper production of 1.0 million tons?

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Candidate must calculate:

Number of tons of copper produced to generate one ton of CO2 emissions:
Copper premium for green copper per ton
Maximum price for abatement of 1 ton of CO2 to still break even

This results in:

The total average cost for CO2 abatement in the mine must not exceed 640 US$/ton CO2 if the goal is to break even. This figure would allow for costly solutions nowadays compared to 2030, where implementation of most attractive levers actually has a negative average cost of -385 US$ / ton CO2 i.e. financial benefit.
We don't know anything about the availability and cost of solutions nowadays, which makes it difficult to put the figure into context and deduct whether we have a real business case for green copper that could be executed now.
Financials don't always tell the whole truth and even if we didn't break even and even made a loss initially, there may still be a case for decarbonization if it sets us up for financial success in the future - especially when considering all the other non-financial aspects e.g. brand image, customer perception, attractiveness for investors, etc.

Number of tons of copper produced to generate one ton of CO2 emissions

Yearly emissions: 100,000 tons of CO2 (known from Q2)
Yearly production: 1,000,000 tons copper
Result = (1,000,000 tons copper) / (100,000 tons CO2) = 10 tons copper / 1 ton CO2

Copper premium for green copper per ton:

Average price is 3.2 US$ / pound (push candidate to use average)
There's 2,000 pounds in 1 ton so the average price is 6,400 US$ / ton Copper
Premium is 1% over market price
Result = 6,400 US$ / ton * 1% = 64 US$ / ton copper

Maximum price for abatement of 1 ton of CO2 to still break even

Result = (10 tons copper / ton CO2) * (64 US$ / ton copper) = 640 US$ / ton CO2

Question 4

What are some of the non-financial aspects that you can think of considering a potential pathway to green copper and zero carbon mining for CMG?

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Zero Carbon Mine (McKinsey 1st & 2nd round) i

Case Prompt:

Question 1

Question 2

Question 3

Question 4

Zero Carbon Mine (McKinsey 1st & 2nd round)