Rio Tinto To Move On Decarbonization; Spending Big On The Green Push

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Rio Tinto To Move On Decarbonization; Spending Big On The Green Push

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  • As governments set more ambitious carbon emissions targets and accelerate actions on climate change, Rio Tinto (NYSE: RIO; ASX: RIO) unveiled its long-term strategy to decarbonize and strengthen performance.
  • The miner's new target is to reduce scope one and two carbon emissions by 50Percent by 2030, more than tripling its previous target.
  • To reach these targets, the company will make direct investments of about US$7.5 billion to lower emissions between 2022 and 2030.

Rio Tinto Limited is engaged in minerals and metals exploration, development, production, and processing. The Company's Portfolio of assets is condensed into four product groups: Aluminium, Copper & Diamonds, Energy & Minerals, and Iron Ore.

Rio Tinto will spend $US7.5 billion (AU$10 billion) over the next nine years to halve its carbon emissions in the belief that “radical”, immediate action is required for the world to decarbonise by 2050. The dramatic escalation in the big miner’s climate ambitions included a goal to shift its Australian aluminium smelters onto a largely renewable power source by the end of the decade and comes as Prime Minister Scott Morrison tries to secure support from the Nationals to take a net zero 2050 pledge to next month’s Glasgow climate summit. Rio’s flagship Western Australian iron ore division will likely receive a large portion of the $US7.5 billion fund, with Rio hoping to establish 1 gigawatt of solar and wind energy in the region in the hope it can fully electrify the giant mine, rail, and port system by an unspecified date.

Rio said it would not buy diesel powered trucks and train locomotives for the iron ore division after 2030. An even bigger energy switch will be required in Queensland and NSW, where Rio’s Boyne and Tomago smelters will be largely powered by coal until 2029 and 2028 respectively. Rio said 5 gigawatts of wind and solar would be required for that switch, with firming power, which traditionally means gas but could in the future mean hydrogen, needed for support. Those two smelters and less carbon intensive ones in Tasmania and New Zealand collectively produce about 33 per cent of the company’s operational emissions.

Aluminium smelters are the biggest individual power consumers in the National Electricity Market, meaning the decarbonisation of Rio’s Australian smelters shapes as a massive investment signal for renewable generators. Rio’s new targets for its direct emissions, known as Scope 1 and 2 emissions, put it ahead of those set by biggest rival, BHP, which has committed to a 30 per cent reduction by the end of the decade. This signals a monumental shift in perspective for Rio Tinto as pressure builds on a greener push forward for many resources and mining companies, this type of announcement seemed inevitable.

Investor sentiment remains positive and has stoked by some brokers releasing price targets for (ASX: RIO) share price. According to a note out of Goldman Sachs, its analysts have retained their buy rating and trimmed their price target very slightly to $122.40. Based on the current Rio Tinto share price, this implies potential upside of 21.5 Percent for investors over the next 12 months before dividends. And with Goldman forecasting a fully franked ~11 Percent dividend yield in FY 2022, the potential at hand total return stretches to over 32 Percent.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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