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

The structure below would be an excellent approach to breaking down the different factors. However, there's other good ways of breaking problem down (this is not an exact science). Importantly, the factors at the end of the structure (however broken down) should match some or ideally most of the factors in the example. Moreover, they should be supported by well formulated hypotheses as to why they're important. It's not enough to just list the factors as shown in the image. Instead, there should be a good voice-over that lays out the candidate's thinking, which may last a few minutes if the candidate goes both broad and deep.

• 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

Candidate must calculate:

1. Number of tons of copper produced to generate one ton of CO2 emissions:
2. Copper premium for green copper per ton
3. 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.

• Transport:
  • Green copper is only green until the moment it is transported away from the mining site by trucks, rail, ships, etc. and the associated diesel consumption needs to be addressed
  • Responsibility for carbon free supply chain away from mining site may lie with seller or buyer
• Speed:
  • Being a first mover may give GMC a competitive edge to supply to industries that will most likely be interested in green copper e.g. electric car manufacturers
  • Company strategy may need to be revisited to support green copper, which is quite disruptive on a large scale
• Technology:
  • Maturity/immaturity of levers that may or may not be ready in time
  • Complexity/feasibility to implement certain solutions, which could be quite challenging
• Health:
  • This could find huge support among the labor force/unions due to less exposure to exhaust fumes
  • New ways of doing things may introduce new risks to health and the environment
• Climate:
  • Australia and Chile have good potential for sustainable energy production on-site from solar and wind
  • For assets in other countries, this may not be the same