Australian Ethical holds positions on 3 recycling companies.

Would you withdraw money from an ATM and then bin it? Have you bought batteries from the shops and then immediately throw them away? As absurd as this sounds, we as a nation do this every day.

According to the Australian Bureau of Statistics, we send 46% or 24.9 million tonnes of waste to landfills every year. When compared to Sweden which only sends 1% of its waste to landfill (and in fact imports garbage as a profitable industry), we are literally burying money every day.

Urban mining is a popular term used to describe the stripping and reusing of valuable metals, mostly from electronic waste. At its core is the basic principle of recycling and acknowledges that it is cheaper and more efficient to re-use materials than to produce them from virgin sources. As the US Environmental Protection Agency (EPA) has calculated, recycling one ton of paper saves 4,100 kilowatt hours of energy which is enough to power the average American home for six months.

When considered in the context of global markets, recycling in all its forms is a responsible and clearly a more sustainable way to invest in commodities. Many recycled metals like aluminum, gold and zinc are chemically indistinguishable from commodities produced from virgin materials and are an important resource for many major industries. For example, approximately 30% of global aluminum production now comes from the recycling of old scrap.

Australian Ethical holds positions in three companies involved in urban mining and commodity recycling at an industrial scale.

1. Horsehead Holdings Corp (market capitalisation US$1 billion)

The current growing global shortage in zinc as a result of mine depletion has been identified as the principle driver behind the 27% rise in the zinc price over the past 12 months.  Horsehead is the world’s largest producer of zinc from recycled sources. The company collects electric arc furnace (EAF) dust which contains zinc. EAF dust is listed as hazardous waste and is generated by North American steel mini-mills. By collecting and processing EAF dust, Horsehead is amongst the world’s lowest cost producers of zinc and has been in the zinc production business since the mid-1800s. It has recently completed the relocation to its new, state-of-the-art facility in North Carolina which will benefit from lower energy usage, higher labour productivity and reduced maintenance costs. Zinc produced by Horsehead is used in the manufacturing of brass and hot dip galvinising, which is the process of adding rust protection to steel.

2. Covanta Holding Corp (market capitalisation US$2.8 billion)

Covanta is one of the world’s largest owners of Energy-from-Waste (EfW) facilities. The company meets solid waste disposal needs by using waste to generate renewable energy. This is the same methodology the Swedes have utilised to reduce landfill waste by 99%. The EPA has estimated that for every tonne of municipal solid waste processed at an EfW facility, the release of approximately one tonne of carbon dioxide equivalent emissions into the atmosphere is prevented due to the avoidance of methane generation at landfills. In total, Covanta’s net greenhouse gas emissions are a negative 20 million tons annually as they actually reduce the amount of emissions that would otherwise have escaped into the atmosphere.

Assuming we used EfW in Australia on our 24.9 million tonnes of landfill waste, we could cut our aggregate emissions by nearly 25 million tonnes or, said differently, reduce our national emissions by 4.6%. Furthermore, since EfW can provide baseload power, if that energy displaced our dirtiest coal-fired generators, we would further reduce our emissions and accelerate our dependence off coal.

Covanta is in a very strong financial position having just raised its quarterly dividend by 39% to provide an annual yield of 4.8%. It also confirmed its 2014 operating profit guidance of between US$470-500 million.

3. Darling Ingredients (market capitalisation US$3.2 billion)

After a series of large acquisitions, Darling has emerged as a world leader in bio-nutrient transformation. Essentially, Darling collects the inedible and waste products from abattoirs, bakeries and restaurants and converts them into food, feed and fuel. One of Darling’s most notable achievements is its Diamond Green Diesel facility that converts animal fats and used cooking oils oil into renewable diesel. The facility can produce 137 million gallons of diesel a year and is profitable without subsidies.  Output from this one facility equates to about 4% of Australia’s total demand for diesel. Darling also operates facilities in the Netherlands that safely disposes of inedible waste products which are converted into enough renewable energy to power 40,000 Dutch households each year. It also operates another facility in the Netherlands that converts animal fat and manure into renewable energy for its own self consumption and feeds power back onto the grid during off-peak hours. Darling has consistently generated robust cash flows giving it a strong financial core.

Urban mining is almost an inexhaustible source of raw materials. It closes the loop in terms of production, consumption and disposal because the end just leads back to the beginning. In a world where natural resource grades are falling and becoming more challenging to extract, it just makes sense to make better use of what we have than to further deplete our limited resources.

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