London-based guidance says carbon-related costs and trade requirements must be included in due diligence for acquisitions covering mines, concentrators, smelters and refineries. It links the European Union’s Carbon Border Adjustment Mechanism (CBAM) to how assets perform commercially based on the products sold, the processing facilities used and the quality of emissions records. The guidance also notes that CBAM exposure can apply even when a mine is outside the EU.
Orebody quality, reserves, operating costs, permits, commodity prices and environmental obligations remain central to valuation. The document adds that CBAM creates additional distinctions between products and between production routes. It frames the assessment as part of mining and metals transactions where embedded emissions and verification systems are relevant alongside conventional factors.
Product classification and allocation across production installations
The first step described is to identify each saleable product and precursor using its Combined Nomenclature (CN) code and destination market. It states that CBAM treatment follows customs classification and applicable production routes rather than a company’s general business description. It also says buyers should not rely on broad descriptions such as an iron ore mine, nickel project or aluminium business.
The guidance gives examples of differing exposure depending on product form. It says an iron ore operation selling non-agglomerated concentrate may face different treatment from one selling pellets. It also states that a nickel producer marketing ferronickel may face different treatment from a business selling refined nickel.
It adds that diligence must examine where emissions arise within the production chain when an acquisition includes facilities such as a concentrator, pellet plant, smelter, refinery or rolling facility. The document says buyers need to establish how emissions are assigned to individual products. It also notes that corporate sustainability reporting may not provide sufficient detail for CBAM purposes.
The guidance says the emissions boundary used for CBAM can be more specific than the one used in annual environmental, social and governance disclosures. It calls for examination of production-level records and allocation methods. It also links this requirement to the need to connect product coverage with the facilities involved in processing.
Emissions evidence, default values and verification readiness
The reliability of emissions data is presented as another determinant of commercial exposure. The guidance says a target may report low-carbon production but lack calibrated meters, consistent fuel records, documented product-allocation procedures or files suitable for independent verification. It adds that these gaps can affect whether reported performance can be substantiated.
It states that if an EU customer cannot use actual emissions data, default values may apply. For iron and steel and aluminium, it says the default-value mark-up rises to 30% from 2028. The document describes this as a material diligence issue where emissions systems cannot substantiate reported performance.
Buyers are advised to test whether a target’s data architecture can support independent verification rather than relying only on annual ESG reports. The assessment should determine whether production figures, energy consumption, fuel use and emissions allocations can be traced and reconciled. It also distinguishes demonstrating emissions performance from claims that production is low-carbon.
Electricity arrangements and EU ETS cost exposure
The guidance highlights power supply in aluminium production, ferroalloys and refining, where electricity can account for a substantial share of the emissions profile. It says due diligence should cover electricity contracts, grid mix, self-generation, renewable-energy claims, metering arrangements and how durable any claimed low-carbon advantage is. This is presented as relevant to carbon-related valuation considerations.
It notes that a power purchase agreement offering low-cost electricity may lose value if it expires soon after transaction close. Acquisition models are said to need analysis of timing and terms of power arrangements rather than assuming historical electricity costs or emissions intensity will continue. The guidance ties this to how future carbon exposure could differ from past operating conditions.
For European smelters and refineries, it says buyers must assess obligations under the EU Emissions Trading System (EU ETS). This includes free allocation, its expected phase-down, carbon hedging policies and whether costs can be passed through to customers. It adds that historical earnings may not reflect future carbon exposure when free allocation or other protection has been available.
Metal-specific differences under CBAM scope
The document says CBAM’s competitive effects depend on the material being produced. It states that a European steel or aluminium asset may gain relative advantage against imports with higher embedded emissions where the mechanism applies. It also notes that this protection cannot be assumed for every metal.
It says copper, zinc and lithium processing assets may not receive equivalent treatment under current rules. Buyers are advised to base valuation on legislation applicable to relevant products rather than presuming all strategically important metals will eventually be included. The guidance frames this as important when comparing assets across commodities.
It further states that strategic importance alone does not establish that a product falls within CBAM’s scope or receives the same border treatment as steel or aluminium. This distinction is presented as relevant when assessing whether different targets face comparable regulatory outcomes under current rules.
Contract terms, change-in-law risks and product expansion
The guidance says supply and offtake agreements signed before CBAM may leave carbon-related responsibilities unresolved. It states these contracts may not specify how emissions data must be provided, who pays for verification or how carbon-related costs are allocated. Acquirers are advised to determine whether customers can request emissions information without compensating suppliers.
It also calls for establishing whether upstream suppliers are contractually required to provide necessary records. The document says buyers should clarify which party bears costs when available evidence is insufficient. This is presented as part of identifying carbon-related obligations tied to documentation access.
Long-term agreements require change-in-law analysis in addition to existing contract terms. The guidance states that a proposed downstream CBAM expansion in 2028 could extend the mechanism to additional products including machinery, components or fabricated goods sold into the European market. For targets supplying such products, it says future regulatory changes could introduce obligations not addressed when existing contracts were negotiated.
Traceability controls for mass-balance claims
The document describes trading and inventory controls as particularly important for vertically integrated groups blending materials from different installations. Where low-carbon attributes are assigned through mass-balance systems, it says buyers need to determine whether controls prevent double counting. It links these controls to how claims can be supported across internal supply chains.
It states insufficient inventory traceability can weaken a producer’s ability to demonstrate origin and emissions characteristics of material. The guidance adds that this can undermine efforts to obtain commercial value from lower-emission production even when underlying processes have a favourable carbon profile. It frames traceability as connected to substantiating emissions claims rather than only recording production outcomes.
Diligence is said to need alignment between physical material flows and records used for emissions claims. Product traceability and emissions evidence should remain consistent across group facilities and trading activities. This requirement is presented as relevant where multiple installations contribute inputs into final sales.
Post-closing capex exposure and public support conditions
The guidance identifies planned capital expenditure as another source of exposure after acquisition close. It says targets may prepare expansions, furnace rebuilds or refinery upgrades scheduled after 2028. If imported equipment containing substantial amounts of steel or aluminium becomes subject to downstream CBAM extension, it expects project costs could increase.
Financial models are said to include sensitivity analysis for this possibility instead of assuming existing cost bases remain unchanged. The treatment of imported project equipment depends on rules ultimately applied, so proposed expansion should not be treated as adopted legislation. Public support is also described as potentially affecting transaction value through Critical Raw Materials Act (CRMA) strategic-project status, grants and state-aid approvals.
The guidance says buyers need to establish conditions attached to public support measures. Key questions include whether support survives change of control, whether project milestones are binding and whether funding can be clawed back. It also states that public support does not by itself establish transferability of benefits to a new owner.
Environmental liabilities alongside carbon-focused diligence
The document states carbon-related regulation does not replace conventional environmental and social risk assessment in mining due diligence. Tailings management, water management, waste handling, biodiversity impacts and mine-closure obligations remain fundamental to valuation of mining and metals assets. It positions these liabilities as separate from CBAM-related considerations.
A refinery with a favourable position under CBAM may still carry substantial remediation liabilities according to the guidance. It therefore calls for assessing carbon exposure together with environmental obligations rather than treating favourable performance in one area as evidence of low overall risk. The process described requires coordinated work across technical compliance areas.
It lists roles including mining engineers, metallurgists, power-market specialists, customs experts, carbon verifiers, lawyers and financial advisers involved in assessments using a common map of the asset’s products, production facilities and supply chains. This coordination is presented as necessary for aligning product coverage with evidence requirements across jurisdictions.
Opportunities tied to metering upgrades and verification systems
The guidance says due diligence can identify opportunities to improve an acquisition target’s commercial position related to carbon management systems. It describes scenarios where strong geology and access to low-carbon power exist alongside underdeveloped emissions systems that could be improved through better metering and independent verification processes. It also mentions revised offtake arrangements and more effective marketing of product emissions characteristics.
It states improvements may allow an owner to capture value not reflected in sellers’ management systems or commercial arrangements if regulatory treatment recognises emissions performance supported by evidence available for verification. Conversely it says an asset appearing attractive on conventional operating metrics may warrant lower valuation if its products are covered by CBAM while emissions are high and data systems cannot substantiate claims adequately.
The document concludes by describing carbon due diligence as becoming part of valuation processes for metals mergers and acquisitions involving not only production volumes, equipment and permits but also emissions history supported by documentation associated with materials produced under relevant product coverage rules.