In June, I was reading back through some notes made during a January 2022 meeting in London, UK, with Clareo’s managing partner and Development Partner Institute’s (DPI) founder, Peter Bryant.
Scrawled in my book was the following question: what are the implications, for the mining industry, of the world moving to a material-intensive energy system?
It’s a really important question and, upon further discussion, both Bryant and I felt it was worth committing its exploration to written word.
We jumped on a trans-Atlantic Zoom call, and this is where the story begins…
“First things first, what do we mean when we talk about a ‘material-intensive energy system’,” I asked.
“The traditional energy system is largely dependent upon fossil fuels, and the world is shifting to an energy system that is built upon mineral supply chains, hence, the term ‘materials’,” Bryant explained.
“There’s an interesting dichotomy in that, people who tend to be anti-fossil fuels also tend to be anti-mining. There’s a lack of understanding that the deployment of technologies like electric vehicles (EVs) or solar panels is totally dependent upon metals.
“And the increase in demand for critical minerals has revealed that blind spot.”
Dealing with downstream pressures
Initially, increased metals demand – which is, in some cases, phenomenal – sounds like a good thing for mining companies. But things are rarely that simple.
Pressures related to metal supplies are squeezing providers from two directions.
Bryant explained: “Most downstream companies – the organisations that make low-carbon energy technologies or vehicles – want an adequate, secure, affordable and responsibly-sourced supply of metals over the next 20-30 years, so that they can deliver on their own environmental, social and governance (ESG) and growth targets.”
“The world is currently obsessed with lithium, but its supply is a small concern compared to metals like copper or nickel.”
Lithium is what’s known as a ‘high-impact mineral’; it’s only used in energy storage technologies but, the World Bank projects production must increase by 488% to meet demand by 2050.
In contrast, copper is what’s known as a ‘cross cutting’ mineral. It’s required in all 10 clean energy technologies, including photovoltaic panels and wind turbines, and currently, it can’t be substituted.
So, as stated in the 2020 report, Minerals for Climate Action, regardless of the low-carbon pathway countries take to meet their decarbonisation targets, the clean energy transition will depend very much on the availability of copper.
“There’s a massive shortfall in copper looming,” said Bryant. “That’s a huge pressure on the mining industry.”
And from the upstream…
And then there are upstream pressures, the first being capital discipline. Most mining companies, particularly the largest ones, are simply not interested in building big new mines today.
“These companies are focusing on dividends, share buybacks and debt pay downs, because massive amounts of shareholder value were destroyed the last time they went on a spending spree in the mid-2000s,” said Bryant. “And furthermore, there’s not much capital in the markets at the moment to fund new operations.
“Then there’s the innovation challenge, particularly around responsible sourcing. Copper and nickel grades are declining fast.
“If companies continue mining in the same way that they do today to meet additional demand, then the environmental and social footprint of those products, particularly greenhouse gas emissions, could potentially wipe out or significantly erode the downstream benefits.”
There’s also difficulty in getting new mines approved. There’s a growing anti-mining wave happening, even in established, seemingly low-risk jurisdictions like Chile and Australia. Even the federal government in the US is largely anti-mining, opposing the development of Rio Tinto’s massive Resolution copper mine.
And then last, but certainly not least, there are the rising voices of Indigenous peoples and traditional landowners. Many communities are rightly keen to reframe and redefine how mining is carried out, and how value flows to them.
But, for mining companies whose organisations and operations are designed for stability rather than adaptability, change of any kind – even for the better – can be difficult to achieve, especially in the tight timeframe needed.
When we put all of these challenges into a pot, their collective sum is enormous. And voices, both up and downstream are getting louder.
“The mining industry cannot tackle these challenges alone,” said Bryant. “It’s going to require everyone, up and down the value chain to get involved.
“The challenges are huge but so are the potential opportunities.”
Time to talk, time for action
It’s clear that a high degree of cross-sectoral collaboration will be required to address this situation.
But, given the complexity of the value chains in question and the fact that the players within them don’t always listen to each other, that collaboration is proving tricky to instigate.
“I’m not seeing a lot of cross sector companies, up or down the value stream, along with Indigenous peoples and government, talking about this on an ongoing basis,” said Bryant.
“There needs to be a persistent and ongoing dialog, not just episodic or an occasional off-take agreement, to build a shared path ahead and design much needed collaborations. As far as I know, DPI’s Responsible Sourcing Coalition, which is tackling the key issues, is a one-of-a-kind.
“Automotive companies are saying they’re going to be selling all EVs by 2040, but what if the materials to make that happen aren’t available? Nobody seems to have a Plan B.”
There’s also a sense of complacency in the mining industry. Companies know that they have a critical role to play in the energy transition.
But rather than sitting back and saying the gradual pace of change is okay, they need look ahead and ask questions like: ‘what do valuable mining companies look like in the future? What are the radical transformations needed?’
Creating future-ready companies
Bryant strongly believes that, in the future, valuable mining companies will be the ones that make the jump from exclusively producing virgin metals to those that are holistic material suppliers.
“By that, I mean that they shift from their mindset and model from ‘I mine stuff’ to ‘I provide materials to society that have certain characteristics’,” he explained.
“Take copper for instance, which has conductive properties. Future-proof providers will, first, mine virgin metal. Second, they will be leaders in copper recycling. Third, they will be innovators, collaborating with users of copper to minimise its use. And finally, they will help to develop materials or other means that will ultimately substitute copper.
“I think that’s a valuable company of the future. Traditional mining companies won’t disappear, but their valuations could start to collapse.”
“Is the industry ready for this change?” I asked. “Are many mining companies starting to think through those four points?”
“There are one or two that are leaning into this transformation,” Bryant replied. “But there’s so much money in mining at the moment, particularly bulk commodities like iron ore, and that’s not conducive to change.”
For an industry that is built upon long-life assets with long cycle times, many mining companies have a surprisingly short-term approach to business strategy and planning.
The question then becomes, will companies that fail to change get disrupted?
“There are plenty of industries where companies that are deemed fit-for-the-future, even if they’re smaller from a revenue or people perspective, are valued higher by the market than existing suppliers,” said Bryant.
“It really depends upon how companies define their value – do they value themselves in terms of revenue, market cap or shareholder value? At the end of the day, it has to be shareholder value.
“So then, we could start to see a disparity, where traditional mining companies offer increasingly poor equity growth and become pure dividend yield stocks due to strong cash. And the high growth stocks will come out of this new era of companies that we’re discussing now.”
Investment today for a better tomorrow
It’s a bit of a chicken and egg situation at present.
The world needs metals. Copper production, for instance, needs to double by 2050 to enable countries to meet their decarbonisation targets. But, capital formation, particularly for juniors, is a fraction of what it was 10 years ago.
New mines take a minimum of 12-20 years to permit and develop. Without money today, there will be no new mines tomorrow.
“Mining is a relatively small market. Currently, there are other industries and investment opportunities that offer better returns,” said Bryant.
“And many governments are incapable of forming appropriate legislation and regulation, because they don’t understand the processes and constraints. Their timeframes are out of kilter with the urgency needed to meet 2040 and 2050 goals.”
Again, if we look at copper, production across the globe is declining, and new mines and expansions are not getting approved.
Existing operations are having to mine ever greater quantities of rock to produce the same amount of copper. Their energy and cost intensities are increasing, and the associated tailings footprints are enormous.
Bryant added: “That is why, if companies downstream want to secure their future supply chains, they need to make the effort to understand mining processes and work with miners, communities and governments today on capital for greenfield projects, streamlined government processes and accelerating innovation.
“As one CEO of a major commodities company recently stated, ‘we must start delivering those products that customers want, not need’.
“By which he meant products that meet the ESG goals of commodity end users.”
The need for innovation culture
In my eyes, the problem is not just the looming shortfall in metals supplies, but the fact that mining companies tend to wait for their platform to be ‘burning’ before they innovate.
The attitudes and motivations that underpin innovation that are an underlying problem.
They also tend to have a persistent under investment in innovation compared to other heavy industries.
“I agree,” said Bryant. “And we’ve got to get away from solely massive mining operations too. The industry has become trapped by scale.
“Look at the oil crisis, over the past 10-12 years the US has gone from being one of the biggest importers to exporters of oil and gas. It’s not possible to develop a large offshore oil deposit or a large mining operation in 12 years.
“The key to that change was developing smaller, technically complex deposits that were considered uneconomic and technically not feasible, and that became the ‘fracking’ revolution.
“That’s a glimpse of what could happen in mining.
“‘Mini mining’, as I like to call it, has to happen. Because the energy transition isn’t going to be delivered off the back of big mines only. It’s similar to how unconventional oil and gas production now underpins energy security in the US and increasingly internationally.”
“There are plenty of small, higher grade copper deposits that can’t be mined economically using large-scale extraction methods. But, if we shift to using smaller, more flexible fleets, such as swarm mining, mobile processing plants etcetera, then production can be switched on and off faster and permitting made easier.
Fail to prepare, prepare to fall short
At the heart of the problem is a lack of communication and understanding. People need to sit down, talk and be willing to listen to each other’s concerns and ideas.
The risk is that, if we don’t, countries will fall far short of their climate change mitigation targets.
“Look at oil and gas in Europe at the moment,” said Bryant. “Governments have a responsibility to provide an affordable, reliable, accessible source of energy that’s as clean as possible for their people.
“For last 10 years, they’ve obsessed over the ‘clean’ part of that equation, and neglected the other three parts which are equally, if not more, important. The Russia-Ukraine war has shaken that up, and now, countries like Germany are looking to fire up their coal plants again to secure electricity supplies.
“Countries could be in a similar situation with metals supplies in a few years if they don’t start focusing on the affordable, reliable and accessible parts of the equation, in addition to clean.”
It’s an extremely complex situation. One that requires careful balance and prioritisation to solve. But that cannot be achieved without communication, understanding and willing to change.
Governments, communities, investors, companies… everyone, needs to play their part.
Without that, the world will undoubtably find itself in a very sticky situation in less than a decade.
Over to you
“How do we end this article?” Bryant asked me. “I don’t have the answers to solve all of these problems.”
“It’s not for us alone to solve,” I replied.
“We’ve explored the challenges, some of the potential scenarios and outcomes. We are giving people the impetus and information they need to take action. Now it’s up to the readers.”
So, I’m ending this article by posing a question: what are you, as an individual, an employee, an owner, an investor, as a member of society, going to do about this?
Answers in the comments below, please.
Great article Carly and Peter, very thoughtful. Next up, how about a piece that focuses on the people and projects that are taking a whole new approach to material supply for the energy transition? First Nations Major Project Coalition is one group lessors the way for tribal participation in the energy transition. Eagle Mine in Michigan is providing nickel from a very small foot print while building strong community support through a community environmental monitoring system. Talon Metals is developing the Tamarack Mine in Minnesota with the involvement of unions in workforce development and mine planning. Need to shine you light on people taking a “#WeCanDoThis” approach to a material rich energy system. Happy to chat more on examples!
Two quotes really stood out to me in this piece:
“The mining industry cannot tackle these challenges alone…It’s going to require everyone, up and down the value chain to get involved.”
“The key to that change [in oil & gas] was developing smaller, technically complex deposits that were considered uneconomic and technically not feasible…That’s a glimpse of what could happen in mining.”
As a long-time supplier to the mining industry, Draslovka has been acutely aware of the long-term sustainability challenges facing the industry. Recently we have invested in technologies like Glycine Leaching that will enable the development of deposits that were considered uneconomic and technically not feasible (in copper, nickel/cobalt, gold, and others). We’re excited to be working with forward-thinking mining companies that acknowledge the points above and are attempting to realize the future Mr. Bryant has envisioned here.