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Clash of the titans: mining and energy sectors meet in the race for critical metals

As energy and oil and gas producers eyeball the mining industry by way of critical metals, Carly Leonida and Satish Rao theorise how a future convergence could disrupt metal extraction

In May 2023, Exxon Mobil announced a US$100 million deal to acquire drilling rights to an area in Arkansas, US, which is slated to be rich in lithium brines.

Some hailed the move as the latest in a string of evidence that oil and gas majors are planning to muscle in on the mining industry’s territory by way of critical minerals, while others argued that it’s a smart move given the potential technology and process synergies.

The world needs these metals, and it needs them now. The question is: can society afford to wait for the mining industry alone to produce the minerals and metals needed for the energy transition while adhering to the environmental and social standards now expected of it by stakeholders?

(Note: we are all mining stakeholders by virtue of our dependency upon the industry’s products.)

I’ve written many times about the potential disruption of the mining industry, both from the inside and from the outside.

As a sector that underpins global development, socially, industrially and economically through the raw materials it produces, companies in this space have thus far enjoyed the luxury of time when it comes to innovation, setting their own pace for the creation and adoption of new technologies, equipment and processes.

Satish Rao is Managing Director at Clareo

But it’s been obvious for some time that the platform they stand on is burning. Today, consumer companies, end users, investors, landowners (traditional and new), board members… everyone is asking for more; more minerals and metals, faster project timelines, better environmental standards, better stewardship of natural resources, more transparency, a greater focus on emissions reductions, safer operations…

The scale of change that’s required to produce the amount of critical minerals needed in a timely and responsible fashion is gargantuan. And there is a very real danger that, if traditional mining companies don’t move fast enough to prioritise, innovate and meet these demands, then someone else will.

A sign of things to come

Global strategy and innovation advisory firm, Clareo, serves companies in both the mining and energy sectors. Managing Director, Satish Rao, has an interesting perspective on their convergence in certain areas and offered to talk me through the potential impacts.

Rao attended the kick-off event for the Mining Innovations for Negative Emissions Resources (MINER) program in February in Texas, US.

This was set up by the US Department of Energy’s (DoE) Advanced Research Projects Agency – Energy (ARPA-E) to “fund the technology research that increases the yield of critical minerals while decreasing the required energy, and subsequent emissions, to mine and extract energy-relevant minerals”.

Yes. A mining innovation programme run by a government-owned energy agency.

“I was pleasantly surprised by the programme and who’s involved,” he told me. “There were multiple mining companies, research institutions, and startups in attendance, and that mix is being directly driven by the energy transition. We’re starting to see how the energy transition is going to impact mining and there are a couple of threads that are relevant.

“First is through an influx of seed investment and funding for innovation programmes around the energy transition which specifically target the mining portion of the supply chain.

“And second, through the greater involvement of downstream users of mining products, for instance, oil and gas companies, energy providers and battery manufacturers, in the extraction of critical minerals.

“The Exxon Mobil deal from May is a prime example of this. It’s a sign of things to come and it’s interesting to consider: if that does happen, if energy providers do move into mining en masse, then what will the impact be on the mining ecosystem?”

It’s a very good question. Let’s unpack it…

The rise of direct metal sourcing

If we look at innovation in the mining space, traditionally, companies have tended towards either developing their own solutions in-house and keeping the intellectual property or buying them from a vendor whose primary focus is the mining sector.

There are transferrable technologies and techniques used in other industries, including oil and gas e.g., directional drilling and fracking (hydraulic fracturing of the rock mass), but de-risking them to a point where they can be used in mining is usually slow and expensive.    

“In the past, the mining industry has not been hugely involved with other sectors when it comes to innovation,” said Rao. “If we look at industry 4.0 and the deployment of advanced technologies, mining has been sorely lagging compared to other industries.

There are a myriad of processes and technologies in oil and gas that could potentially be transferrable to mining. Image: Unsplash

“Although there is interest in things like automation and digitisation, initiatives based on these tend to be isolated rather than linked to the bigger picture.

“However, the energy transition will force a change in that, and it’s already happening. If we look at mining’s downstream users in the automotive sector, for instance, electric vehicle (EV) manufacturers understand that there will be a shortage of critical minerals needed to produce batteries in the next five to 25 years.

“This is prompting many of them to establish off-take agreements for metals like lithium, nickel and cobalt directly with mining companies.”

Tesla, for example, directly sourced over 95% of the lithium hydroxide, 50% of the cobalt, and more than 30% of the nickel used in its high-energy density cells in 2021. These types of sourcing strategies allow the customer greater control over the environmental and social credentials of the products they purchase.

“There’s always the possibility that automotive companies might eventually choose to vertically integrate, but we think it’s more likely that they will become joint venture (JV) partners or minority investors in mining projects,” Rao told me.

“There are already examples, some of which are long standing – for example, Mitsubishi has a 50:50 JV with BHP, the BHP Mitsubishi Alliance. That model has seen varying levels of success in mining. I’m not sure if it will make a comeback, but it’s one to watch.”

Who’s disrupting who?

Rao explained that the more interesting angle is that the growth in EV production and sales is displacing oil and gas producers through the switch from gas and diesel-fuelled combustion/compression engines to electric-powered motors, both in on-the-road and off-road vehicles (remember, mining companies themselves are big purchasers of diesel for truck haulage and energy generation).

Some oil and gas companies, especially those active in downstream sectors such as fuel retail, have diversified their portfolios to offer vehicle charging stations, and some have set up ambitious plans to become renewable energy providers as well.

But, of course, companies of this size and scale can do more…

“For many oil and gas producers, investment in lithium and other battery metals projects is a clear optionality play and we’re going to see a lot more of it,” said Rao.

“To put that into perspective, the energy sector is larger than the mining sector by an order of magnitude. A lot of the core companies, such as BP, Exxon and Chevron, are fully integrated; they do everything from petroleum exploration to extraction, transport, processing, refining, distribution and sales.

“The oil and gas industry also has a very large, very sophisticated base of suppliers and vendors. There are the oilfield equipment companies, plus an additional layer of oilfield service companies which the mining industry doesn’t have an equivalent of today. Some firms, like Baker Hughes and Schlumberger (now SLB), provide both services and equipment.  

“When their customers start to get interested in mining and critical minerals, then those companies will also become interested in mining and critical minerals. Again, these technology and service companies are orders of magnitude bigger than any mining solution provider.”

Electric vehicle production and sales is displacing oil and gas producers through the switch from gas and diesel-fuelled combustion/compression engines to electric-powered motors. Image: Unsplash

Over the past 2-3 years, many oilfield equipment and service providers have undergone rapid digital transformation and now have a digital-first mindset. Through creating data lakes and data platforms, many are now able to harness analytics and AI to address different use cases quickly.

“If the energy ecosystem starts to merge with the mining one, the ramifications for existing mine operators and their supplier and vendor base could be enormous, because they will be dwarfed by the technologies and capabilities that some of these companies can bring,” said Rao.

“Especially in areas like their understanding of renewable energy, which is very important in mining, and the development and application of digital tools. That is a very significant shift that we could see, even within the next two years.”

New market, old market

There are a lot of different ways this future could potentially play out.

“Given that there are only so many minerals that can be commercially extracted from brines at the moment, could this move further fragment the mining industry?” I wondered. “A split is already emerging between critical metal and base metal/bulk commodity businesses in mining thanks to energy transition-related strategies.”

“If more energy companies move into mining it will be influenced by critical minerals first and will extend to base metals, like copper, which are forecasted to be in severe supply shortage in the 2035 timeframe,” said Rao.

“It’s important to remember that, for many energy companies, mining is not a new market. Some of the oil and gas majors have been mine operators in the past – BP sold the Kennecott copper mine to Rio Tinto in the 1980s, for instance. More recently, of course, BHP is an example of a company that had both mining and oil and gas assets, although its petroleum business was spun off for strategic reasons.”

Likewise, on the service and supply side, companies like Schlumberger have dipped their toes into the mining market previously; they have the requisite knowledge, experience and/or technologies to play there again.

“In fact, through its NeoLith Energy direct lithium extraction (DLE) and production process and industry partnerships, Schlumberger is already working to produce battery-grade lithium from brines, so one could argue that the company never really left.

“Historically, it’s been the economics that have kept these types of companies focused on oil and gas,” Rao explained. “Oil and gas companies are willing to pay much more for their services than mining companies, but they do understand the industry and are well placed for entry or re-entry.

“Those companies will likely bring their own ways of working, their own structures, contracts and integrated project management services with a single interface for the customer. And all that with a digital first mindset. Those capabilities just don’t exist in mining yet to the same degree.”

The bottom line is that, if energy companies and their suppliers perceive critical minerals to be a threat to their businesses over the next 20-30 years (which they are), then this shift will happen.

The exact timescale, effects and way in which it happens are yet to be seen, but disruption is not just on the horizon for mining; it’s knocking at the door.

Risk Vs opportunity

Thus far, we had only spoken about disruption as a threat. But what if we flip the mindset from risk to opportunity…

“What could the mining industry potentially gain from this shift if companies play their cards right?” I asked.

“New technologies and capabilities around key challenges, for example, decarbonisation, carbon capture and sequestration, water treatment and mineral exploration, and more agile ways of working, are the first things that spring to my mind.”

“It’s a good question,” said Rao, contemplatively. “I’m not sure that the mining industry is quite ready to partner yet. Mining is a very traditional industry and things don’t change fast.

“If companies in the mining space do choose to partner with oil and gas producers or service and supply companies, they would have to do so with their eyes wide open. There are potential benefits to be gained, but the partnerships must be carefully structured to ensure that all partners see the benefits and that there is real value creation for both sides.”

Direct sourcing of battery metals from mining companies is a key part of Tesla’s supply chain strategy. Image: Unsplash

To bring the conversation full circle, government-led, energy-based programmes like MINER offer a potential crucible for cross-sectoral collaboration and innovation on shared challenges.

Agencies, like ARPA-E, also offer funding and support to startups, academia and national laboratories for the development and commercialisation of fresh ideas which could potentially benefit miners, traditional or otherwise.   

“Many of these agencies and programmes don’t have business development functions, so they can be hard to work with,” said Rao. “The mining industry must seek them out and put the time and effort in to navigate their processes and set up collaboration agreements. But, if companies do that for the appropriate aspects of their portfolios, there’s a wealth of expertise available.”

To summarise, while the convergence of the mining and energy sectors in the critical metals space is a given in the run up to 2050, it will be down to mindset and willingness or ability of companies in the mining space to pivot that will determine if they profit from this particular shift.

Longer term, as we widen the commodity lens, it will likely be a case of disrupt or be disrupted.

And, currently, it’s all to play for.

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