Supply Chain Security and Geopolitics
COVID-19 has forced countries to realize the full extent of their reliance on metal and mineral imports.
Supply chain security concerns and the geographic concentration of certain minerals and metals have triggered geopolitical and geo-economic responses. Mine closures and disruptions resulting from COVID-19 have forced many countries to realize the full extent of their import reliance; for developed economies such as the US, the European Union, and Canada, critical mineral strategies have therefore started to incentivize domestic mining and metal production. For some countries, tensions with China have also accelerated efforts to bolster supply chain security, including the development of domestic rare earth extraction and processing.
Through the use of commodity-backed loans and trade agreements, China has ensured that it accounts for 70% of the global supply of critical raw minerals. This dominance is made possible not only through the extraction of minerals and metals but also through processing and imports. In terms of steel, China’s massive industrial capacity enables it to account for over 50% of global production; and while Chile is the world’s largest copper exporter, China imports 43% of global supply by value. China’s “going out” investment policy and its Belt and Road infrastructure initiative has formed bilateral agreements around the world ensuring it will remain an industry leader.
The processing and extraction of rare earth, for example, has largely been limited to China partly due to radioactive waste concerns, and the fact that it is a costly, technically-challenging endeavor. China’s absolute control over its mineral and mining sector enables it to look past such concerns. However, most people in other countries do not look favorably upon the idea of increased domestic mining projects, not least because mineral supply chains are not a prominent political issue there. This underscores the fact that while concerns about import restrictions, protectionism, and domestic production are well-founded, the overall structure of the industry and macroeconomic trends also have a significant influence on its direction.
This also effectively means that China controls the supply of minerals, through development deals such as in the Democratic Republic of Congo for cobalt. China’s role in simultaneously driving supply and demand for many minerals and metals is unique. Where minerals are traditionally mined in relatively small amounts, it is difficult to incentivize the market to produce more - particularly minerals that are produced as by-products of more common minerals like copper. Even when minerals are not constrained geographically, there can be social and environmental considerations.
Ramping up Data Analytics, AI, and Innovation
Increasing energy demand and low-carbon technologies will boost mineral and metal needs
Increased global energy demand resulting from industrialization and electrification will most likely be met by the increased use of low-carbon technologies. Renewables are the fastest-growing source of energy but are also more material-intensive than other energy sources. As technological development progresses it has become easier to identify which materials will be most necessary for the energy transition - electric vehicles, solar photovoltaics, and wind energy have all demonstrated significant and diverse needs that go beyond base metals and common minerals.
Even industrial minerals and metals such as copper, aluminum, and steel will see substantial increases in cumulative demand for use in wind turbines, solar panel frames, copper connectors, and vehicles. Meanwhile, lithium, cobalt, graphite, indium, vanadium, nickel, silver, and rare earth will see significant demand increases that may exceed current reserves. Though forecasts vary, and creative market responses to this demand are likely, a steadily growing body of research examining the materials necessary for the energy transition shows that an unprepared extractive industry could struggle to meet these needs - and possibly slow the integration of renewables.
It is therefore important to remember that the key factors governing mineral extraction are not physical limitations, but rather the social, environmental, and economic problems within the industry. The fact that a low-carbon energy environment is intrinsically linked to mining development should not be overlooked; according to the United Nations’ Global Resources Outlook 2019, metals and non-metallic minerals account for as much as 20% of global emissions. Rebalancing mineral portfolios and developing environmentally sustainable processes will be essential for the industry to operate in a low-carbon environment.
The shift towards renewables will require significant changes to operations, and companies will not be able to provide minerals for a low-carbon environment while simultaneously polluting the very same environment. Ultimately, such changes will benefit the industry, as public perception of the industry as environmentally destructive limits its ability to grow. Particularly in light of volatile commodity prices, geopolitical considerations, and other shifting variables, the clearest path forward is a healthy, environmentally friendly mining industry that is flexible enough to adapt and facilitate renewable technologies.
Predictive analytics through machine learning can meanwhile be used to better understand behavioral patterns and supplier trends - which can lead to better mine planning and risk assessment. The life cycle of a mine lasts decades, as it is subjected to increasingly common price fluctuations; predictive analytics can therefore help justify related capital expenditures that would have once been considered unfeasible. One example is the deployment of renewable energy sources at mine sites.
The adoption of solar panels and use of renewable energy sources has been hindered by concerns about initial capital costs, price volatility, and the possibility of mine closures - but with a better understanding of market changes and supplier demand, these types of variabilities can be quantified. Even environmental, social and governance (ESG) concerns can be addressed through automation and blockchain technology; the verification of environmental data and the automation of dangerous processes mean that workers can be less exposed to potential harm. Ultimately, these developments and uses can optimize and revitalize aspects of the mining and metals industry, as they spur a re-evaluation of approaches and methods that have remained stagnant for decades.
MINING AND MINERALS
The mining and metals industry is facing a paradigm shift, as it incorporates greater sustainability, absorbs technical innovation from other sectors, and seeks a way forward in the midst of a pandemic. By focusing on modernization, digitalization, and transparency, the industry can strengthen its foundational role in a rapidly evolving global economy. However, effectively managing related changes will require greater adaptability, transformative thinking, and building stronger relationships in a global context.
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Change from Within: A New Workforce
A greater focus on sustainability and innovation could help the mining and metals sector compete for talent
The mining and metals industry must tap the workforce necessary to fuel its transition to greater sustainability and digitalization. Negative public perception has limited the industry’s ability to replace its aging workforce; concerns about its future are especially prominent during mining’s boom cycles when enrolment in and graduation from mining-related fields lag behind demand. Commodity price volatility has further complicated this cycle, by making it harder to predict needs.
Companies must re-evaluate both their governance structures and what employment with them means for the communities where they operate. The industry’s role in renewable technologies has not substantially increased its attractiveness to potential employees - it is still perceived as creating high levels of social and environmental risk, despite its links to low-carbon technology. Renewable technology policy efforts often overlook the materials necessary for this transition, and the workforce needed to supply them. The US, Canada, and the European Union have all discussed plans to increase enrolment in mining engineering, minerals, and economic geology programs. Yet, the mining industry’s reputation as dated and not technically innovative continues to diminish interest from graduates in science, technology, engineering, and mathematics (STEM) fields.
Fields related to analytics and computer science are generating zettabytes of new data for analysis and use across an array of industries that did not exist 50 years ago. So, while government workforce incentives and a commitment to environmental, social, and governance (ESG) transparency can help the mining and metals industry, it needs to consider more fundamental changes. For companies, this means considering what a truly interdisciplinary, technical workforce that incorporates machine learning and predictive analytics look like.
Once this internal modernization and restructuring take place, and ESG concerns are addressed, there is no reason the industry should not be able to compete for talent with other technical industries. At the same time, ignorance of sourcing or safety concerns will no longer be a viable defense for inaction. Miners and international employees should not be working in hazardous conditions, and they should be provided with the necessary tools to help their communities. Whether this is accomplished through workforce education, infrastructure, or equality targets, sustainable development needs to be fully incorporated into the mix. Ultimately, a well-educated, well-supported workforce will be required to navigate a rapidly changing industry.
Building on ESG Standards
COVID-19 presents a chance to nudge extractive industries and the countries relying on them in a sustainable direction
Greater transparency and fostering of environmental, social, and governance (ESG) principles have become necessary for mining and metals firms to successfully operate in the global marketplace. ESG reporting has become a focus for mining companies looking to improve their collective reputation, secure financing, and address concerns related to resource extraction and sourcing.
The concept of a social license to operate has evolved beyond local approval and cooperation - the multinational nature of extraction, transportation, processing, and production means that firms must now abide by global standards. This also means that they are being judged around the world on their efforts related to the United Nations’ Sustainable Development Goals, the International Council on Mining and Metals Performance Expectations, and other environmental frameworks. In addition, there is an increased focus on trust and safety. For developing economies reliant on extractive industries, even as COVID-19 has hindered economic growth continuing to work towards greater sustainability can help them better prepare for future market shifts. Now is the time to rebuild, with a focus on adding resilience.
In combination with consumer and investor pressure to decarbonize and develop more responsible sourcing, the push for more sustainable development has become an essential part of operations. Still, ESG reporting does not come without challenges for the industry. For mining and metals companies specifically, the adoption of drastic change has been slow. Responsible companies often struggle to differentiate themselves as more sustainable than others, as the practices of some mining companies that have led to disasters and human rights abuses reflect poorly on the entire industry - and on the commodities, it produces in general.
As there is no differentiated market for sustainably-sourced minerals and metals, companies that engage in responsible (and costly) practices must sell commodities at the same price as their more negligent peers. As a result, there is an inherent conflict between financial cost and sustainable development; without being able to financially justify the changes required to adhere to ESG standards and principles, it will remain difficult to mobilize the industry in that direction. First movers and industry leaders will be required, to lead the way forward for the collective benefit of the industry.
Mining, Metals and the Energy Transition
Increasing energy demand and low-carbon technologies will boost mineral and metal needs
Increased global energy demand resulting from industrialization and electrification will most likely be met by the increased use of low-carbon technologies. Renewables are the fastest-growing source of energy but are also more material-intensive than other energy sources. As technological development progresses it has become easier to identify which materials will be most necessary for the energy transition - electric vehicles, solar photovoltaics, and wind energy have all demonstrated significant and diverse needs that go beyond base metals and common minerals.
Even industrial minerals and metals such as copper, aluminum, and steel will see substantial increases in cumulative demand for use in wind turbines, solar panel frames, copper connectors, and vehicles. Meanwhile, lithium, cobalt, graphite, indium, vanadium, nickel, silver, and rare earth will see significant demand increases that may exceed current reserves. Though forecasts vary, and creative market responses to this demand are likely, a steadily growing body of research examining the materials necessary for the energy transition shows that an unprepared extractive industry could struggle to meet these needs - and possibly slow the integration of renewables.
It is therefore important to remember that the key factors governing mineral extraction are not physical limitations, but rather the social, environmental, and economic problems within the industry. The fact that a low-carbon energy environment is intrinsically linked to mining development should not be overlooked; according to the United Nations’ Global Resources Outlook 2019, metals and non-metallic minerals account for as much as 20% of global emissions. Rebalancing mineral portfolios and developing environmentally sustainable processes will be essential for the industry to operate in a low-carbon environment.
The shift towards renewables will require significant changes to operations, and companies will not be able to provide minerals for a low-carbon environment while simultaneously polluting the very same environment. Ultimately, such changes will benefit the industry, as public perception of the industry as environmentally destructive limits its ability to grow. Particularly in light of volatile commodity prices, geopolitical considerations, and other shifting variables, the clearest path forward is a healthy, environmentally friendly mining industry that is flexible enough to adapt and facilitate renewable technologies.
Mining Assets and Climate Risk
The transition to a low-carbon economy will result in winners and losers within the industry
Climate-associated risks will make mining assets more vulnerable. Water stress in active mining regions, natural disasters, and the need to avoid emissions-intensive projects will increasingly require operators to reconcile their asset evaluation with climate change. Mining activity in already-arid locations including large parts of North America, Chile, Africa, and Australia is undermined by related water issues; the production of commodities such as copper, gold, iron, aluminum, and lithium are concentrated in these areas, and could see increased shutdowns and disruptions. Meanwhile, disasters such as tailing dam failures can be triggered by torrential and coastal flooding tied to climate effects.
The mining and metals industry is also a natural target for emission-reduction efforts and legislation, and projects can be scuppered by carbon taxes, required supply chain restructuring, and a lack of lending from banks looking to minimize their own climate risk. However, this dynamic also creates potential opportunities, not least related to the mining industry’s essential role in providing the materials for renewable technologies - the material-intensive nature of renewables means the mining and metals industry will play a foundational role in the energy transition.
Companies that are able to move forward by addressing environmental problems and supporting the transition will have a competitive advantage. Larger companies have already begun to set emissions targets and focus on environmental, social, and governance transparency, and are working to maintain sustainable supply chains.
Diversifying into materials with growing markets, such as cobalt, lithium, nickel, silver, and graphite, can also bring benefits. Parts of Africa, Southern Asia, and South America are especially well-positioned to develop related resources, either through nationalized mining operations or partnerships with multinational mining corporations. Greater digitalization and new technologies have created opportunities to explore new resources, and large areas of polymetallic nodules and formerly-active hydrothermal vents could become new sources for nickel, copper, cobalt, manganese, and rare earth that are increasingly in demand.
The reprocessing of tailings thanks to improved separation can also add value, while brine mining, extracting rare earth from coal, tapping critical minerals as by-products of enhanced separation, and even resources in space have developed into potential opportunities. Ultimately, the transition to a low-carbon environment will result in winners and losers - based on preparedness and awareness.
Mining, Metals and COVID-19
The pandemic is an opportunity for the industry to join in efforts to build back better
The mining industry is under enormous financial pressure as a result of the COVID-19 pandemic. Dramatic swings in commodity prices have severely impacted a number of companies in the sector that were already scaling down as part of efforts to stop the spread of the virus; this, in turn, has stalled necessary expansion projects and hindered efforts to achieve long-term development goals.
Recovery and re-starting growth will be an arduous process but also present an opportunity for change. While there is hope that prices and operations will pick up as economies return to normal, investment in mining operations was not particularly strong even before the crash. Meanwhile, exploration budgets are expected to stay low, as companies brace for continued volatility. Revenue over the last few years may have generally increased thanks to operational improvements, and M&A activity has shown healthy signs, but share prices have not reflected these strengths. Looking forward, the ultimate impact of COVID-19 on supply chain security and other aspects of the industry remains unclear.
Many of the world’s largest investment firms have already declared their commitment to environmental, social, and governance-driven portfolios, and climate-related financial disclosures have become the industry norm. Companies looking to strengthen their financial position in a post-COVID-19 world, therefore, need to address these ESG concerns. Continuing to cut costs through digitalization, automation, and operational improvements will also be necessary to survive the inevitable restructuring of the industry. In this way, the pandemic offers companies a starting point for broader developmental change - as part of a world that has decided to build back better.
For many countries, domestic mining production will increase, but each must evaluate its own needs; the market as a whole has no clear path forward. Climate-related financial disclosures have not gone away, and many view COVID-19 as a potential opportunity for the broader adoption of sustainable practices. As such, companies must continue implementing changes in operations and sourcing investment. Investment in the mining and metals industry continues to be viewed as high-risk, due to environmental and social concerns related to emissions from coal mining, tailings disasters, and human rights violations in developing economies.