Projection: new mines take a decade or more to develop from discovery to production

Global mining analysts recently estimated that the markets would require more than 3 billion tons of metals and minerals to keep global temperatures rising by 2 degrees by 2050—over 3 billion tons of raw materials for solar, wind, and battery storage.

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The World Bank is merely one of the numerous international organizations.  As recently as December, the International Monetary Fund anticipated that the demand for metals and minerals would eventually outstrip the world’s supply shortly.  Also expressing worry was the International Monetary Fund (IMF), who voiced fear that “the requisite ramp-up in mining investment and operations” would be challenging to accomplish.

As a longtime environmental outcast, the mining sector has long benefited from the anticipated growth in demand.  As a result, it is currently on the approach of being the only industry necessary to make the transition to renewable energy sources self-sustaining.

Big miners are being extra careful.

Many people focus on battery metals such as lithium when discussing the shift to renewable energy.  According to the International Monetary Fund, a typical electric vehicle battery pack comprises 8 kilograms of lithium, 35 kilograms of nickel, 20 kilograms of manganese, and 14 kilograms of cobalt.

Big mining firms should be drawn to these metals, and they are.  Rio Tinto has announced plans to build one of the world’s largest lithium mines in Serbia.  This mine would have given a reliable lithium supply source for European automakers striving toward an all-EV future.  Still, resistance from the local community forced Rio to withdraw its license.

Reuters reported last week that large mining companies were entering into joint ventures with minor miners engaged in discovering and producing battery metals rather than purchasing them all together.  According to the article, Big Mining’s development into battery metals was a delicate balancing act between riding on the bandwagon of the energy shift and keeping shareholders pleased.

Shareholders in Big Mining, like those in Big Oil, seem to be sick of the boom-and-bust cycle that characterizes the commodities sector and would want steady profits.  Although ESG is all the rage today, investors are also more conscious of the shift in trends: battery metals are great for ESG investment principles.

Mining, like the production of oil and gas, is inherently hazardous.  First and foremost, there is no guarantee that an investigation will provide a positive outcome.  In Serbia, local resistance is strong enough to kill the initiative, even if it is.  Projects may be located in countries with political unrest, such as the Democratic Republic of the Congo (DRC), which produces two-thirds of the cobalt used worldwide.  Even if they are required to conduct business in politically unstable areas, miners are averse to doing business in them.

Because of the lengthy lead times needed, it might take up to two decades or more to proceed from successful exploration to actual mining in new mines.  It is preferable to collaborate with a junior mining firm looking for nickel in Tanzania rather than starting from scratch if you want to take advantage of competitors.  However, it seems safer to work with this youngster rather than own it entirely.

Kabanga Nickel, a junior miner, owned by BHP Group (previously BHP Billiton), is an excellent example.  With a $50 million investment, the major became a joint venture partner with the junior in Tanzania’s exploration activities.  Production from the Kabanga mine begins in 2025 and will contain nickel, copper, and cobalt in addition to the latter.

“We anticipate the diversified miners to enter new areas in 2022 via the purchase of early-stage projects,” said research director James Whiteside, as reported by Reuters.  Wood Mackenzie, an energy consulting firm, predicts that this trend will continue.

Predictions might change at any time

Due to growing commodity prices, the amount of money substantial mining companies are ready to invest in this growth may stay constrained.  The optimistic projections may seem paradoxical, but miners seem to have learned a vital lesson and are reluctant to risk too much, even with the bullish expectations.  

In reality, these same projections might put a crimp in the energy transition.  A big part of the transition rests on the cost of renewable energy being more reasonable than fossil fuels, which means that low-carbon energy isn’t a realistic choice for most people if it’s not economical.  Indeed, countries like Germany and the UK who are currently paying more for low-carbon energy, are accustomed to it.  However, if costs continue to rise, this may change.

The cost of raw materials to make solar panels and windmills for farms and parks is growing, and developers are already concerned about profitability.  A similar tendency can be seen in battery metals: even with government subsidies, the massive electrification rush among carmakers might crash if the end-price for their EVs becomes too costly since the battery metals and copper used double or quadruple in price.

Mining is a high-risk endeavor.  The energy shift, for example, might drive demand for metals and minerals, making this a very profitable enterprise.  In any case, there’s no need to go all-in when you can spread the risk more evenly if go-green initiatives fail.

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