The race to net zero is changing what it means to be a miner. Demand for critical minerals is surging, operating environments are getting more challenging, and new players are emerging.
Can the Top 40 respond quickly enough to transform themselves and thrive in a net-zero future?
The shift to net zero will require more mining, not less. The rapid scaling of the low-emission energy systems of the future—solar and wind power, electric vehicles (EVs) and grid-scale batteries—will be highly material-intensive.
The production of a solar farm requires three times more mineral resources than a similar-sized coal plant and constructing a wind farm needs 13 times as much as a comparable gas-fired plant.
But providing resources for the energy transition is not simply a matter of mining more of the same materials in the same way. Instead, the world will need more critical minerals and raw materials to power the global economy of the future, and these resources will need to be mined sustainably.
Critical minerals are needed at all stages of the low-carbon energy cycle. They include silicon, rare earth elements and uranium for energy generation; copper, aluminium, and steel for distribution networks; and ‘battery minerals’ such as nickel, lithium, and cobalt for energy storage.
Many governments around the world have established critical minerals lists to highlight what they see as essential resources for meeting their net-zero commitments and for applications in high tech, defense, and other vital industries. But it’s the subset of critical minerals with direct application to the energy transition that will experience the greatest growth and dominate the mining industry of the future.
A leading role
Demand for critical minerals is expected to grow significantly over the next three decades. The International Energy Agency estimates that the annual demand for critical minerals from clean energy technologies will surpass US$400 billion by 2050, which is equivalent to the annual revenues of the current coal market. This might seem like a long way off, but miners are already struggling to keep up with the demand for critical minerals.
For example, copper, lithium, and cobalt are already experiencing supply constraints, and supply imbalances are likely in the near term. The industry’s inability to meet demand could have major implications for the cost—and ultimately the pace—of the global uptake and installation of energy transition technologies. Raw materials are the largest cost component of an EV battery. The supply and price of the input battery metals will have the greatest impact on whether EVs will reach cost parity with, and replace, traditional internal-combustion vehicles.
The Top 40 can play a leading role in the world’s clean-energy transition and generate significant stakeholder value while doing so. But they face some challenges.
Development timelines. For new projects, the process of exploration, permitting, financing, construction, and commissioning can take more than ten years. Miners and investors aren’t allocating capital at the level needed to keep up with the projected demand. Price volatility. Many critical minerals have volatile price histories and limited price visibility. These characteristics mean that innovative financing solutions are required. Going forward, the role of the off taker will be more important than ever in developing critical minerals projects.
The critical importance of the end-use industries to the economic health of nations has exacerbated the geopolitical risks of supply chains. Stakeholder expectations. Higher expectations for ESG performance are here to stay, as governments and other stakeholders turn up the pressure. More than ever, miners need to maintain stakeholder trust.
Economies of scale
Critical minerals typically aren’t considered bulk commodities, because deposits often are more discrete and smaller in scale. The Top 40 may need to reassess their threshold for investment. Scale could also be achieved through aggregating supply at distinct infrastructure hubs that miners share.
Economic resource scarcity.
Economic resources are being depleted for many critical minerals, including copper, nickel, and cobalt. The Top 40 will likely face more complex deposits and jurisdictions, and potentially higher costs in extracting the product and getting it to market. Improvements in technology for exploration and extraction will be essential in keeping pace with demand.
The Top 40 should have a sense of urgency to invest in the exploration, production, processing, and refining of critical minerals now, not in a few years’ time. The market is demanding it, and a new…