With a swell in demand for an array of metals and minerals coming from the cleantech sector, the global mining industry is entering a renaissance.
The commodities “supercycle”, fuelled by explosive growth in China in the early 2000s, proved to be a time of extreme overinvestment in the mining sector. When China’s growth slowed and demand cooled, commodities plunged. A mining industry slump has persisted, particularly over the past four years. In 2014-15 alone, the top four London-listed miners, BHP Billiton, Rio Tinto, Glencore and Anglo American, lost nearly $20 billion in core earnings (EBITDA).
Now, with the rise of cleantech, there is renewed optimism among mining companies. “Green” metals and minerals, notably copper and cobalt as well as nickel, lithium and graphite, have piqued investor interest. The most enthusiastic have gone so far as to suggest that clean energy could drive demand even more than the economic boom in China.
Commodity valuations rebounded in 2016, and share prices rallied, with Anglo-Swiss multinational Glencore in the lead. The four biggest companies moved swiftly from losses to profits, and cut net debt by nearly $25 billion. Glencore is now in a particularly strong position, as the world’s top supplier of cobalt and one of the biggest suppliers of copper – both of which are needed to make cleantech products such as electric vehicles (EVs) and batteries.
The turnaround has also been helped by fiscal restraint. Since 2013, capital expenditure in the sector has dropped by over two-thirds. Miners, at least for the moment, remain somewhat gun-shy. However demand for green metals and minerals could change this, particularly with the groundswell in global demand for EVs.
Now the question arises of how the mining industry will meet demand. Investment research firm Sanford C. Bernstein estimates that nearly all new cars will be electric by 2035, and that to meet demand, global copper supplies would need to double. Exploration, extraction, smelting and refining could require as much as $1 trillion in new investment. There is also a decades-long lead time to consider: By one estimate, The Economist reports, “it takes at least 30 years to go from finding copper deposits to producing the metal from them at scale”.
An exorbitant rise in copper prices would be needed to induce mining companies to make the necessary investments. Another problem is that most copper and cobalt, a by-product of copper, along with many other minerals needed for EVs and batteries, are located in the politically unstable Democratic Republic of Congo (DRC).
The biggest miners are hedging their bets by diversifying, while smaller miners are emerging to stake their claims. For mining companies of all sizes and stages, the difficulty of meeting demand could motivate the search for alternative battery and EV materials. Necessity is, after all, the mother of invention.
