Mining is key to energy shift but it’s still unloved

Mining is probably the most vital sector to the global energy transition and the success of the much-vaunted net-zero carbon emissions by 2050 targets, but it’s currently the laggard in the process. The mining industry is largely at an inflection point insofar it knows its raw materials are the building blocks of the move from fossil fuels to clean energy, but it can’t seem to convince the rest of world that this is the case.

The overwhelming message from miners and investors at two major mining conferences in South Africa this week is that the situation is urgent, and getting worse.

The challenges do seem pressing, given the vast volumes of copper, lithium, cobalt, nickel, zinc, manganese and graphite that will be required, and the limited plans to develop new mines to produce the metals needed.

The mining industry faces several issues that it needs to address, but still seems to be grappling with how to get its message across.

These include, how to convince investors that the real action in mitigating climate change has to be at the very start of the process, namely producing raw materials.

Once convinced, the battle then becomes to get investors to put capital into new mines, which are often located in challenging jurisdictions, and will take several years to return a profit.

Even if you can get that far, the process of dealing with governments is fraught, even in developed mining countries such as Australia.

There are a myriad of development and environmental approvals to be secured, and local communities to be consulted and won over, and then transport and logistical issues to be overcome.

And even if you can succeed to this point, the cost of developing new mines is rising at a faster pace that the price of the commodities they produce.

In other words, just because copper has traded this year at record highs above US$10,000 (346,855 baht) a tonne doesn’t mean that building a new copper mine is necessarily an economic no-brainer.

And finally, the mining industry has to battle its largely negative image problem. Mines tend to be scars on the countryside, even environmentally sound projects often look like blighted landscapes.

Investing in a shiny new Tesla motor car or a household battery wall unit looks far more attractive than a copper mine in Zambia or Indonesia.

Perhaps this explains why Tesla trades on a price-earnings ratio of about 106, while the world’s biggest mining company BHP Group has a P/E ratio of 9.96 and peer Anglo American has one of just 5.95.

The question for the mining industry, and the broader energy transition, is how does mining reverse the current lack of interest and urgency.

It seems likely that commodity prices will have to remain at historically high prices, while being less volatile, in order to convince those with capital that the returns are viable.

Governments will have to do much more to speed up permitting and environmental approvals, and finally those with an interest in meeting the net-zero by 2050 will have to overcome their innate distaste of mining.

A panel of investors at the 121 Mining Conference in Cape Town this week saw speaker after speaker lament the lack of government urgency, the seeming lack of interest among the major mining companies to build new mines, the reluctance of banks to finance projects and the poor image of mining among green investors, notwithstanding how vital metals will be to the energy transition.

“We have to totally change the image of the mining industry,” said Brian Menell, chief executive of investment company Techmet, adding that only this would serve to attract investors focused on environmental, social and governance (ESG) issues.

Lloyd Pengilly, chairman of Qora Capital, said there is a “quantum leap in demand” coming for battery metals that the industry is in no position to meet.

Taking graphite as an example, Pengilly said the current global market for the battery anode component was about 1 million tonnes per annum, of which China controlled about 650,000 tonnes.

This needs to double to 2 million tonnes within five years in order to meet battery demand, but there are only a handful of graphite projects under development, and even if all proceed it still won’t meet demand.

The message may be starting to get across, with South African President Cyril Ramaphosa delivering a mining-friendly address to the Mining Indaba event yesterday, pledging to fix transport infrastructure and electricity generation while making exploration and building mines easier.

However welcome that may be, the words need to be followed with action to avoid a crunch of raw materials that threatens the pace of the energy transition.