The energy transition poses a major problem for metals

The metal mining industry is at a crossroads. The key metals of the energy transition need billions of dollars of investment if the world has any chance of advancing the transition to meet the goals of the Paris Agreement. At the same time, investors are pulling out of carbon-intensive sectors, of which metal mining undoubtedly is. Additionally, developed country governments with net zero goals, including the US administration, only want new “sustainable” domestic mining operations to extract essential minerals to support increased transportation electrification and energy production. renewable energy aligned with their goals of net zero by 2050. Currently, demand for key battery metals including lithium, graphite, cobalt, nickel, copper, manganese and aluminum is soaring, but supply is struggling to catch up.

Supply comes from mining, a very carbon-intensive industry, but policymakers and investors need to recognize that there is a dirty industry at the start of the clean energy supply chain. Until other completely clean forms of energy become available – if ever – metals and metal mining will fuel the energy transition.

Herein lies the dilemma for investors: they want Paris-aligned portfolios and have been reluctant to back a big carbon emitter like the metal mining industry. Yet this industry needs support, including from bankers and investors, to raise capital to invest in new lithium and copper supplies that will power the electric cars of environmentally conscious investors.

Analysts, investors and some of the biggest miners say the mining sector needs to change, as does the dialogue between investors and mining companies, policymakers and miners, if supply is to catch up with demand. and does not block the energy transition due to a lack of key metals.

The business environment should encourage higher investment

“Achieving an adequate supply of these vital transitional resources will be severely hampered unless the mining business environment becomes more conducive to higher levels of investment,” Graham Kellas, Senior Vice President, Global Fiscal Research, and William Tankard, Principal Analyst, Copper Mine Costs, at Wood Mackenzie say.

“Ultimately, success hinges on governments and investors agreeing on clear, predictable, stable and progressive terms, and then sticking to them,” Kellas and Tankard noted.

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That view may be overly optimistic, given the lengthy and sometimes unproductive discussions over fiscal regimes between producers of these resources and governments holding the resources, WoodMac analysts say.

“But for the world to hope to achieve the objectives of COP26, certain energy transition fantasies must become reality,” they conclude.

US Supports National Battery Metal Mining

Major developed economies are supporting their metal mining industries to counter Chinese dominance in key materials for the energy transition. Russia’s war in Ukraine has also raised concerns about a shortage of resources in several key metals markets, including nickel and aluminum, given that Russia is a major global supplier of both.

US President Joe Biden last month included strategic and critical materials needed for the clean energy transition – such as lithium, nickel, cobalt, graphite and manganese for high-capacity batteries – in the Defense Production Act of 1950.

“The United States shall, to the extent consistent with the advancement of national defense, secure the supply of these materials through environmentally responsible domestic mining and processing; recycling and reuse; and recovery from unconventional and secondary sources, such as mining waste,” President Biden said. mentioned in a memo to the Secretary of Defense.

The United States has recognized the need to go faster to obtain key minerals domestically and from allies such as Australia; otherwise, US clean energy goals and high-tech and automotive supply chains could hinge on China.

Commenting on the presidential action, Rich Nolan, president and CEO of the National Mining Association, mentioned:

“We have abundant mineral resources here. What we need is a policy to make sure we can produce them and build the safe and reliable supply chains that we know we must have. »

The demand for these minerals in the United States and around the world is booming, and even a possible economic downturn will not significantly derail this demand.

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Even if a recession were to materialize in some parts of the world – due to runaway inflation, Russia’s war in Ukraine and rising interest rates – it would not give battery metal producers respite to ensure the necessary supply in a timely manner, Julian Kettle, Senior Vice President, Vice President Metals and Mining, at Wood Mackenzie, mentioned this week.

“Recessions are short-lived, and while demand can decline significantly, recovery can be rapid, with absolute demand returning to ‘normal’ within one to two years,” says Kettle.

Supply shortages could actually increase due to more problems securing investment during an economic downturn, he argues.

Investment is not enough

Investment as is, without a recession, is insufficient to meet demand to the point of helping the world meet the goals of the Paris Agreement, the world’s largest miner, BHP, and the first asset manager in the UK, Legal & General Investment Management (LGIM), said in a report earlier this month.

“The energy transition will not happen without a massive increase in the supply of metals,” the report notes, adding that a “radical change in global systems of energy and land use is needed: time is running out. and current investment rates are insufficient to bring about the necessary change.

Considering that mineral extraction is an emissions-intensive process, investors have two key roles to play, according to the report: “to engage constructively with the sector to help reduce operational emissions” and “ helping raise the capital that will be needed to ensure an affordable supply of metal does not hinder the race to Paris.

By Tsvetana Paraskova for Oilprice.com

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