HOW CRITICAL MINERALS WILL TRANSFORM THE MINING INDUSTRY

By Michelle Goldsmith, Contributing Editor, Mining Magazine Minerals are crucial to the technologies enabling the global clean energy transition. As the need for climate action becomes increasingly urgent and efforts to reduce emissions intensify worldwide, demand for certain minerals is expected to soar. The rapid transformation of the global energy sector will cause dramatic shifts in mineral markets – bringing about a new set of challenges and opportunities for mining industry stakeholders.

Critical minerals underpin a net-zero future

Global energy systems are set to undergo massive transformations over the coming years, as societies transition from the widespread use of fossil fuels to lower-carbon energy technologies. This revolution has already begun – yet it must swiftly gain pace to limit the global rise in temperature to 2°C or under and for countries around the world to meet their emissions reduction targets. The increased uptake of renewable energy generation and storage technologies will require a significant boost in the supply of various critical minerals.

While the exact minerals needed differ by technology, solar PV systems, wind turbines, battery storage and electric vehicles (EVs) generally require significantly more minerals to build than their fossil-fuel counterparts1. Lithium, nickel, cobalt, manganese and graphite are essential for high-performing batteries, while the magnets used in wind turbines and EV motors rely on rare earth elements. Electrification and the expansion of electricity networks necessitate large amounts of copper and aluminium. Meanwhile, the expansion of hydrogen as an energy carrier underpins major demand growth for nickel and zirconium for electrolysers, and for platinum-group metals for fuel cells.

To meet the goals of the Paris Agreement (including a global temperature rise under 2°C, and preferably less than 1.5°C, over pre-industrial levels) mineral supply to the clean energy sector will need to quadruple by 20402. The World Bank has estimated that more than three billion tonnes of minerals and metals will be needed3. Alternatively, to meet the more ambitious target of net zero globally by 2050, the clean energy sector would need six times more minerals by 20404. Either way, satisfying increased demand will require mineral supply far above current production.

The World Bank projects that by 2050 the energy sector’s annual demand for cobalt could be 460 per cent greater than 2018 production5. Similarly, graphite demand could be 494 per cent higher than 2018 levels, lithium 488 per cent, indium 231 per cent, vanadium 189 per cent, and nickel 99 per cent6. These figures refer purely to the quantities required for clean energy technologies, and do not account for the demand for these same minerals for other uses.

In many cases, clean energy growth projections signify drastic shifts in markets for these resources, as the energy sector becomes responsible for a much greater proportion of total demand. IEA (the International Energy Agency) estimates suggest that if the Paris Agreement goals are to be achieved, the clean energy sector will represent over 40 per cent of total demand for copper and rare earth elements by 2040, 60-70 per cent for nickel and cobalt, and almost 90 per cent for lithium7 .

Energy transition technology is becoming the fastest-growing segment of demand for many minerals. EVs and battery storage have already overtaken consumer electronics as the largest consumer of lithium and are expected to surpass stainless steel as the largest nickel end-user by 20408 .

The demand trajectory for each resource will depend on the climate policies and technology mixes adopted by different countries and remains subject to various sources of uncertainty. Any shortfall in supply of critical minerals could disrupt the global energy transition, resulting in delays we can ill afford.

Reshaping the mining sector

The push to decarbonise energy systems worldwide will undoubtedly shake up mineral markets and become a decisive force in the future of the mining and minerals sector. Understanding the various push and pull factors driving change, the principles likely to underpin how various parties approach critical mineral supply and key sources of uncertainty will be vital to overcome the challenges and seize the opportunities inherent in the global energy transition.

A successful energy transition, unhampered by critical mineral supply bottlenecks, will rely on effective collaboration between various stakeholders across the globe, including governments, the private sector, industry bodies and NGOs. Whether critical mineral supply can be ramped up quickly enough to meet demand depends on three key factors: how rapidly mining and processing capacity expands, the absolute availability of mineral reserves and resources, and how various geographical and geopolitical risks affect supply9 .

The impact of Russia’s invasion of Ukraine on nickel prices demonstrates the power of geopolitical tensions to reap havoc on critical mineral markets and reaffirms the importance of supply diversification10. Currently, the mining and processing of certain minerals is highly concentrated in limited geographical areas, making supply chains extremely vulnerable to disruption. For instance, much of the total production and processing of lithium, cobalt and rare earth metals currently occurs in China. Meanwhile, battery-grade nickel supply relies heavily on the success of projects in Indonesia11. It's also possible for international tensions to catalyse changes to trade patterns, such as where certain minerals are processed. CSIRO research suggests that Australia could capitalise on rich mineral resources by expanding our refining and manufacturing capabilities to produce high purity materials and products12 . In addition to overall demand growth and changes in end user sector dominance, focus on critical mineral recycling will likely intensify in an attempt to ease some of the pressure on production13 .

1. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 2. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 3. Minerals for climate action: the mineral intensity of the clean energy transition, The World Bank, 2020, https://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-MineralIntensity-of-the-Clean-Energy-Transition.pdf 4. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 5. Minerals for climate action: the mineral intensity of the clean energy transition, The World Bank, 2020, https://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-MineralIntensity-of-the-Clean-Energy-Transition.pdf 6. Minerals for climate action: the mineral intensity of the clean energy transition, The World Bank, 2020, https://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-MineralIntensity-of-the-Clean-Energy-Transition.pdf 7. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 8. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 9. Critical minerals for the energy transition, IRENA, 2021, https://irena.org/-/media/Files/IRENA/Agency/Technical-Papers/IRENA_Critical_Materials_2021.pdf 10. Critical minerals threaten a decades-long trend of cost declines for clean energy technologies, IEA, 2022, https://www.iea.org/commentaries/critical-minerals-threaten-a-decades-long-trend-of-costdeclines-for-clean-energy-technologies 11. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 12. Critical energy minerals roadmap, CSIRO, 2021 https://www.csiro.au/en/work-with-us/services/consultancy-strategic-advice-services/csiro-futures/energy-and-resources/critical-energy-minerals-roadmap 13. Taking ESG seriously: The crucial role of mining investors in the energy transition, White & Case, 2021, https://www.whitecase.com/insight-our-thinking/taking-esg-seriously-crucial-role-mining-investorsenergy-transition

The International Renewable Energy Agency (IRENA) stresses the importance of a fair, sustainable, and orderly global energy transition.

“Increased mining activities should be sustainable: good working conditions, local economic development, respect for cultural and natural heritage, and net-zero carbon energy use,” states the 2021 IRENA Critical minerals for the energy transition report.

“Mining activities are increasingly subject to lengthy approval processes, and local acceptance is critical for a timely and adequate growth of primary materials supply. If done properly, new materials supply chains can create socio-economic benefits that will increase support for the global energy transition.

“An inherent tension exists between markets and government intervention. There is a need to find a balance, with appropriate roles for both… Global markets will always be the sum of the actions of different public and private actors. However, wellfunctioning markets need transparency.”

As countries around the world strive toward sustainable development goals, transparency and accountability will be key to success in critical mineral mining operations. Investors and financiers are highly aware of their role in the clean energy transition, and ESG (environmental, social and governance) considerations are a powerful and growing influence on investment decisions14. For companies in the mining industry, access to strategic partnerships, capital and more will depend on the ability to demonstrate performance on ESG principles.

Navigating shifting tides in uncharted waters

The rapid global transformation of the energy sector represents an array of challenges, uncertainties, and opportunities for companies within the mining industry. The critical minerals landscape is complex, with future demand for each mineral subject to various influences and uncertainties. To thrive in this space, stakeholders need to prepare and account for key risks.

Fundamental differences in critical minerals markets from familiar hydrocarbon-based energy markets need to be understood. Mineral supply faces its own distinct set of challenges. Energy security involving critical minerals functions quite differently than for hydrocarbons, and current international energy security mechanisms are primarily designed to insure against the risks of disruptions or price spikes in oil supply15. Oil supply disruption affects all oil users (such as drivers of diesel vehicles) due to the combustion of the fuel necessitating ongoing new supply. Critical mineral supply shortfalls or price rises will affect only new clean-energy infrastructure. Minerals from older infrastructure also have the potential to be recovered and recycled.

Each of the different minerals considered critical to energy transition technologies has its own unique supply characteristics. Some minerals, such as copper and molybdenum are used in a range of technologies, whereas others may be required for relatively few, such as graphite and lithium for batteries16. Those with less diverse applications are subject to greater demand uncertainty: changes in the exact technology mix deployed or future innovations allowing for substitution or greater efficiency could cause significant reductions in total demand. In general, critical mineral demand trajectories are subject to substantial technology and policy uncertainties17. IRENA also stresses the need for more robust and comprehensive data on critical mineral resources in many jurisdictions.

The IEA identifies the chief vulnerabilities to critical mineral supply, which must be managed for clean energy transition, as: ♦ High geographical concentration of production ♦ Long project development lead times ♦ Declining resource quality ♦ Growing scrutiny of environmental and social performance ♦ Higher exposure to climate risks

While heightened investor focus on ESG can create challenges for companies within the mining industry, it is also a key source of future opportunity18. Exceptional standards, accountability and transparency will be essential for the bankability of critical mineral mining operations. Within the mining sector, the link between ESG performance and financial returns is strengthening. Non-financial criteria are now a pivotal consideration for investors evaluating the risks and opportunities of potential investments.

To access capital, critical mineral operations will need to adopt strong ESG principles and prove performance against various related metrics, demonstrating social and environmental best practice at all stages of their projects and throughout their entire supply chains. This will also be critical to build trust and prevent tensions between mining companies and the leaders and communities of resource-rich locales, which could otherwise become a major fault line in the global energy transition19 .

Companies that take a proactive approach to ESG stand to benefit by differentiating themselves from competitors, gaining access to new sources of capital, and taking advantage of advanced technology and data science to identify opportunities for innovation and value creation. One such possibility relates to the carbon footprint of critical mineral mining. While the extraction of critical minerals tends to be relatively carbon intensive, the large variation between operations suggests that emissions can effectively be minimised via fuel switching, lowcarbon electricity generation and efficiency improvements20 .

Demand for the minerals required to enable clean energy technologies will define the evolution of the mining sector over the coming decades. Likewise, the vital role of mining in securing mineral supply means that the industry has a huge part to play in the global energy transition, with ample opportunities for value creation and growth. In a rapidly shifting environment characterised by policy and technology uncertainties, understanding various forces at play, and satisfying ESG accountability and transparency expectations will be key to resilience and long-term financial success.

14. Why is ESG so important to critical mineral supplies, and what can we do about it?, IEA, 2022, https://www.iea.org/commentaries/why-is-esg-so-important-to-critical-mineral-supplies-and-what-can-we-doabout-it 15. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions 16. Taking ESG seriously: The crucial role of mining investors in the energy transition, White & Case, 2021, https://www.whitecase.com/insight-our-thinking/taking-esg-seriously-crucial-role-mining-investorsenergy-transition 17. Critical minerals for the energy transition, IRENA, 2021, https://irena.org/-/media/Files/IRENA/Agency/Technical-Papers/IRENA_Critical_Materials_2021.pdf 18. Mine 2021: great expectations, seizing tomorrow, PwC, 2O21, https://www.pwc.com.au/mining/global-mine-2021.html 19. Safeguarding critical minerals for the energy transition, CSIS, 2022, https://www.csis.org/analysis/safeguarding-critical-minerals-energy-transition 20. The role of critical minerals in clean energy transitions, IEA, 2021, https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions