According to a UN Environment study published in 2019, extractive industries are responsible for half of the world’s carbon emissions, with the extraction and processing of metals and other minerals responsible for 26% of these environmentally degrading emissions. While this finding does not sit favourably with the heightening anti-climate change zeitgeist of our current times, it does belie the critical importance of mined materials in our modern world. The plethora of metals and minerals pulled from the ground have myriad applications in construction, transport, healthcare consumer technology and many more vital industries.
Nonetheless, a bubbling crescendo of anti-mining rhetoric has recently manifested itself in ugly protests on the fringes of the International Mining and Resources Conference (IMARC) in Melbourne last year and outside the Prospectors & Developers Association of Canada (PDAC) conference in Toronto in March.
The coal mining industry has been the primary recipient of these vitriolic protests, but with coal plant economics rapidly deteriorating and investor interest in freefall, this once ubiquitous form of energy seems to be running out of steam. Meanwhile, a recent Carbon Tracker Initiative report found that building new wind and solar plants will soon be cheaper than existing coal-fired power stations in every major global market.
This economic argument, allied with the growing ESG-focused investment culture of the present day, is compelling mining companies of all shapes and sizes to do their bit for the environment, with those at the vanguard implementing a wide range of operational changes, including the adoption of renewable energy and stationary energy storage facilities at mine sites.
To give prominent recent examples, Australian mining giant BHP last year traded its existing coal contracts across its Chilean copper operations for renewable energy supply deals, while Anglo American signed a US$190 million solar energy contract in March with Atlas Renewable energy for its iron ore operations in Brazil.
These are just two instances of many similar progressive moves across the mining sector and they all command column inches in their own right, but this particular editorial will focus on the cluster of mined materials that are going to be required in large quantities to deliver lower carbon outcomes in two massive global sectors: Transport and electricity.
Cleaning up the power industry
The transition towards a cleaner, greener global electricity sector has accelerated at a rapid pace during the last decade, driven primarily by greater investment in solar and wind projects, with technological advances drastically pushing down the costs associated with developing these operations.
Global renewable energy capacity has quadrupled in the last 10 years, according to figures released by the UN last year, increasing from 414GW in 2010 to approximately 1,650GW today. Unsurprisingly, this makes renewables that fastest growing area of the global energy industry.
The watershed moment for the renewable energy sector arrived in 2015 when 189 UN nations agreed to limit the increase in global average temperature to well below 2 °C above pre-industrial levels in the Paris climate accord.
The ratification in international policy of this agreement to reduce global greenhouse gas emissions has provided the impetus for the creation of evolving national and regional renewable energy targets around the world since the Paris Agreement.
For example, the European Union (EU) is targeting at least a 32% share for renewable energy in the bloc’s total electricity mix by 2030, along with at least a 40% cut in greenhouse gas emissions (from 1990 levels) and a 32.5% improvement in energy efficiency.
So far, the results have been encouraging with recent data indicating that renewable energy now accounts for a third of global power capacity following the addition of 171GW in 2018, although the International Renewable Energy Agency (IRENA) warned in January that the share of renewable energy in power needs to more than double by 2030 to advance the global energy transformation.
The global transport sector – primarily comprised of road, rail, air and marine transportation – accounted for over 24% of global carbon emissions in 2016, according to International Energy Agency (IEA) data.
Of the total global transport emissions, 72% come from road vehicles, therefore making the automobile sector one of the largest contributors to global warming.vi However, during the last two decades major changes have begun to gather pace in the automobile industry.
While electric-powered vehicles have existed in various rudimentary forms for nearly 200 years, they have largely played second fiddle to the fossil fuel burning internal combustion engine (ICE) vehicle throughout this era of expanding consumer car ownership around the world.
But since around 2010, technological and commercial developments, along with generous government incentives, have pushed hybrid and fully electric vehicles (EVs) to the forefront of the global automobile industry, based on the premise that they are an environmentally cleaner alternative to gas guzzling ICE vehicles.
While the presence of fossil fuels in the global electricity sector means that EVs cannot yet be deemed zero carbon emitting devices, almost all major car makers have followed the lead of Tesla in manufacturing various electric models with rapidly improving specifications encompassing shorter battery charging cycles and longer driving ranges.
With EVs set to make up more than half of global passenger car sales by 2040 and completely dominate the bus market, auto manufacturers are scrambling to secure supply of the metals needed in significantly higher quantities to build electric-powered vehicles.
One of those vital metals in EV production is copper. In a comparison study, the UBS Evidence Lab found that there is 80% more copper in a Chevrolet Bolt (EV), in comparison to a similar-sized Volkswagen Golf (ICE).
The primary reason for this massive increase in copper usage is that at the heart of every EV is an electric motor built predominantly with copper, steel and permanent magnets comprised of rare earth elements (REEs).
As such, copper demand from the EV market is expected to increase by 1.7 million tonnes by 2027. To put this in perspective, this figure is just shy of China’s entire copper production in 2017. China is the world’s third largest producer of copper.
Another recent report from Wood Mackenzie found that more than 250% of additional copper is required for the 20 million EV charging points that will be installed worldwide by 2030 to support the burgeoning sector.
Meanwhile, as a highly efficient conductor of electricity, copper demand from the renewable energy sector is rising exponentially. Increases in solar and wind energy capacity up to 2027 will raise copper demand by 813,000 tonnes annually, according to a Navigant Research study. This resembles an increase of 56% on copper demand seen in 2018.
These predictions make for uncomfortable reading in the global mining industry, which is struggling to keep up with copper demand in the short-term. In January, Chilean state copper commission Cochilco forecasted that the global copper market would move into deficit in 2020, and this was before major producers announced supply cuts to stem the spread of the COVID-19 pandemic.
In addition, new large scale copper discoveries have become less frequent around the world over the last decade, which is putting more pressure on the longer-term supply and demand dynamics of the nascent EV industry.
The renewable energy and EV sectors urgently require more discoveries and investments akin to Anglo American’s US$5.3 billion Quellaveco project in Peru. The mine will produce 330,000 tonnes of copper per year for the first five years of the project, although its life could extend to nearly 100 years.
Despite this massive demand for copper, by far the most important component of an EV is the lithium-ion battery. Each Tesla battery weighs about 540 kg – 25% of the total mass of the car – and is comprised of a range of battery metals including lithium, nickel, cobalt, graphite, and more.
In the lithium market, prices tumbled in 2019 due to oversupply stemming from an influx of spodumene concentrate from new hard rock lithium projects around the world (particularly in Western Australia), augmenting supply from the traditional brine operations concentrated in South America.
However, with increased EV production set to push demand for lithium chemicals up to 700,000 metric tonnes by 2025 according to BloombergNEF, there are some fears that the market could flip into undersupply, even with lithium production set to triple within five years.
In the ever-evolving lithium market the supply and demand situation requires regular monitoring, as do the same dynamics in two other battery metals vital to the EV industry – nickel and cobalt.
Nickel is a key element in lithium-ion batteries because the metal is required to stabilise battery cathodes, enabling longer battery life and less susceptibility to fires. EV makers are increasingly adopting higher nickel cathode chemistries in their batteries, creating a strong pricing environment.
Nickel usage in batteries is expected to grow from 70,000 tonnes in 2017 to 240,000 tonnes by 2023, and in a recent note the Bank of America stated that the projected 13.6 million EVs sold in 2025 would result in the need for 690,000 tonnes of new nickel supply within that time frame.
In the short term, nickel production is expected to fall significantly this year, as major producer Indonesia’s nickel ore export ban comes into effect. Some of this production loss will be offset by growth in Philippines and stable production in other countries, however long-term supply worries need to be remedied by investment in new capacity.
It’s a similar story in the cobalt market, which is also used as a cathode material in lithium-ion batteries. Recent research from MIT suggests there’s not enough ability to mine and process the material to meet demand. The findings suggest that cobalt demand could reach 430,000 tonnes in the next decade, which is 1.6 times today’s capacity.
Additional challenges in the cobalt market include the fact that 60% of global supply comes from the Democratic Republic of the Congo (DRC), which has been plagued with environmental and child labour concerns in recent years.
With cobalt supply in the DRC set to be disrupted in 2020 due to the COVID-19 outbreak and with only limited new supply to come online in the coming years, EV battery manufacturers are increasingly looking to reduce their reliance on cobalt. For example, General Motors recently unveiled a new battery system that will cut cobalt usage by 70%.
Rare earth elements
Another collection of important metals in the global transition towards a clean-tech economy are REEs. These 17 chemical elements – many of which have magnetising properties – are used in EV motors, along with solar panels, wind turbines and many other technologies.
The most discussed and in-demand REEs are neodymium and praseodymium (known together as NdPr), and they hit the headlines last year during the escalating trade war between the US and China.
Historically, China has produced up to 98% of the world’s rare earths and although this has come down to around 60% in recent years according to the Mercenary Geologist Mickey Fulp, alarm bells rung across the tech sector when China threatened an embargo on its REE supply.
Even though Chinese restrictions never materialised last year, REE consumers used the opportunity to ramp up discussions about building and strengthening supply chains outside of China. While production from new operations is growing in countries like the US, Myanmar and Australia, the vast majority of downstream processing capacity remains concentrated in China. This is where the challenge lies for the sector going forward.
And with the neodymium rare earth magnets market alone predicted to grow at a CAGR of 8.5% from 2019 to 2025, the race is on amongst producers to accommodate increased REE uptake in the EV and renewable energy sectors.
The nuclear proposition
The rapid development of renewable energy capacity over the last decade has provided one part of the solution to the prospect of a decarbonised future in the global electricity sector, however renewables should not and cannot be championed as a silver bullet for the anti-climate change movement.
The intermittent nature and low energy density of renewables means that other baseload sources must be included in a holistic and low carbon energy mix. As such, the nuclear power sector is experiencing a revival in interest around the world.
The nuclear industry was plunged into a deep freeze by the Fukushima disaster of 2011, which compelled shellshocked countries such as Japan and Germany to suspend their entire nuclear operations indefinitely.
However, in recent years some of the frenzied reactions to the disaster have softened and been replaced by a broader understanding of nuclear energy as a dispatchable and efficient source of electricity with low carbon emissions.
Nuclear plants are powered by pellets of uranium which are inserted into fuel rods and used in a nuclear reactor to create steam to drive turbines and generate electricity. This process emits zero carbon emissions and makes nuclear one of the cleanest sources of energy in the world.
In addition, the high energy density of uranium – a single uranium pellet has the same energy as 1,000 kg of coal – and the significantly smaller geographic footprint of nuclear power plants compared to that of solar and wind farms have further garnished the nuclear sector’s reputation.
Many governments around the world have woken up to the role of nuclear in a low carbon electricity mix, and this is reflected in the number of reactors currently under construction. 423 reactors are to be built or are in construction in established markets like the US and Canada, as well as new players such as China, Saudi Arabia and India.
These new investments will provide annual growth of 2% in the nuclear power sector up to 2040 according to the World Nuclear Association (WNA), with an additional 247 million pounds (Mlbs) of uranium needed annually to power the reactors.
While the WNA described known world resources of uranium as ‘more than adequate’ to satisfy reactor requirements to 2040 and beyond, the market is currently oversupplied and low uranium prices are preventing mining companies from converting these resources into production.
“The currently depressed uranium market has caused not only a sharp decrease in uranium exploration activities…but also the curtailment of uranium production at existing mines,” said the WNA in its latest nuclear fuel report.
However, there are hopes of a gradual rebalancing in the market and these were raised in March when uranium giant Cameco shuttered its large scale Cigar Lake mine in Canada for at least a month in response to the COVID-19 outbreak, giving prices a short-term boost.
With the world’s largest uranium mine – Cameco’s 18 Mlbs per annum McArthur River operation – in care and maintenance since mid-2018 and the world’s biggest uranium producing country – Kazakhstan – also shuttering supply, some observers expect a structural shortage to take hold in the next few years.
A potential supply deficit in the mid-term uranium market provides a promising price outlook, with sustained higher uranium prices providing a boon to mining companies with shovel ready projects. The unlocking of these uranium resources will play a vital role in the global transition to cleaner energy supply throughout the 2020s and beyond.
The introduction to this article highlighted the significant carbon footprint of the global mining industry. Although the sector is collectively making solid progress towards reducing its impact on the environment, the extraction of resources will continue to produce carbon emissions for the foreseeable future.
However, this should not mean that the anti-climate change movement should sharpen its tools, point them at the mining industry and call for a blanket ban on the activity, given the aforementioned plethora of mined materials that are absolutely essential in the delivery of a low carbon future.
Instead, there should be a concerted effort from governments, institutional lenders and retail investors towards supporting exploration across the mining sector for key metals and minerals which are set to receive rapidly increasing demand from the power and transport sectors over the next decade and beyond.
In the burgeoning EV market, auto manufacturers will require a steep increase in the production of copper, lithium, nickel, cobalt, REEs and many other materials to support growing demand for EVs, but there are supply concerns for almost all of these metals in the short to mid-term.
Some of these metals, particularly copper and REEs, will also be needed in greater supply by the renewable energy industry, as the world transitions towards a decarbonised electricity mix predominantly comprised of solar, wind and uranium-fuelled nuclear energy sources.
Increasing global capacity of renewable energy and nuclear power will not only reduce carbon emissions by cutting the need for fossil fuels in electricity production, but also improve the credentials of EVs as a low carbon mode of transport, as the electricity powering the vehicles will be inherently cleaner.
To conclude, the move towards decarbonisation in the electricity and transport sectors is absolutely essential if the world wishes to divert from total climate catastrophe in the coming decades, and the extraction of several in-demand metals and minerals via mining is going to play a vital and enduring role in the low carbon transition.