Sustainable mining - will we fund the required investment?
Sustainability, Strategy & Finance

Sustainable mining - will we fund the required investment?

One of the biggest sustainability transition challenges relates to our ability to mine enough critical minerals to allow the various sustainable industries to scale up the (already known) solutions.

One of the biggest sustainability transition challenges relates to our ability to mine enough critical minerals to allow the various sustainable industries to scale up the (already known) solutions. To be clear, this is not about are there enough minerals in the ground (there are). This is about our willingness and ability to mine them in a sustainable and economically viable way. This will need a lot of investment. And some of this will come from non traditional investors. But it will also need a change in mind set. Working with local communities rather than 'exploiting' them. Value creation rather than value extraction.

Communities make or break conflict-free projects. Collaboration adds value. Continuing conflict destroys value.

Before handing over to Rob Karpati, from The Blended Capital Group, let's give this discussion some context. First up, we know that the sustainability transitions are going to generate massive extra demand for what are known as critical minerals. These are minerals that, to use a definition from Rosie Barnes, are essential for our future, AND at risk of supply disruption. Note, Rosie says at risk of supply disruption, not 'we don't have enough of them'.

Will Critical Minerals Stop the Energy Transition?
Are critical minerals the Achilles heel of the energy transition? Climate change deniers will tell you that a zero emissions economy is a pipe dream. They sa…

Second, we know that some of these minerals can come from recycling. And we know that new processing methods, raw material substitution (such as the phasing out of cobalt in Li Ion batteries), and even new energy technologies (such as demand management), will mean that the demand for some mining might be lower than we expect now. But the bottom line is that we will need more mining of some minerals/raw materials. And, to state the obvious, less mining of some others.

And third, the debate is not just about how and where we dig these minerals out of the ground. It's also about how and where we process them. Many of the processes we currently use have a high risk of material environmental damage. And, as many of you will know, there is also a major geopolitical element, with China dominating the processing aspect of many of our critical minerals.

Finally, we need to keep the current debate in context. To quote Rosie Barnes again ... apparently in 1924 Ira Joralemon, a copper mining expert, warned that the copper supply would only last a score of years. And then our civilisation based on electric power will dwindle and die. As we know copper production actually rose over 20x since he made that statement. We didn't run out.

If you want to explore these issues some more, it's worth reading some of Rob's earlier blogs, and our related analysis of issues such as the social licence to extract.

Perspective: Critical mineral mining meets social license
We know we need more mining of critical minerals if the move to net zero is going to actually happen. But, how willing are we to give up other priorities, including environmental and social protections.

So, what will mining look like in say two decades, how can we make it more sustainable, how will it be funded, and how can we preserve and enhance the social licence to extract and process? Over to Rob.

The details

The face of mining investment is changing

The face of mining investment is changing as the overall industry changes. The energy transition is creating unprecedented demand for critical minerals, requiring investment in the hundreds of billions of dollars in coming years in order to build capacity. McKinsey Consulting estimates that $250-300B in net new investment is required by 2030 for copper and nickel alone.

We need more (sustainable) mining
If we want the sustainability transitions to actually happen, especially in energy and industry, then we have to accept that more mining (of some minerals) needs to happen. Full stop.

At the same time the industry is adapting to a variety of other changes - AI, robotics, big data. But none of these changes approach the scale of growth requirements, or the importance of ESG. Investors are increasingly focused on ESG because they understand that social and environmental performance moves the bar on value.  In short, communities make or break conflict-free projects. Collaboration adds value while conflict destroys value. 

In other words good ESG practice is a source of competitive advantage

So, if the demand is rising, and ESG and sustainability is a value creator, why have investors not rushed in to fund the required expansion? Traditional mining investors, who often focus on traditional risks that include exploration, cost, price and political uncertainty, have not come to the table with investment that will drive necessary growth. 

Part of this is the fact that this 'new', more sustainable mining, is different. But it's also partly due to a lack of visibility. This has been caused by changing political priorities, and the absence of commonly agreed standards.

Compounding this opacity is a speculative mindset within small scale exploration company investments, where a contextual story often wins out over geologic and social facts. Large scale mining companies operate outside of this speculative mindset, not directly involved but arguably benefitting from reduced exploration risks that are absorbed in the junior market.

Recognising that projects take years to operationalise, 15+ years in the case of copper, gaps in today’s investment translate as long-term supply gaps.

This post is for subscribers only

Already have an account? Log in