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Mining is the key to energy conversion, but it is still unloved

Mining is probably the most vital sector for the global energy transition and the success of the highly acclaimed net zero carbon emissions before the 2050 targets, but it is currently the laggard in the process.

The mining industry is largely at a turning point, insofar as it knows that its raw materials are the building blocks of the transition from fossil fuels to clean energy, but it may not seem to convince the rest of the world that this is the case.

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

The challenges appear to be urgent given the enormous amounts of copper, lithium, cobalt, nickel, zinc, manganese and graphite that will be required and the limited plans to develop new mines to produce the necessary metals.

The mining industry faces several problems that it has to solve, but still seems to be struggling with how to get its message across.

These include how to convince investors that the real action to mitigate climate change must be at the very beginning of the process, namely to produce raw materials, rather than at the end, namely the manufacture of electric cars and things like solar panels.

Once convinced, the battle then becomes to get investors to invest in new mines, which are often located in challenging jurisdictions, and it will take several years to make a profit.

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

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

And while you may succeed at this point, the cost of developing new mines is rising at a faster rate than the price of the raw materials they produce.

In other words, just because copper has traded this year at record prices above $ 10,000 per barrel. tons, does not mean that the construction of a new copper mine is necessarily an economic no-brainer.

And finally, the mining industry has to contend with its largely negative image problem and its persistent attachment to the coal miners’ climate bogey.

Mines tend to be scarred in the countryside, even well-managed and environmentally friendly projects often resemble ruined landscapes with large open pits, heavy vehicles, processing plants and tailings dams.

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

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

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

Total change

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

Governments will have to do much more to speed up permits and environmental approvals, and finally, those with an interest in reaching net zero by 2050 will have to overcome their innate aversion to mining.

A panel of investors at the 121st Mining Conference in Cape Town this week then speak after speeches lamenting the lack of urgent government character, the apparent lack of interest among the major mining companies to build new mines, banks’ reluctance to fund projects and the poor. picture of mining among green investors, no matter how vital metals will be for the energy transition.

“We need to totally change the image of the mining industry,” said Brian Menell, CEO of investment firm Techmet, adding that only this would serve to attract investors focusing on environmental, social and governance (ESG) issues.

Lloyd Pengilly, chairman of Qora Capital, said there was a “quantum leap in demand” on the way for battery metals that the industry is unable to meet.

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

This needs to double to 2 million tonnes within five years to meet battery demand, but there are only a handful of graphite projects under development and even if all continue, which is unlikely, it will still not meet expected demand.

The message may begin to get through, with South African President Cyril Ramaphosa giving a mine-friendly speech at the Mining Indaba event on Tuesday, promising that his government will repair transport infrastructure, electricity generation while making mine exploration and construction easier.

However welcome the change in rhetoric is, words must be followed with action to avoid a crunch of raw materials that threaten the intended pace of energy transition.

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