by Jeremy Samuel, CEO, Digital Metal Exchange
Global demand for renewable energy and electrification of industry and infrastructure has increased exponentially over the last decade and will only accelerate following the recent release of the Sixth IPCC Report. Such demand is driven by emissions targets, irrespective of whether they are set for 2030 or 2050, or even whether or not they are sufficiently ambitious.
There is one very practical barrier to achieving emissions reduction targets that no-one seems to be talking about: the world simply does not have enough metal to build the electric motors, batteries, solar panels, wind turbines and other products required to meet those targets. Moreover, it is becoming increasingly difficult to mine those metals due to regulatory, technical, social and environmental factors.
While there are no quick-fix solutions, this article looks at the metal demand challenges of sustainable development and suggests means of addressing the attitudinal, regulatory, technological and funding challenges which the mining industry is facing. This includes remaking the relationship between mining, activists and regulators, shifting the mining mindset towards world class technologies and encouraging contemporary financing solutions such as DMX.
Metal Demand Side Issues
Almost all the technologies expected to drive CO2 reduction require large amounts of metal, including copper, nickel, zinc, lithium, cobalt, palladium, silver as well as graphite and rare earth metals. None of these is currently produced in sufficient quantities to meet IPCC targets.
Probably the largest challenge in terms of sheer quantity of metal and investment required is with copper. Copper is the hero of electrification and is the critical input for electric vehicles (and all electric motors), solar panels, wind turbines and batteries, not to mention electricity transmission due to its superior, low impedance. Electric vehicles require 5-10x the amount of copper of internal combustion vehicles, for example. By some estimates, meeting IPCC targets will require four times the total amount of copper ever produced. As an illustration of the size of the challenge, investment bankers Jefferies Group estimate at least USD 50 billion of investment above current levels will be required to bring copper supply up to meet the growing demand.
Nickel may be predominantly used today to make stainless steel (about 70% of consumption), however demand for that metal for use in batteries is expected to drive total demand from some 2.2Mt in 2018 to well over 9.4Mt within years. Some estimates expect nickel demand to rise over 10x in the next 20 years. Tesla alone may require 1.15 million tonnes of nickel per annum. To put this in perspective, that is around the combined annual production of the world’s three current top producers – Indonesia, Philippines and Russia. Demand for lithium and cobalt, the two other critical battery metals, is expected to increase 637% and 183% respectively over the next decade. Palladium, platinum and silver demand is growing for clean-tech applications and rare earth metals (used in numerous applications including strong magnets for electric motors and wind turbines) are all projected to see demand grow at least 10x in the next decade.
Further, much of the known supply of these metals is in challenging jurisdictions. For example, some 70% of known cobalt reserves are in the DRC and in the order of 80% of rare earths are produced in China. In short – while the globe may have sufficient minerals to sustain our transition to sustainable economies, accessing those minerals is another matter. Extensive exploration, coupled with ethical mining in other jurisdictions appear to be one of the few available long-term solutions to this global imbalance.
So demand side pressure for a wide range of metals is strong and set to grow much stronger. Yet supply side pressures are curtailing supply, making it increasingly difficult, expensive and time consuming to deliver new metal supply. The context of these supply side pressures is that new mines are increasingly low grade and remote compared to historical mines and their exploration and production problems are exacerbated by attitudinal, regulatory, environmental and funding challenges. With all the data pointing to an urgent need for more exploration, investment is only starting to pick up again, and continues to face ever increasing environmental regulation and social pressure. According to S&P’s 2021 World Exploration Trends Report, global exploration budgets for non-ferrous metals fell by eleven percent year-on-year 2019 / 2020 in aggregate, just as commodity prices have been climbing. The Report concludes: “This coupled with a persistent lack of pipeline investment — which is leading many base metals toward market deficits over the next several years — should stimulate additional exploration.” While this stimulation now appears to be working, and investment in exploration is on a slow upswing, we should hope that this remains so, since less investment in exploration means less raw materials and higher prices, adding up to a slowing down of the roll-out of those green technologies we need.
Metal Supply Side Issues
Increasing environmental consciousness, along with a number of high profile accidents such as the Fundão (2015) and Brumadinho (2019) tailings dam collapses in Brazil, have dramatically increased the level of activism from global NGOs such as Greenpeace and local activist groups seeking to protect local wilderness in their area. As the activists have become increasingly organised and strident, governments and mining authorities have given them increasing say in permitting processes. Messaging around (real or alleged) detriments from mining have included environmental destruction, habitat reduction, species threats, ‘NIMBY’ (not in my back yard) concerns and even CO2 and methane emissions (mainly from coal production but also from mineral production) have harmed public and regulatory perceptions of mining explorations and operations, (even though the vast majority of mines have actually improved environmental performance over the same period).
If the world is going to achieve the IPCC goals, the relationship between activists and miners must turn around 180 degrees – away from confrontation and towards cooperation – to a point where activists actively promote those mining activities that protect the environment while delivering the metals needed to produce sustainability technologies. This will require changes in perceptions and attitudes from both activists and miners.
Regulation and Green Tape
In the West, the last 20 years have witnessed creeping growth in ‘green tape’ (environmental regulations and requirements), all introduced with good intentions but, in aggregate, resulting in often contradictory and onerous requirements for miners. Across most jurisdictions, Mines Departments have had experienced mining staff largely replaced with career bureaucrats with little experience on the ground, along with requirements to consult with a growing list of external agencies (environmental, parks, waterways, heritage, etc) which may nor properly understand regulatory requirements. All this has significantly increased permitting time and cost. The main winners from these processes seem to be departmental budgets/head-counts, and the huge array of consultants required to produce endless reports.
In order to address the supply side issues with metals, mine permitting processes around the world will need to be streamlined and fast tracked. Mines Departments need to be staffed with experienced miners and breadth and depth of consultation with external agencies and activists must be dramatically curtailed. Policy shifts are needed to place real time-limits on consultation and responses (not limits that can be near-infinitely extended by round after round of questions). In other words, policy and permitting processes need to support and encourage clean mine development, not hinder it.
Technology and environmental clean-up
A number of emerging technologies will reduce the carbon footprint and overall environmental impact of current and new mining projects, and make it economically viable to remediate or eliminate past damage. These technologies may reduce the cost of extraction and processing of metals from new sites and make it viable to re-open historical sites – so called brown-field developments. These may be used to treat acidified water in storage (see Global Aquatica), significantly reduce the amount of drilling required for exploration, remove cyanide, hydrochloric acid and carbon from mineral processing (particularly for gold, see CleanMining) and to ameliorate CO2 and methane emissions from open pit and underground mines.
Some of the best technologies allow historical waste dumps to be processed to remove pollutants (such as sulphur that creates sulphuric acid which is often deposited into waterways) and extract metals from those dumps. These metals could not be economically extracted using the processing technologies available when the dumps were created but modern techniques are making it possible. One of the fastest ways of achieving positive environmental outcomes is to extensively fast-track approvals for such processing. Of course, this will also increase supply of the metals recovered.
These (and many other) technologies need regulatory and financial support to come to full commercial fruition. It would be very helpful if regulators rewarded and fast-tracked approvals for those mines that deploy such technologies and can demonstrate positive climate change and environmental outcomes. Ideally, use of such technologies could also be rewarded financially, for example by reducing royalty rates for those mines that deploy them.
Technologies allowing recovery of metal from the ocean floors are currently in development and exploration of asteroids is slowly shifting from the realm of science fiction to what may in fact be possible. This may take somewhat longer to come to fruition but we will address this exciting field in a future article soon.
Traditionally, mine funding has been restricted to a small number of sources, including the limited number of investors who invest in early stage listed exploration companies and gold loan or streaming providers. The costs of accessing and cost of capital of these sources has been quite high and the breadth of inventors limited.
One of the main objectives of the Digital Metal Exchange (DMX) is to open up mine funding (and direct metal purchase from producers) to a much wider range of investors and create an ecosystem of best-of-breed technologies to make available to the mines with funding packages in place. This opens up metal forward sales to ESG and impact funds, family offices, traders and others who may not previously have been able to forward-buy or buy directly from mines. In these ways, DMX brings mines and metal buyers together – without intermediaries and with clear, transparent information.
In order to meet ambitious emissions reduction targets, the world will need unprecedented amounts of a wide range of metals. Demand will soar through deployment of electric vehicles, batteries, solar and wind power and a wide range of other new technologies that all require large amounts of copper, nickel, zinc, cobalt, lithium, graphite, rare earths and so on.
Supply of these metals is constrained by the increasing power of activists, growing regulatory burden, slow roll out of clean technologies and funding challenges. All of these can be addressed, but they require a new relationship between activists and regulators with mines, better approaches to the adoption of clean technologies and more attractive funding approaches such as those offered by DMX.