IEA: Mining majors are losing the critical mineral race

The IEA's 2023 Critical Minerals Market Review showed an overall surge in investment in 2023, suggesting that the mining industry has the ability to meet a coming shortfall in the critical minerals needed for the green energy transition. According to the report, if all currently announced critical mineral projects are delivered on time, then supply will be enough to keep national climate pledges on track by 2030."Thanks to high commodity prices, the mining industry had another strong year in 2022, which resulted in elevated profitability and cash flows," the IEA said. "In addition, growing policy support to diversify critical mineral supply chains prompted many mining companies to increase their investment in critical minerals development."But the IEA's figures show a diverging trend, with diversified mining majors no longer setting the pace of investment. Overall, investment by top twenty miners is rising, up 30% year-on-year to over US$40 billion in 2022. But that boost in activity was led by Chinese companies, which nearly doubled their investment"There is a notable difference among company types," the IEA said. "Diversified mining majors in general were more cautious in their growth investment, with the reinvestment ratio edging up only slightly."Investment in non-ferrous metal production by Western diversified mining majors was $23 billion in 2022, compared to $33.8 billion during the last peak of investment, in 2012, IEA data shows."However, specialised players focusing on energy transition minerals increased investment by over 40% and allocated a greater portion to growth investment, buoyed by an increase in profits," the IEA said. Copper, lithium, cobalt, and nickel specialists invested $18.3 billion in 2022, compared to $10.9 billion in 2012.Strong Chinese investment means that critical mineral capacity will remain very geographically concentrated.China is expected to take 49% of lithium capacity between 2022 and 2030, with most of the rest of capacity concentrated in Australia, Chile, and Argentina, with only 15% of capacity outside these four countries. China also has the biggest slice of planned cobalt refining capacity, at 36%, with Canada and Australia on 33% and 24% respectively, and the rest of the world only 7%.Start-ups see record inflowsAnother strong area of investment has been in the start up and venture capital space, with a record$ 1.6 billion raised in 2022"Investments so far in 2023 put critical minerals on track to overtake 2021 levels by the year's end, and beat 2022 for early-stage deal value alone," the IEA said.But despite widespread discussion of the looming critical mineral shortage, M&A activity in critical mineral sector fell sharply in 2022, albeit from a strong post-Covid recovery."At over $20 billion, M&A transactions related to energy transition minerals were lower in 2022 than in 2021, when they rebounded strongly from the dip in 2020.Most of the M&A activity in 2022 was around copper and lithium, with other base metals left out in the cold.And dividend payments remain high in the sector, meaning more money being funnelled back to shareholders, and away from new projects."Based on the assessment of 20 companies' cash generation and disposition patterns, approximately 50% of the capital was allocated to investment while around 50% was returned to investors and lenders," the IEA said. "Following the dip in 2020 and 2021, the industry's reinvestment ratio, calculated by dividing nonferrous metal investment by operating cash flows, returned to pre-Covid levels in 2022."And the IEA noted that significant risks exist to future supply, aside from shortage of capital. "Risks of schedule delays and cost overruns, which have been prevalent in the past, cannot be ignored.""There is also an important distinction between technology-grade products and battery-grade products, with the latter generally requiring higher-quality inputs. This means that even with an overall balance of supply and demand, the supply of battery-grade products may still be constrained.""Moreover, new mining plays often come with higher production costs, which could push up marginal costs and prices."

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