The spectre haunting the mining sector

At the COP26 climate summit in Glasgow, UN secretary-general Antonio Guterres said: “enough of burning and drilling and mining our way deeper. We are digging our own graves.” And yet miners are expected to play a key role in decarbonisation by digging up ‘green’ minerals in massive quantities to facilitate an energy transition programme designed to consign fossil fuels to the dustbin of history.

Richard Wachman
The spectre haunting the mining sector

The Western majors, which have moved faster than anyone else in introducing measures that have vastly improved their modus operandi, find themselves between a rock and a hard place. That's because miners are being held back by investors who care more about fat dividends than growth.

When a couple of years back Ivan Glasenberg, former boss of Glencore, said the company would shun greenfield expansion, shareholders breathed a massive sigh of relief. That is understandable given their experience of expensive project overruns during the last bull market.

But there's a growing feeling that miners listed in London, and City investors in particular, risk being viewed as the disablers of the energy transition.

Growth has almost become a dirty word as it evokes memories of the hell-for-leather expansion in 2009-12. But are investors blind to the fact that even if every planned copper project comes on stream there will still be shortages in a period when we're trying cap emissions by 2030, before the so-called ‘tipping point'?

The danger for miners is they will open themselves to the accusation of failing to invest for the benefit of future generations and their PR problem could get worse for very different reasons than ones alluded to at COP26.

Nobody envies directors of mining companies who must persuade risk-averse investors to allow them to dig for growth, even if that comes with more risks than they would like. But without more growth, those much talked about supply shortages will loom closer still, further imperilling the energy transition.

BHP's Mike Henry deserves credit for laying it on the line a couple of months back when he said at a Financial Times conference the group was prepared to pursue opportunities in "tougher jurisdictions", as BHP seeks to increase its exposure to ‘green' metals.

But that's not going to be an easy sell to investors in London where commentators have lambasted the City for prioritising dividends over any other kind of return, an approach that, by default, penalises growth.

Moreover, when you consider growth and exploration have been neglected by the majors at the top of the cycle, one wonders what's going to happen next year when inflation, rising interest rates and the withdrawal of global stimulus packages means mining stocks could go ex-growth.

Julian Kettle, vice chairman of metals & mining at Wood Mackenzie, said it's vital for investors to understand we are in a supercycle when it comes to transition metals, and this argument should be used to assuage fears of rising capex going forward.

Miners need time, as well as a lot of money, to dig green metals out of the ground in sufficient quantity to accelerate the energy transition as part of a package of measures to avoid catastrophic global warming. But how? Here are some of Kettle's suggestions:


*De-emphasise economic growth as the global economy is forecast to double in size by 2050, so there's an urgent need to cut carbon intensity per unit of GDP

*Put in place a better recycling infrastructure that would take pressure off the need to reduce the amount of carbon per unit of GDP and ease short term demands on the supply chain (as we would need less copper and cobalt etc in such a short time frame)

*If policymakers want to accelerate the energy transition, then measures are required to shorten permitting regimes as environmental licences currently take between five and seven years, and in some cases 10 to 15

* If possible, temper consumption by introducing personal carbon budgets

* Introduce mandated consumer recycling. There's no segregation of waste in many places in the UK, it all goes into one bag, and lots goes into landfill

 * Ramp up re-cycling on the primary side more quickly, then the pressure on miners to develop mines would be reduced.


Assuming we are in a multi-decade energy-transition growth story, shareholders stand to reap generous returns, but for that happen, miners must grow and fast, as they are sitting on depleting assets.

In short, the message needs to go out that miners have done their penance and growth is firmly back on the agenda.

Following Kettle's proposals won't solve the entire supply problem, but it would help to mitigate it.

Investors and miners, with support from policymakers, must do everything they can to avoid being labelled as the bad guys who failed miserably to invest in the green energy transition. But time isn't on their side.


A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

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