/ 16 June 2022

Investing in critical minerals is the only way for a clean energy transition – report

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A taxidermist shows a find with a fossilized imprint at the conclusion of the 2021 excavations at Bromacker between Tambach-Dietharz and Georgenthal. During this year's excavations at the globally significant fossil site in the Thuringian Forest, researchers have secured a huge amount of finds. (Martin Wichmann/dpa-Zentralbild/dpa/picture alliance via Getty Images)

The future success of the world’s mining companies will depend on whether they take a leading role in the clean energy transition. 

This is according to PwC’s 19th annual review of the top 40 mining companies, which examines global trends in the mining industry. The report was published on Wednesday.  

The South African-headquartered companies that are represented in the top 40 are Impala Platinum, Gold Fields, Sibanye-Stillwater and AngloGold Ashanti. 

The report states that the need for critical minerals is expected to grow over the next three decades, with some estimates suggesting that the annual demand from clean energy technologies will reach over $400-billion by 2050.

“Energy transition presents various opportunities to the mining sector and the fundamental role that the sector plays in underpinning the global transition to clean energy is clear. However, if the mining industry does not rapidly scale up its discovery and delivery of critical minerals, the prospects of energy transition at scale will be jeopardised,” said Andries Rossouw, PwC Africa’s energy, utilities and resources Africa leader, at a media briefing.

Due to the move to net-zero carbon emissions, demand for critical minerals is surging and operating environments are getting more challenging as critical minerals are needed at all stages of the low-carbon energy cycle.

Critical minerals include silicon, rare earth elements and uranium for energy generation; copper, aluminium and steel for distribution networks; and battery minerals such as nickel, lithium and cobalt for energy storage.

According to the report, demand for critical minerals is expected to grow significantly over the next three decades. The International Energy Agency estimates that the annual demand for critical minerals from clean energy technologies will surpass $400bn by 2050, which is equivalent to the annual revenues of the current coal market. 

“This might seem like a long way off, but miners are already struggling to keep up with the demand for critical minerals. For example, copper, lithium and cobalt are already experiencing supply constraints and supply imbalances are likely in the near term,” read the report.  

Caution was raised in the report that the industry’s inability to meet demand for critical minerals could have major implications for the cost — and ultimately the pace — of the global uptake and installation of energy transition technologies. 

“The reality is that the need for critical minerals in things like electric vehicles is six times more than what you have in a conventional vehicle. If we look at energy generation from fossil versus natural gas, you’re talking about 15 times more the critical minerals,” Rossouw said. 

He said that the top 40 companies only produce 3% of the world’s critical minerals.  

 “Unfortunately the energy transition will be held back [if we don’t get investments] because we just won’t have the minerals to make it happen for the future.”

Looking forward, it is expected that strong commodity prices through 2022 will underpin a forecasted 16% increase in revenues. The surging price of copper and other critical minerals, such as nickel and aluminium, will drive much of this growth. 

Copper made up the largest share of revenues in 2021.Its price is expected to rise by 50% over the next 12 months due to the ongoing drive towards clean energy transformation.

“Future revenue gains are susceptible to increasing uncertainty on several fronts. Geopolitical conflicts and supply chain challenges caused by the lingering pandemic could dampen the Top 40’s plans to ramp up production in 2022,” read the report. 

Russia’s continued war in Ukraine has affected the global commodity markets and has seen the price of several metals and minerals rise due to supply shocks. 

Costs are expected to rise as a result of inflationary pressures, including forecasted increases in fuel, transport, labour, processing and construction costs. 

The top 40 mining companies of the world are still going to see revenue growth, however, the increased costs of doing business will translate to lower margins in 2022, with net profits expected to fall from $159bn to $157bn.

Anathi Madubela is an Adamela Trust business reporter at the M&G.