Column: Supply anxiety is the new hope for developing energy transition mines: Russell

McEwen

25/05/2023 05:52

(The opinions expressed here are those of the author, a
columnist for Reuters.)
    By Clyde Russell
       MELBOURNE, May 25 (Reuters) - Can "supply anxiety" drive
the next mining boom and deliver the minerals vital for the
energy transition?
    A fear that the world won't produce enough copper, lithium,
aluminium and other metals vital for electrifying virtually
everything that runs on fossil fuels is an increasingly common
theme.
    Almost every speaker at this week's 121 Mining Investment
event in Melbourne made the same point: There isn't enough
production to meet anticipated demand, there aren't enough
projects in the pipeline, and even when new mineral deposits are
discovered, the regulatory and financial barriers to developing
them take years to navigate.
    The overall message from many in the mining sector is that
the energy transition is at real risk of being slower and
costlier than anticipated because of a looming shortage of
critical minerals.
    The solutions are both obvious and hard to achieve.
    The most urgent task is to speed up and ease permitting of
new mines and expansions of existing facilities, but if anything
the momentum is heading the other way.
    Ensuring a project is the best it can be as far an
preserving the environment is concerned, as well as winning
social licence from a variety of stakeholders, is getting harder
and more time-consuming.
    Governments across the globe are putting in more regulations
and requirements, not fewer, and taking longer to approve mining
projects.
    The other major problem is financing, with many banks in
developed countries pulling back from lending to miners,
preferring to focus their climate change efforts further down
the value chain in things such as battery factories or renewable
energy projects.
    And finally, the major miners like BHP Group  BHP.AX  and
Rio Tinto  RIO.AX  have curtailed capital expenditure in recent
years, preferring to run disciplined operations and return
profits to shareholders.
    Where the majors are spending capital, the majority is
tending towards maintaining output levels at existing
operations, or developing resources peripheral to the energy
transition, such as BHP's move into potash.
    The question then becomes: What is the trigger point to
spark more investment in mining?
    This is where supply anxiety comes to the fore, as the
downstream users of critical minerals start to realize there
isn't enough supply for them to produce their products.
    
    CARMAKERS LEAD
    This dynamic can already be seen, especially with what are
called Original Equipment Manufacturers (OEMs), such as vehicle
makers.
    At first, it has largely been OEMs seeking offtake
agreements with miners that may involve providing funding or
financial guarantees.
    But increasingly OEMs seem prepared to take more direct
steps to become involved in mining.
    Stellantis  STLAM.MI , the world's third-biggest carmaker by
sales, invested $155 million in February to buy a minority stake
in a copper mine in Argentina run by a subsidiary of Canada's
McEwen Mining  MUX.TO .
    The carmaker has also signed an offtake agreement for
170,000 tonnes of nickel and 12,000 tonnes of cobalt sulphate
with Australia's Alliance Nickel  AXN.AX , as well as buying an
11.5% stake in miner for 9.2 million euros ($10.1 million).
    Alliance will use the money to develop its NiWest project in
Western Australia state, and Stellantis' offtake agreement
represents about 40% of the venture's planned output.
    Other carmakers such as General Motors  GM.N  and Volkswagen
 VOWG_p.DE  have signed joint venture and other agreements with
miners as they move to shore up their supply chains and boost
production of electric vehicles.
    But the flurry of recent activity by OEMs to secure supplies
of metals such as lithium and copper is unlikely to be enough to
boost supply to the levels energy transition requires.
    The tipping point of when the initial trickles of backing
miners becomes a flood is still some distance away.
    Miners will have to learn a whole new way of doing business 
to access the capital that OEMs are willing to commit.
    The traditional method of exploring for a resource and then
building a new mine by gaining equity and debt financing as the
project reaches development milestones is getting harder.
    OEMs, meanwhile, must become willing to take on more risk in
their investments by backing smaller miners at initial stages,
and hope for a big payoff should the mine come to fruition.
          
The opinions expressed here are those of the author, a columnist
for Reuters.

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GRAPHIC-Metals usage in energy transition    https://tmsnrt.rs/3icaAly
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 (Editing by Gerry Doyle)
 ((clyde.russell@thomsonreuters.com)(+61 437 622 448)(Reuters
Messaging: clyde.russell.thomsonreuters.com@reuters.net))