What is your outlook for the metals and mining industry in 2021 and beyond? And what are the drivers for this?
At the end of 2020, commodity markets were characterized by strong demand in China for metals, tight supply, a weak US dollar, and commodity prices breaking multi-year highs. The volatility of 2020 is expected to follow through into 2021. However, in the mid to long-term we expect the sector to perform in-line with industry fundamentals and return to a trajectory of growth. In comparison to the China boom of the 2000s, the path forward will be differentiated by commodity, with stimulus packages into green energy, technology reshaping the value chain, and health & safety concerns all accelerating megatrends. This could be the beginning of a much longer bull market for commodities.
How is the global recovery shaping up in the wake of COVID-19? What are some regional differences you’ve seen so far?
The initial global response to COVID-19 has, in large, been seen to be successful but insufficient to prevent localized recurrences. The implication being that the long-term economic outlook is expected to be slow growth with a muted world recovery and output returning to pre-COVID levels (i.e., 2019 Q4) by late 2022. However, regional and country effectiveness of public health and economic interventions have differed. For example:
a. China, Taiwan, and Vietnam have contained the virus and a strong policy response meant a return to growth by end of 2020. This has led to a strong recovery in commodity demand
b. Europe and North America have been impacted by a second wave, with insufficient government stimulus implying growth will only return by late 2022
c. South Africa, Russia, Peru, and Venezuela have been inhibited by rising cases and political uncertainty leading to slow long-term growth, which is insufficient to deliver a full recovery
Looking at Africa specifically, what are some unique challenges to recovery and where do you see bright spots emerging?
The access and distribution of a vaccine in a timely manner will be imperative to controlling the resurgence of the virus and returning economies to the “new normal”. Like other mining jurisdictions, African mining activities have been prioritized by governments under strict health and safety protocols, allowing African mine supply to continue to play an important role in commodity market dynamics. Africa’s role in supplying volumes to meet global commodity demand is elevated given the supply disruptions seen in other parts
of the world.
What are some of the key megatrends you expect to impact the commodity markets over the next 10 years? What will be the overall impact on the industry?
There are a number of megatrends which will shape the commodity value chain over the next decade. None are more impactful than the growth of the middle-class and the electrification of India, Southeast Asia, and Sub-Saharan Africa in driving cross-commodity metal demand. Increased ESG scrutiny on mining activities and the rise of the circular economy will shape how commodities are supplied to end customers. Meanwhile, innovation and technology will drive the next wave of productivity across the mining sector, reducing costs and improving throughput efficiency. A combination of these factors could see global mining revenues surpass the highs seen at the top of the previous commodity super cycle.
With demand for key commodities on the rise, where do you see exploration happening the most? Where is the money coming from to fund an increase in exploration?
Over the past 20 years exploration budgets have shifted from high-risk greenfield projects and delivery of new discoveries to low-risk brownfield exploration. The resulting effect has been a decline in discovery rates and the requisite tier 1 deposits to fill the project pipeline. In recent years, the industry has started to reprioritize explorations with case examples emerging of majors partnering with juniors to target previously unexplored regions and apply new technologies (e.g. drones and cognitive artificial intelligence) to accelerate geological insight and resource development. As companies move away from traditional locations, Africa will play an important role in the search of new copper, gold, and nickel opportunities, amongst others. Also, government support will be imperative for success.
How are things like AI and big data playing into the exploration industry? What is the impact you see from further adoption?
Many start-ups have emerged, often partnering with mining companies, to develop digital solutions for the exploration sector. We see different use cases from companies leveraging artificial intelligence to reduce capital risk and increase the speed of geological insights to those providing multidisciplinary 3D and 4D modelling and data management solutions. This is just the start, and a step-change in the use of technology across the full exploration value chain is needed to reach full potential. Amongst others, drones used to conduct layered 3D prospecting analysis, XFR real time geochemical sampling, and machine learning to support rapid go/no-go decisions have the potential to transform the approach to exploration.
Increased ESG security on mining activities and the rise of the circular economy will shape how commodities are supplied to end customers
How much do you see industry players across Africa focusing on ESG in their operations? Where is the drive coming from?
The rise of ESG has been a global trend with growing scrutiny from shareholders on the sustainability of mining companies, both globally and in Africa. In 2020, we saw a number of institutions place pressure on mining companies to reduce their exposure to fossil fuels and restructure boards and executives who failed to meet the highest ESG standards. While all elements of environment, sustainability and governance are important, we are likely to see increased focus by all players through the mining and metals value chain on sustainability and decarbonization in the near term.
What is the role of decarbonization on the mining industry moving forward? Who is leading the charge, especially across Africa?
The current global GHG emissions trajectory implies a 2% per annum growth in emissions resulting in a 2-degrees Celsius warming by 2050, and the likelihood of severe disruptions beyond “business as usual”. This is driving government and businesses, globally, to change how they operate. Large, diversified players have started to set targets and employ decarbonization levers that should result in emission reduction. Published emission targets range between 15%-35% reductions in emission intensity by 2030, with mining companies expected to reach net zero by 2050. Levers employed typically include the expansion of renewable energy sourcing and electrification of mining and logistic activities. Industry players all need to be stewards of change in setting global standards for decarbonization.
