As we charter an increasingly fractured and fragmented world, with tensions rising in the east between China and the U.S., followed by the global impact of COVID-19 on already strained geopolitical relations and commodity supply chains – and now with the calamity of the Russian invasion of Ukraine – one wonders what the impact of the aforementioned is having and will have on the global mining industry.
Green energy transition – is it sustainable?
Energy and battery minerals that are now critical to drive the green revolution are common agenda point items in many mining company board rooms across the world as the focus shifts towards decarbonization. Demand for fuel cells, nuclear power plants, solar, wind-power generation, and electricity storage is soaring.
The driving force behind this is Europe and the U.S.’ quest to achieve carbon neutrality by 2050 and their desire to wean the world off fossil fuel dependency; the main themes again at last year’s COP26 conference in Glasgow.
The key to achieving these ambitions was, until recently, based on the assumption of security of supply of certain critical minerals, which now have more strategic significance than ever in light of recently unfolding geopolitical events.
Deglobalization – era of self sufficiency
The Russia-Ukraine conflict, as can be seen, has severely constrained and disintegrated global supply chains of critical minerals. This has never been so acute as in Europe now. It is fair to say that Europe has definitely received a wake-up call as a consequence of the recent crisis. The complacent former misbelief of infinite and uninterrupted supply of natural resources has been abated, as the premise of the same was always based on trading partners remaining geopolitically “friendly” towards each another.
Germany and Europe, for instance, were hoping to suckle on cheap Russian oil and gas supply for decades. But the impact of Europe tearing up commodity supply deals with Russia is hitting the pocket of the common man hard, with soaring energy price inflation, the ripple effects of which are being felt across the globe. Many countries trading in Russian commodities have also had to cease trade due to hard-hitting sanctions imposed on Russia.
As unions and trade alliances crumble, certain sovereign countries are realizing that they can no longer rely on time tested trading partnerships and that we are very much entering an era of resource self-sufficiency – it’s every man for himself!
To mitigate some of the risk of the aforementioned, those with the foresight, commercial acumen, and investment appetite will be looking to rethink their strategies to secure future supply of critical raw minerals, as no country wants to be held to ransom by another for supply, as can be acutely seen by Russia’s recent behaviour towards Europe.
Critical need for critical minerals
Both the U.S. and the EU have previously published lists of “critical minerals”. Namely, those minerals that they consider as being essential for the operation of their industries and military self-defence and where they had supply concerns. The U.S. is taking steps to secure domestic supply of these minerals. The invasion of Ukraine by Russia has now created a further list of minerals that has to be secured.
Critical minerals can be considered as commodities in which Russia and China control a significant portion of global supply and which western democracies and their allies may now have to begin to replace with “friendlier” alternative sources. Potash, copper, fluorspar, rare earths, titanium, vanadium, pig iron, steel, bauxite, and nickel, in particular, fall within this group, some of which are key to electrification.
It is expected that the EU will soon publish a new list of critical minerals which will now include those minerals previously supplied by Russia, Belarus, and Ukraine, and which will not be readily available for the foreseeable future.
If the EU is to remain globally competitive in manufacturing, then it also needs to secure reliable and affordable access to critical raw materials. It is far behind China which has been quietly and systematically developing its supply chains in critical minerals in Africa for some time now.
It is no secret that Africa has a lot of untapped mineral wealth
Crossing the frontier – Africa?
There is an opportunity for Europe and the Middle East to take the lead in reconnecting the best mineral exploration and development projects with capital where the projects are most abundant and responsible, particularly Africa, where so much of the incremental supply resides. In order to do so, both need to think long and hard about procurement and reassess their risk appetite for investing in geographies where the vast amount of untapped mineral potential is situated.
First mover advantage – how to plug the supply gap?
It is no secret that Africa has a lot of untapped mineral wealth. The key to unlocking the same is experience, for which there is no substitute. Africa is a complex, but friendly, continent and for those who have the know-how and expertise and have been working there for years, it is also knowing where to find the low hanging fruit and then knowing how to commercialize it in an economic and sustainable way.
The two significant factors which are increasingly overlooked when considering a mining investment are i) whether the project is scaleable and has the resource potential to become a Tier 1, world class mine; and ii) whether the project can operate within the lowest cost quartile in order to make it economic in the long term. The answers to both questions should be prerequisites and at the forefront of potential investors minds when looking to deploy capital.
It is one thing to invest in a mining exploration project, but it is quite another to take it all the way through into development, construction, and production.
