Fortune Minerals : COBALT NEWS

The Economist - June 24, 2021

Not, alas, for the planet | Business

High in the mountains of southern Peru lies Quellaveco, a vast open-pit copper mine. It is one of the world's largest untapped deposits of the red metal. Anglo American, a mining giant and its majority owner, has, along with another investor, spent over $5bn getting it up and running. It is expected to come online in 2022. Once operational it will add more than 10% to the copper output of Peru, the world's second-biggest producer of the stuff…In the past when commodity prices were surging, as they have been of late (see chart 1), the world's miners would be piling into projects like Quellaveco. This time the notable thing about it is its uniqueness. Few of the diversified mining behemoths-Anglo American, bhp, Glencore, Rio Tinto and Vale-have big new mines in the works. That is partly because of the industry's long lead times; Anglo bought Quellaveco in 1992. But other forces, too, lie beneath the subdued investment. They will have consequences for the mineral-intensive energy transition towards a climate-friendlier world…So far the miners have kept their promise. Although capital spending in the industry has grown since 2015, it is still 50% below its peak in 2012. Most of that has gone on sustaining current output, not adding new capacity. Even as rising metals prices have padded profit margins, spending on exploration has stayed low, notes Danielle Chigumira of Bernstein, a broker (see chart 2). That is a break from the past…Their biggest challenge is responding to the energy transition…On paper, the energy transition could be a mining bonanza. If the world is to meet the Paris climate agreement's target of limiting global warming to 1.5°C above pre-industrial levels, the demand for metals such as cobalt, copper, lithium and nickel will explode. The International Energy Agency, a forecaster, calculates that an electric car needs six times the mineral content of one with an internal combustion engine. The average onshore wind farm is nine times more resource-intensive than a gas-fired power plant…Shifting towards green metals is, however, proving harder than moving away from dirty minerals. The big-five miners' portfolios are weighed down with commodities from the past supercycle. Iron ore and fossil fuels still account for over half their mining revenues and three-quarters of their gross operating profits. High metal prices make potential targets look dear…The other option, developing their own projects, also presents problems. One is investors. Since torching shareholder value the last time around, miners have been on a tight leash…Second, many energy-transition metals are simply too small a market for the big miners to bother with. Take lithium, which is used in batteries. In 2004 Rio Tinto discovered a large deposit in Jadar in Serbia. When the project comes online in a few years it may add 2-3% to Rio's revenue, reckons Liam Fitzpatrick of Deutsche Bank. That is not enough to move the needle at a firm with a market value of $140bn.The market for cobalt is even smaller…The exception is copper. Its ubiquitous use in electrical wiring makes it one of the biggest metals markets by value even today. If the world is to meet its climate goals, demand for it could almost triple. However, finding a big new copper project is hard. Prospected deposits are getting smaller and ore grades worse. That makes mining them more expensive…The average mine takes over 15 years to move from discovery to production…Then there is resource nationalism. The covid-19 pandemic has emptied government coffers. Miners worry that they will be asked to make up the shortfall…Price support could come courtesy of governments in the West. On June 8th the White House published an inter-agency review of supply chains, arguing for more action in securing critical minerals, including lithium and nickel. The eu wants to do the same with its green industrial strategy. Mr Bartolomeo of Vale expects miners to forge more strategic partnerships with national authorities in the future…If supply does not increase, however, shortages of some metals such as copper may prove unavoidable. Some of the shortfall could perhaps be met by substituting other metals or more recycling of previously used ones. But not all of it. Investors applaud the mining bosses' newfound restraint. The planet may prefer a return to past exuberance.