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Analysis

Minerals’ Role in the Energy Transition

By Karin Dilge | Fri, 08/05/2022 - 17:29

The transition to clean energy and net-zero will require critical minerals such as copper, lithium, nickel and cobalt. The success of mining companies will depend on their role in the world’s clean energy transition and on generating significant stakeholder value, says PwC.  

According to a report by the firm, mineral commodities are needed to lower carbon emissions but their supply will struggle to meet near-term demand due to significant underinvestment. “The world will be able to meet its net-zero targets only if the mining industry can substantially ramp up production,” states the report.

“Today’s supply and investment plans for many critical minerals fall well short of what is needed to support an accelerated deployment of solar panels, wind turbines and electric vehicles,” said Fatih Birol, Executive Director, International Energy Agency (IEA).

According to PwC, a solar farm requires three times more mineral resources than a similar-sized coal plant. Meanwhile, the construction of a wind farm needs 13 times more minerals than a comparable gas-fired plant, which means that the energy transition will require more mining, not less.

Estimates from IEA show that demand for critical minerals from clean energy technologies will surpass US$400 billion by 2050, which according to the agency is equivalent to the annual revenue of the current coal market. On the supply side, PwC highlights that copper, lithium and cobalt are struggling with supply imbalances and constraints. “The industry’s inability to meet demand could have major implications for the cost - and ultimately the pace – of the global uptake and installation of energy transition technologies. Raw materials are the largest cost component of an EV battery. The supply and price of input battery metals will have the greatest impact on whether EVs will reach cost parity with, and replace, traditional internal-combustion vehicles,” said the firm.

PwC’s report explains that mining companies responding to current demand are seeing significant rewards. Throughout 2021, the market capitalization of the Top 5 lithium, graphite and rare earth producers grew by 56 percent, 101 percent and 154 percent, respectively. “The surging demand for critical minerals is transforming what it means to be a miner. For example, some miners are shifting focus toward higher-value ‘precursor materials’ rather than comparatively lower-value unrefined or concentrate products,” reads the report.

Production Potential

Compared with fossil fuel supply, clean energy technology supply chains can be more complex as they are more geographically concentrated. “For lithium, cobalt and rare earth elements (REEs), the top three producing nations control well over three-quarters of the global output. In some cases, a single country is responsible for around half of the worldwide production. South Africa and the Democratic Republic of the Congo are responsible for some 70 percent of global production of platinum and cobalt respectively,” mentioned the IEA.

Experts, however, consider Latin America to be in a privileged position for the exploitation of critical minerals since the region holds significant reserves, of which lithium is by far the most relevant. Bolivia, Argentina and Chile hold 64 percent of the global lithium reserves and when considering the Mexican, Brazilian and Peruvian estimated reserves, the percentage increases to over 68 percent. In Mexico, 82 lithium reserves have so far been discovered in the states of Sonora, Chihuahua, Coahuila, San Luis Potosi, Zacatecas, Oaxaca and Puebla. However, there is still only one advanced project controlled by the Chinese enterprise Gangfeng Lithium and located in Sonora.

Regarding other minerals, Chile, Mexico and Peru are estimated to hold over 40 percent of the global copper reserves. Regarding nickel, 17 percent of the world’s reserves are located in Brazil, which also holds the third-largest graphene reserve of over 70,000 tons. Mexico trails behind in the ninth place with 3,100 tons, according to Statista data from 2021.

The relevance of copper has grown so much in recent years that it is now considered to be the "new oil" for rapidly developing industrial segments such as electric vehicle (EV) batteries and renewable energy infrastructure, reported Goldman Sachs. In an interview with MBN, Ralph Shearing, CEO, Altaley Mining, said base metals are experiencing something of a boom: “The long-term projections for copper are fantastic because of the global push for decarbonization and the reliance on copper as a key material. We see major opportunities.”

According to analysts, the demand for copper has been driven by the willingness of countries to comply with the Paris Agreements. "Copper is truly perfect. It is essential to achieve a low-carbon world. I believe that the future of industry, society and our lives will largely depend on copper, as there is no other replacement for it. Perhaps silver could be an option but it is more expensive. As a result, copper will be the metal to lead the world's green transition," Steve Roberston, CEO, Infinitum Copper, told MBN.

The data used in this article was sourced from:  
International Energy Agency , PwC, MBN
Karin Dilge Karin Dilge Journalist and Industry Analyst