Mining and metals take centre stage in the energy transition

By Hugh Samson and Phil Wilkinson
Published February 28, 2022 | 2 min read

The mining sector is set to reap the benefits of increased global demand for a number of strategic metals in 2022 and beyond, bolstered in large part by intensifying energy transition efforts and pandemic-driven disruptions that are already pushing some metal prices to record or near-record levels.

In the coming decades, demand for metals like copper, lithium, cobalt, nickel, rare earths, and many others are expected to grow exponentially, breathing new life into a sector looking to transform and innovate.

Whether it is batteries or charging stations for electric vehicles (“EVs”), or solar panels and wind turbines for green power, the accelerating push toward clean, renewable energy and net-zero emissions will fuel extraordinary demand for metals that could keep prices elevated for years to come.

Mitigating Future Supply Risks

As part of the global effort to reach net-zero emissions by 2050, countries around the world are laying out targets for when they will phase out the sale of passenger fossil fuel vehicles – Canada announced a target that all new light-duty vehicles sold will be electric by 2035. These objectives are hastening the inevitable rise of electric vehicles, with some estimates projecting a market share of 30 percent by 2025.

But progress could be hampered if there is an insufficient supply of raw metals and minerals to meet corresponding needs. While most people may still be years away from owning an electric car, industry leaders and investors know they must prepare now to meet the continued demand growth.

Acquiring and building sufficient supply will take time. While many deposits are known, there are numerous challenges to overcome to develop new mines, ranging from considerable investment in infrastructure to garnering social license to operate from governments and local communities. It can take many years – or even decades – from when a project is first evaluated to when production begins.

Despite these challenges, the need for supply through of new mines and projects are drawing investment interest from a broad range of investors. The long-term opportunities and benefits mean companies large and small across different industries are all positioning themselves to play a role in the rapidly emerging energy transition ecosystem.

The Mining M&A Boom

With the trajectory of demand and supply requirements projected to go vertical, well-established mining companies, private equity firms and alternative sources of capital, such as SPACs, are in a race to secure future sources of supply, acquiring copper, nickel, lithium and other battery metal assets.

In 2021, copper M&A activity reached its highest level in more than a decade, topping $17 billion globally, as buyers scrambled to gain exposure to a metal critical not only in EVs and batteries, but also to build out the electrical grid necessary to power the EV fleet.

2021 also saw an explosion in lithium M&A with multiple large transactions. Chinese companies in particular have been on a shopping blitz, investing in lithium projects and assets around the world in a strategic effort to stay ahead. China, which processes almost 60 percent of the world’s lithium, has grand ambitions when it comes to green energy initiatives and electric vehicle production.

The country is already a global leader in both sales and production of new energy vehicles, selling more than 2.5 million units in 2021, according to figures by the China Association of Automobile Manufacturers. Some domestic players predict that by 2030, “new energy” vehicles could account for 70 to 90 per cent of new car sales in the country.

Recent activity by battery makers and auto OEMs hints at another development coming into play: end-product manufacturers and their OEM customers are casting an eye much further up the supply chain to secure the raw material required for electric vehicle engines and batteries.

Historically, inventory challenges were shunted down to suppliers to resolve, but concerns regarding ability to procure the metals required for the electric vehicle market in the coming decades have inspired a willingness on the part of OEMs to consider not only long-term off-take agreements with mine developers, but also direct project-level or corporate-level investments linked to securing mineral supply. While conversations around this approach have been ongoing for some time, the pace has accelerated exponentially – even in the last six months.

These acquisitions and trends illustrate how record metal prices have not dampened deal making enthusiasm, with the flurry of activity pushing overall transaction values significantly higher than in previous years. And unlike earlier runs over the past decade that turned into false starts, the bullish M&A sentiment this time appears to be more sustained, underpinned by real-world demand.

Global supply needs for traditional mining resources are obviously not waning, but it is the industry’s indispensable role in fighting climate change that is paving the way for exciting new opportunities and a robust future. At the same time, demonstrating leadership around ESG and successfully navigating those responsibilities will be an important factor not only for the industry’s long-term growth and expansion, but also for changing the narrative around mining and its value proposition to society.

Energy TransitionIndustry Specific Innovations and TechnologyMetalsMining