The Net-Zero Transition and the Role of Mining
The role of the mining and minerals industry in achieving Net Zero by 2050 will be critical and cannot be overstated. Net-zero emissions pledges have accelerated since COP26 in November 2021, with an increasing number enshrined in law. The number of countries that are pledging to meet net-zero by 2050 continues to rise as governments recognise the physical and financial risks of climate change.
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The net-zero transition and the role of mining
The role of the mining and minerals industry in achieving Net Zero by 2050 will be critical and cannot be overstated. Net-zero emissions pledges have accelerated since COP26 in November 2021, with an increasing number enshrined in law. The number of countries that are pledging to meet net-zero by 2050 continues to rise as governments recognise the physical and financial risks of climate change. In the Australian context, the Federal Government has committed to a 43% reduction in emissions from 2005 levels by 2030, and net zero emissions by 2050.
The physical and practical implications of meeting these commitments will require staggering financial and human capital, and must occur at an unfathomable pace. The magnitude of the transition ahead of the world has been described as equal to that of the industrial revolution, and there are numerous scenarios available that provide a point of view on the pace of change and the uptake of various renewable and green technologies and the phasing out of brown power. The Australian Energy Market Operator (AEMO) produces a range of planning and forecasting publications to help inform decision making and provide an integrated roadmap for the uptake of electrification and the pace of change of the energy transition, specifically for the National Energy Market (NEM). Under AEMO’s Step Change scenario, electrification is forecast to rise significantly to meet Net Zero by 2050, requiring a significant increase in the uptake of green energy such as solar, wind, batteries and potentially hydrogen. The flow on effects for the mining sector are tremendous and as a result, the role the mining sector plays in meeting this challenge is two-fold:
As the necessary provider of the raw minerals to manufacture these technologies; and
As large emitters, doing their part to reduce emissions throughout the value chain.
The criticality of critical minerals…
Achieving the global energy transition means the production of more solar, wind, batteries and other technologies, all of which drive up the demand for critical minerals. Solar panels require high purity quartz (silicon), wind turbines need copper, nickel, chromium and rare earths (neodymium, dysprosium), and batteries need large amounts of many minerals including lithium, nickel, copper and graphite.
The global economy is becoming increasingly aware of this, and Australia, as well as jurisdictions such as the USA, EU, Japan and India have all published critical minerals lists, detailing minerals crucial to the economy and national security moving forward, yet whose supply may be at risk due to scarcity, geopolitical issues, trade policy or other factors. These lists serve as the basis for jurisdictions to establish domestic production of these minerals, and / or the creation of cross-border supply chains with countries better aligned to their national interest.
On the mineral supply side, mining and exploration companies are gearing up to meet this need, increasing exploration spend or pivoting and expanding their portfolios to increase their strategy and focus on critical minerals; with larger miners such as Rio Tinto purchasing Rincon Lithium for US$825M in 2021 and committing US$2.4B to its Jadar greenfield lithium project in Serbia, South32 purchasing a share in Sumitomo’s flagship copper mine in Chile for US$2.5B in 2021, and BHP proposing to purchase OZ Minerals for AU$8.5B earlier this year.
The Australian context & opportunity
What role can Australia have domestically and internationally in meeting the demand for these minerals? Australia is in a unique position, where our large and diverse mineral reserves, technical expertise, political and economic stability, and track record as a reliable supplier of raw minerals can put us at the forefront of meeting market demand, both domestically and internationally.
Australia is ranked in the top 5 in the world for 10 of our 24 identified critical minerals deposits (Tantalum #1, Titanium #1, Zirconium #1, Cobalt #2, Lithium #2, Tungsten #2, Vanadium #2, Niobium #3, Antimony #4, Manganese #4). This does not include other non-critical minerals that Australia also has in abundance, including bauxite, phosphorous, iron and silicon.
Domestically, the CSIRO estimates that Australia will need approximately 700 MT of minerals just to meet the required installed electricity capacity for Net Zero by 2050. If we also consider forecast steel requirements, this will increase total mineral / metal requirements up to approximately 715 MT to satisfy all domestic solar, battery, EV, wind and other renewable generation technology mineral requirements.
Australian Critical Minerals Prospectus 2021 identified that as of 2019 that Australia has enough Economically Demonstrated Reserves (EDR) of many minerals required for its domestic transition including phosphorous, magnesium, titanium and manganese, however, it will still be dependent on either further domestic exploration and discovery of critical minerals or global supply chains for others such as chromium, cobalt and graphite. Additionally, Australia's downstream processing capability and size is relatively small (relative to mining and extraction), with most current activity focused on exporting raw minerals only, rather than further downstream processing and refining, primarily due to it being more cost effective option.
In 2019, Australia produced 52% of the world’s lithium, however exported almost all of it to China for further downstream processing (of which it processed 58% of the world’s supply). Cobalt is similar, where in 2019 Australia produced 4% of the world’s raw supply, and exported almost all to China, who processed 65% of the world’s supply. Whilst Australia ranks highly in the deposits of so many critical minerals, there exists a real opportunity for Australia to become more than just an exporter of raw materials, but to expand further into downstream processing, and to provide new and more diversified supply sources to the rest of the world. This expansion into downstream processing is commencing already with rare earths miner Lynas choosing to construct a domestic rare earths processing facility in Kalgoorlie, despite their currently operating processing facility available in Malaysia, and companies like Albermale and Covalent Lithium developing lithium processing facilities in WA.
Furthermore, the ability to do this through green or clean means provides a disruptive opportunity for Australia to become central to the world’s energy transition and green metals needs, including for green steel, green aluminium, and green downstream battery requirements (lithium, REEs, cobalt etc.). More needs to be done to develop these industries, both in the public and private sector, and a strong focus on sustainability will be key to differentiating Australian mineral and metals exports from competitors.
The sustainability of mining practices
The mining industry has long been afflicted with real and perceived challenges in environmental sustainability, including more recently the Samarco and Juukan George disasters. Perceptions are changing however as the world grapples with the challenges of achieving Net Zero by 2050, and the realisation of the mining industry’s critical role in achieving this as well as significant work and focus mining companies have placed on ESG, the energy transition and sustainability more broadly. Mining alone contributes between 4-7% of Scope 1 & 2 GHG emissions globally, and almost 30% of indirect Scope 3 emissions. The mining industry is beginning to transition, with companies like Fortescue committed to carbon neutrality in operations by 2030, and the International Council of Mining and Metals (ICMM), whose members span over 650 sites and 50 countries, committing to net zero direct and indirect emissions by 2050 or sooner. The key challenge for these miners will be to reduce emissions whilst simultaneously increasing production to meet mineral demand to support the energy transition. This challenge is additionally amplified across two key areas:
Companies undertaking exploration and extraction of the critical minerals are typically not the Tier 1 mining companies, with deep pockets and hence value and cash flow become critical considerations, and;
Technology does not currently exist to completely ‘green’ mining practices meaning that almost counter-intuitively carbon emissions are a by-product of the increased minerals demand.
The major sources of emissions attributed to the mining value chain can be considered in 3 main buckets:
Electrification – those emissions which are currently produced as a result of producing electricity (through coal, gas etc) and can be readily (relatively) swapped out for renewables and storage;
On-site fuel sources – those emissions which can be attributed primarily to vehicles (heavy and light), ancillary equipment and onsite generators. Typically, these are related to diesel use and replacement involves batteries or hydrogen / bio – fuel cells; and
Everything else including hard to abate items (processing where no technical solution currently exists (or is not commercially viable), concrete etc and scope 3 emissions.
Decarbonising the Australian mining industry, whilst simultaneously expanding production and increasing processing capabilities within Australia is not a small task, but the benefits for our economy were we to realise this opportunity could be enormous.
Boards and management for mining and exploration companies are facing a critical junction in their careers and in the life of the mining companies they represent. The future demand for critical minerals and materials required for the energy transition is colossal and growing, and offers huge potential and opportunity for those wanting and willing to be involved. Further opportunity exists to be a part of the transition via an expansion down the value chain and production of further refined products and metals, rather than simply exporting raw materials, as well as decarbonising and increasing the sustainability and ESG agenda of your own operations. Offering green and sustainable products sets companies apart in the market, often attracting a green premium aligned with global and community sustainability agendas. The risks of not acting now and setting a transition strategy that is best for your company and shareholders include being left behind, an inability to attract finance and investment, and lost opportunities to be a part of a massive global transition. If this resonates with you and your company, please reach out to myself or Rennie Partners via Linkedin or the email addresses provided below.
This article is the first of a series Rennie Partners will be producing on the mining industry with future articles focused on the specific Australian opportunity for mining and downstream processing, the different sources of emissions in mining and their reduction mechanisms, and other considerations around mining's transition towards sustainability.
For more information, please contact Tim Brunner at tbrunner@renniepartners.com.au