A selection of predictions for 2020
Our mining associates kindly provided their thoughts on what they anticipate to be some of the largest, and perhaps more complex risks to the mining sector in the coming year.
1. Changing social sentiment towards the extractives sector
Regardless of how efficient the circular economy[1] evolves to be, we will be required to extract raw materials from the rock beneath our feet for the foreseeable future. Population growth coupled with the wide array of minerals and metals not previously required by technology drive this demand. Despite this, the reputation of mining and oil & gas companies is arguably the worst it has ever been.
The mining sector is not helping itself, regularly succumbing to catastrophic events such as the Brumadinho Tailings Dam failure[2] in 2019 that resulted in the loss of 270 live while others face grave accusations for money laundering and bribery[3].
This negative sentiment is beginning to result in the divestment out of the extractives sector by investors; a reduction in individuals seeking employment in the sector; and an increase in the focus on how companies prove to their stakeholders that they are operating in the most responsible way possible.
Unless the mining sector takes control of this narrative quickly, there is a very real threat that companies governed by requirements of institutions such as the London Stock Exchange will lose their funding[4] and therefore cease to exist. Mining will still occur; it will just take place under more opaque conditions.
The opportunity for miners is to prove that mining and processing of metals and minerals can be undertaken in a responsible manner. Should we do this, we can change the narrative and social opinion as to the importance and nature of mining, therefore making it easier for the sector to attract investment, obtain permits and licence to operate, and attract the best talent.
2. Responsible sourcing
With new lawsuits citing human rights abuses being filed this year against tech and car manufacturing multinationals[5], the question of ethical sourcing and transparent supply chains will factor heavily in the decision-making process of large mining companies.
Responsible sourcing is a voluntary commitment by companies to take into account social and environmental considerations when managing their relationships with suppliers[6].
For large scale miners, responsible sourcing manifests in two ways:
Requirement to ensure that no supplier to the mining company has breached responsible sourcing expectations,
An increase in the number of audits being undertaken by customers, investors, governments and NGOs on mining operators.
A key point of debate for those engaged in responsible sourcing is that of Artisanal and Small-Scale Mining (ASM). The ethical dilemma here is whether it is more or less appropriate to purchase commodities from an artisanal mining organisation. While the context is different for every ore body, supporting an ASM organisation will often boost the local economy to a more tangible extent than would be possible through a large-scale mining organisation. On the flipside, while ASM is often very well organised, the techniques used for mining are often incredibly dangerous and are not aligned with human rights expectations. For more insight to ASM, please visit the Levin Sources website.
Threats posed by responsible sourcing requirements include the allocation of significant resources such as the input of senior leader’s time as well as Health, Safety, Environmental and Community teams spent facilitating audits rather than implementing controls that will improve the methods of mining.
The opportunity lies in the potential for an improved, more transparent form of assurance to emerge that provides a trusted opinion on how responsible an operation is. Provided this is practical and flexible enough to be appropriate in all contexts, this could replace the ever growing number of onsite audits and provide stakeholders with an easy to understand indication of the responsibility of the operation.
See our research project: www.responsiblereserves.com
3. Water availability
Mining uses huge volumes of water, the ‘average’ gold mine used ~0.350 m3/metric ton of ore-grade rock[7], this is however dependant on the type of processing method applied. While developments in dry processing have been made in recent years, every mining operation still requires a reliable source of water.
The reliability of water sources is decreasing. Increasing global temperatures causing shifts in weather patterns are resulting in extreme weather events with devastating effects. Drought (and raging bushfires) in Australia have halted mining and processing production in several states while drought in southern Africa means there is little water available for mineral processing.
Too much water can also be a problem. Over-topping of dams (including tailings dams) impacts on the structural integrity of the dam and causes the release of potentially toxic materials into the natural environment. Prolonged periods of precipitation also result in an increase in potential for e.g. slope failure.
Indirectly, a lack of water in countries such as Zambia can result in a lack of availability of electricity due to the reliance on hydropower.
4. Commodity mix required for energy transition
Almost all forms of renewable energy generation require a unique mix of minerals and metals that are produced by the mining sector. Rare earth elements, lithium, cobalt, together with copper, platinum, and nickel are all essential in wind turbines, photovoltaic cells and electric vehicles.
The mining sector’s ability to produce these minerals and metals to the specification required tests the most innovative of companies. For example, the demand for lithium (as boosted by the UK’s announcement on the 4th February that all new cars on UK roads will be electric by 2035[8]) will require significant investment and development in different types of lithium battery acid (or alternatives). The understanding of how and where lithium concentrates to economic levels in the Earth’s crust is still being understood by geoscientists, while engineers develop an array of new technologies required for more efficient and sustainable lithium extraction and processing.
The diversification of energy production provides huge opportunity for the mining sector. The energy market (traditionally dominated by oil & gas) is far larger than the mining market. Who will be first to rebrand their mining company as an “energy company”?
References
[1] Ellenmacarthurfoundation.org. (2020). What is the circular economy?. [online] Available at: https://www.ellenmacarthurfoundation.org/circular-economy/what-is-the-circular-economy [Accessed 1 Feb. 2020].
[2] Nationalgeographic.com. (2020). Brazil’s deadly dam disaster may have been preventable. [online] Available at: https://www.nationalgeographic.com/environment/2019/01/brazil-brumadinho-mine-tailings-dam-disaster-could-have-been-avoided-say-environmentalists/ [Accessed 2 Feb. 2020].
[3] Kollewe, J. and Goodley, S. (2020). Serious Fraud Office investigates Glencore over suspected bribery. [online] the Guardian. Available at: https://www.theguardian.com/business/2019/dec/05/serious-fraud-office-investigates-glencore-over-suspected-bribery [Accessed 2 Feb. 2020].
[4] Geolsoc.org.uk. (2020). The Geological Society of London - Responsible Investing in Natural Resources. [online] Available at: https://www.geolsoc.org.uk/expired/GSL-Responsible-Investing [Accessed 4 Feb. 2020].
[5] Kelly, A. (2020). Apple and Google named in US lawsuit over Congolese child cobalt mining deaths. [online] the Guardian. Available at: https://www.theguardian.com/global-development/2019/dec/16/apple-and-google-named-in-us-lawsuit-over-congolese-child-cobalt-mining-deaths [Accessed 2 Feb. 2020].
[6] ICC - International Chamber of Commerce. (2020). ICC Guide to Responsible Sourcing - ICC - International Chamber of Commerce. [online] Available at: https://iccwbo.org/publication/icc-guide-to-responsible-sourcing/ [Accessed 1 Feb. 2020].
[7] Gunson, A. (2020). Quantifying, reducing and improving mine water use. [online] Open.library.ubc.ca. Available at: https://open.library.ubc.ca/cIRcle/collections/ubctheses/24/items/1.0071942 [Accessed 5 Feb. 2020].
[8] BBC News. (2020). Ban on petrol and diesel car sales brought forward. [online] Available at: https://www.bbc.co.uk/news/science-environment-51366123 [Accessed 4 Feb. 2020].