rethink sustainability
Tomorrow’s mine: the case for investing in an urgent mining revolution
Just as the materials we used to build society changed throughout prehistory – transitions we now use to define the Stone, Bronze, and Iron Ages – we are now in the midst of yet another materials transition. Only this time, the change we need lies not only in what materials we extract, but also how we extract them.
The challenge within the challenge
To transform our economy into one that is circular, lean, inclusive, and clean (CLIC®), we must render our Energy and Land & Oceans systems sustainable with environmentally and socially friendly technologies. In turn, then, we must transform a third system – Materials – to deliver less of the commodities we use to power our WILD (Wasteful, Idle, Lopsided and Dirty) economy and more of the transition materials we need to build a CLIC® economy.
Transition materials will be particularly important to transforming our fossil-fuel Energy system into one that produces primarily low- or zero-carbon power. These transition materials include mined minerals such as lithium for batteries, silicon for solar panels, neodymium and dysprosium for wind turbine magnets, and uranium and zirconium for nuclear power plants.
So, as demand for old Energy-system materials like coal, oil, and gas declines, the demand for transition minerals is set to explode. The World Bank has predicted that cobalt, graphite, and lithium production will increase by 500% by 2050.1 Meanwhile, another forecast found that, to achieve the goals of the Paris Agreement, we’ll need to mine as much copper as we have in the last 5,000 years (around 700 million tonnes) by the mid-2040s. All told, it’s been estimated that we’ll need over 300 new transition mineral mines by the end of the decade to avoid a shortage that could threaten the momentum of the Sustainability Revolution.2
Despite this slow-moving explosion in demand, we can still mine the transition minerals we need without mining more materials overall. We estimate that a fossil-fuel Energy system needs around 27 times more extracted materials than an equivalent clean Energy system.3 As such, transitioning from a fossil fuel to a clean Energy system will, ultimately, significantly reduce net resource extraction.
But some challenges won’t solve themselves. We must mine transition minerals far more sustainably than we’ve mined other commodities. And we must do so while maximising resource efficiency, opting for bio-based alternatives where possible, and recycling more.
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We can’t eliminate emissions by producing emissions
The primary objective of the Energy transition is, of course, to reduce emissions while maintaining and improving energy access and security. But if the concurrent Materials transition isn’t done right, transition minerals themselves have the potential to become a significant source of emissions.
Compared to extracting other materials, mining transition minerals is much more energy-intensive. Therefore, wherever we get that energy by burning fossil fuels, it is also more emissions-intensive. And although we’ve yet to extract enough transition minerals to make their mining a significant source of emissions, that’ll soon change as demand for these minerals sky-rockets – not to the extent that they’ll wipe out the benefits of a clean Energy system, but certainly enough to put environmental goals under pressure. Before that happens, then, we must transition to more sustainable mining processes.
Unfortunately, for various practical reasons, the mining industry seems to be favouring new processes that actually need more energy. For example, we currently get most of our lithium from the so-called Lithium Triangle that spans Argentina, Bolivia, and Chile via brine-based recovery. But now, benefits like more secure supply chains and water savings are enticing many producers to shift towards concentrate production from hard rock in countries like Australia – a process that’s currently three times more emissions-intensive.4
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Despite these concerning trends, industry is certainly developing more efficient, energy-productive technologies that are proving to be more economic. Several market-driven initiatives are encouraging producers to make voluntary environmental impact disclosures, while over two-thirds of the 20 largest mining companies have now set targets to reduce their emissions by the end of the decade. But given the urgent need and accelerating demand for transition minerals, we’ll also need governments, investors, and other stakeholders to expand initiatives that incentivise less emissions-intensive processes and enforce emissions accounting and reporting standards throughout the industry.
We can’t build a sustainable energy system with unsustainably mined transition minerals
Mining transition minerals also damages the environment in other ways, such as through land use change, biodiversity loss, water depletion and pollution, and air pollution.
Just one example of the unsustainable methods used to mine rare Earth elements entails putting topsoil containing the target ore into a leaching pool. Toxic chemicals are then added to separate the element from the ore, which often escape into groundwater and the atmosphere. Once the element has been extracted, the residual slurry of toxic chemicals, salts, and radioactive materials – called tailings – are usually moved to a dedicated storage pond. On a good day, these tailings ponds also have a habit of leaking into the environment.
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On a bad day, things can get a lot worse. In the state of Minas Gerais, Brazil, a few miles east of the city of Brumadinho, one such day occurred on 25th January 2019. At 12:28 pm, the Córrego do Feijão tailings dam collapsed, unleashing a toxic mudflow of around 12 million cubic metres of tailings. The wave destroyed everything in its path, starting with the mine’s administrative buildings where many employees were enjoying lunch in the cafeteria. The mud then engulfed a section of railway, burying a bridge, three locomotives, 132 wagons, and several workers; before continuing on to the small community of Vila Ferteco. After travelling over five kilometres, the torrent finally flowed into the Paraopeba, a river that supplies over a third of the Greater Belo Horizonte region’s water. 270 people were killed.5 6
Since that day, communities located up to 120 kilometres away have been affected by pollution. The city of Brumadinho lost a great deal of its agricultural land, while the government of Minas Gerais concluded that raw water from affected sections of the Paraopeba was unsafe for human or animal consumption.
A lesson learned?
Of course, the Brumadinho disaster should never have occurred. However, it did serve to bring the dangers posed by tailings – especially when they’re improperly stored – to international attention.
As a result, the United Nations Environment Programme (UNEP) and UN Principles for Responsible Investment (UNPRI) co-convened a programme that, four years later, led to the founding of the independent Global Tailings Management Institute (GTMI) to manage the implementation and enforcement of the Global Industry Standard on Tailings Management (GISTM).7 This kind of international cooperation will be crucial to ensuring that producers do everything they can to reduce the harmful environmental impacts of mining – whether they’re the ongoing effects of particular processes, or one-off incidents like the Brumadinho disaster – while encouraging the development of more sustainable mining practices.
But there is another crucial dimension to the transition mineral sustainability challenge: the social impacts of mining.
The need for community buy-in
In more and more countries, the law requires producers to obtain free, prior, and informed consent from local people before beginning a mining operation, especially on or near indigenous land. But many communities near existing mines claim that these standards were never met, with often disastrous consequences – including the Brumadinho disaster. And with population displacement, corruption, deaths and injuries to employees and local people, and exploitative practices like child labour all potentially on the menu, it’s little wonder that getting local buy-in is often one of the most difficult aspects of opening a new mine.2
Read also: Indigenous communities – on the frontline in the fight to protect tropical forests
In the last few years, several international initiatives have emerged to try and tackle these social impacts. For instance, organisations like the Organisation for Economic Co-operation and Development (OECD) and the World Bank now facilitate inter-governmental collaboration around the development of more sustainable mining and supply chain practices. But there remains little in the way of truly co-ordinated international policymaking in this area, much less an overarching international framework to govern the mining of transition minerals.4
To make progress in this area, a recent report by the International Energy Agency (IEA) suggested that a high-level forum could be established to co-ordinate the standardisation of environmental and social mining requirements. The IEA also believes that its energy security framework could serve as a model for an equivalent transition minerals framework, which would give countries what they need to reduce the environmental and social impacts of mining these materials while also securing their supply.4
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Governance matters
Meanwhile, many countries disproportionately rely on mineral exports for their revenues, which can lead to underinvestment in economic diversification and, in turn, vulnerability to risks associated with mineral price fluctuations. In addition, many mineral-producing nations are more likely to suffer from corruption, which also tends to reduce the benefits and increase the risks of mining to their citizens – especially those living or working in and around mines.4
Fortunately, more and more policymakers in exporting and importing countries are realising that better institutional and legal governance are essential to addressing these issues, so that new mines can be warmly welcomed instead of justifiably feared. In particular, the IEA report emphasises the potential benefits of international collaboration and local institutions to the expansion of robust transparency practices, which would go a long way towards highlighting corruption and other risks.4
The need to take the lead
Those directly affected by mining are joining a growing chorus of consumers and investors in pressuring mining companies to take sustainability issues more seriously, creating new risks to producers’ reputations, access to capital, and legal liabilities. In other words: there is now a compelling business case for mining companies to treat sustainability, community buy-in, and economic viability as interdependent. To do this, mining companies must implement the policies, project management best practices, and innovation required to address these three issues.
In particular, the IEA points out that more effective due diligence will enable companies to identify, assess, and reduce supply chain risks while delivering more traceability and transparency. Meanwhile, environmental and social impact assessments (ESIAs) are a valuable tool for evaluating the potential effects of various approaches to a mining project, including the trade-offs between a range of environmental goals. Once the assessment is complete and approach selected, environmental management plans (EMPs) can help optimise the project’s sustainability by documenting how the company will meet its regulatory requirements while minimising any negative effects on the surrounding area.4
Re-thinking tomorrow’s mine
But there’s only so much you can do to reduce the environmental impact of today’s mining processes, many of which, as we’ve seen, are inherently unsustainable. To avoid a scenario in which transition minerals contribute to the very problem we need them to solve – emissions – producers must invest in the research and development that will ultimately enable them to mine transition minerals using sustainable fuels, low-carbon electricity, and more energy-efficient processes. This is particularly important for refining and smelting processes, which are highly energy-intensive. One end-to-end simulation of a typical copper-mining project found that a combination of electrification and clean energy could enable such an enterprise to produce over 80% fewer emissions.4
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New mining processes must also reduce other environmental impacts. For instance, scientists at Cornell University are currently exploring how to programme microbes to make acids capable of leaching transition minerals from ores or even e-waste, which could open the door to biomining and enable producers to ditch the toxic chemicals. Biology could also prove useful in agromining, which uses so-called hyperaccumulative plants to absorb and store transition minerals from the soils they’ve rendered unsuitable for food crops. One day, we might even reduce the environmental effects of mining on our planet by extracting minerals in outer space.
Until sustainable mining processes are ubiquitous, material substitutions will be essential to reducing the environmental and social impacts of mining transition materials. For instance, when car manufacturers wanted to reduce their exposure to the volatile prices and ESG issues associated with the raw materials they used to make batteries, like cobalt and nickel, they switched to lithium iron phosphate (LFP) batteries. The only transition mineral you need to make such a battery is lithium. Between 2019 and 2022, this single change reduced battery-related demand for cobalt by 50%.3
The role of investors
Right now, it looks as though many, if not most, of the 300 new transition mineral mines we need are unlikely to be operational by 2030. Only a few of the 25 or so untapped mineral deposits discovered annually attract enough investment for anyone to mine them, and not just due to sustainability concerns or justified resistance from local communities.2
If you want to open a mine, you’ll need at least ten years and, on average, somewhere in the region of USD 500 million to USD 1 billion. You can’t mine anything during that decade, but you’ll still need a great deal of capital and labour to develop the mine. You’ll also have to successfully navigate any environmental, social, and political issues that might arise in the meantime, many of which could derail the entire project.2
Given these challenges, investors have a vital role to play in securing the supply and stabilising the prices of transition minerals while incentivising sustainable mining projects. However, given the long lead times and challenges that could arise along the way, investors will need to exercise long-term, strategic thinking to ensure that the project they’re investing in is viable, adheres to all environmental and social regulatory requirements, and exhibits meaningful innovation and progress around sustainability. At the same time, investing in projects designed to expand production at existing mines while making them more sustainable will go a long way towards reducing or avoiding any supply shortfalls.2
A significant long-term opportunity
The market value of demand for traditional materials like steel, coal, and cement is already down to USD 1.3 trillion, with a further reduction to USD 625 billion forecast by 2050. Meanwhile, the market value of transition-related demand has already hit USD 1.8 trillion. By 2050, it’s predicted to hit USD 2.7 trillion.3
Despite the challenges, then, transition minerals represent a significant investment opportunity: one that we at Lombard Odier are helping our clients exploit through our Transition Materials strategy.
We designed this strategy to benefit from the long-term growth potential of a diverse range of commodities that will be essential to the Energy transition, while excluding those that will suffer as a result – especially fossil-fuel related commodities. It incorporates the results of proprietary research by our experts on the likely future supply and demand dynamics of energy-related commodities, as well as hedges against supply risks and inflation.
As we’ve seen, we must carefully direct capital to the right projects if it is to support, rather than hinder, the transition to a sustainable Materials system. And yet, the clock is ticking on our environmental goals, especially those of the Paris Agreement. If we’re to avoid falling victim to mining’s long lead times, we need around USD 2 trillion of capital expenditure in this decade alone to sustainably secure the minerals we need before it’s too late.
So, we must be cautious. But we must also act with urgency.
1 The World Bank (2020) ‘Mineral Production to Soar as Demand for Clean Energy Increases’
2 CSIS (2023) ‘The Indispensable Industry: Mining’s Role in the Energy Transition and the Americas’
3 Lombard Odier (2023) ‘Future Electrification Fund: A white paper to demonstrate the scale and financial attractiveness of the transition towards an electrified energy system’.
4 International Energy Agency (2021) ‘Sustainable and responsible development of materials’
5 The New York Times (2019) ‘A Tidal Wave of Mud’.
6 Globo.com (2019) ‘Tragédia em Brumadinho: 165 mortes confirmadas, 160 corpos identificados; 155 desaparecidos’.
7 United Nations Environment Programme (2023) ‘New Independent Global Tailings Management Institute announced to drive mining industry safety standard’.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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