There has been a lot of speculation in recent months that the commodities market is on the verge of a fourth so-called supercycle, in which a prolonged spell of increased demand could outstrip producers’ ability to keep up if new capacity isn’t quickly created.
After a decade or so of reduced commodity demand and the 2020 slowdown, many expect a rebound in 2021 as governments announce large-scale and wide-ranging stimulus packages. Much of this money will be directed towards accelerating the energy transition, joining with private wealth to create a new ‘roaring twenties’ and a boom in demand across many, but not all commodity classes.
So how should the mining industry interpret and react to these changes? Choosing the best route through volatile markets and making the right long-term decisions is central to success.
“In an environment that is likely to reward the speed of metal to market, and where the complexity of projects will increase, getting it wrong can be costly,” says Nick Bell, Global Sector Lead, Mining, Minerals and Metals at Worley. “Owners will do well to bring as much expertise to the project as early as possible, to de-risk execution and find sustainable solutions that will satisfy all stakeholders. Aligning all stakeholders from the beginning will be key.”
Building back better and greener
As the energy transition gathers pace, many commodity prices are set to shift in uneven ways. It’s likely to be challenging for those in coal, but better news for anyone involved in aluminium, cobalt, lithium, nickel, copper or graphite, to name the dominant few.
GlobalData’s latest Mining Quarterly Review, published earlier this month, indicates we are heading towards a short-term boom, with most prices heading upwards.
Forward prices across most sectors suggests these are long-term boosters. The previous commodity boom came about primarily due to Chinese growth and subsequent demand, but future demands will be much more global.
While many commodities are booming, copper is particularly buoyant. Its price up more than 80% from March 2020. This is down to both strong demand and interrupted supply in 2020. Looking ahead, GlobalData expects worldwide copper production to grow by 5.6% in 2021, supported by production from existing mines and upcoming projects in Chile, the Democratic Republic of the Congo (DRC) and Peru.
But this needs to be put in the context of soaring demand for new energy materials. Bell explains. “Copper prices are likely moving on supply anxiety, but true demand may be yet to come. If supply gap projections are correct, then we’ll need another 11 Mtpa of supply by 2030, or to put that in context another nine Escondida mines. And this is to just service the electric vehicle market, which is expected to account for 4.4 Mtpa or 13% of global copper demand. We need to look for accelerated ways to bring mines into production if we’re to have any chance in avoiding a supply gap.”
It’s time for miners to capitalise
The global vaccine rollout and a potential end to the pandemic, combined with increasing commodities prices, are helping to revive an appetite for investment in mining projects.
After falling by an estimated 6% in 2020, GlobalData predicts that the capital expenditure of the 20 leading miners will rise by 23% in 2021 to reach US$58 billion. Highlighting the scale of this uptick, this will be the highest point since 2015. It will be supported by both higher sustaining capex and greater development project expenditure after deferrals in 2020 due to COVID-19.
Bell explains the significance of this. “This is a big moment for the mining industry and getting the best information in the shortest time will help companies make better decisions. There could be considerable opportunities for those who get these decisions right and invest in the right projects, with the right minerals and metals.”
Shifting the industry’s focus to sustainability
Dips and fluctuations in the commodity market are nothing new, but the current cycle is overlaid with some extra complexities for mine operators. A new supercycle, if that’s what it turns into, will collide with a period of huge transition and change in the industry.
This change is environmental and social as much as technological. Miners have traditionally focused on extracting metals and minerals as safely and profitably as possible. But in today’s market, social and environmental costs are as important as financial costs.
Bell explains. “Reputations built over generations are easily squandered in the age of social media and rising social expectations. The need to fulfil their part of the social contract and deliver for all stakeholders is not a new concept, but it has become increasingly important.
“There are vocal pressure groups expecting action on everything from water stewardship and management to climate change and decarbonisation, to the social cost or cultural impact of mine sites. Doing the right things is as important as doing things right. This range of complex and sometimes conflicting pressures can be difficult for miners.
“They will be judged on their speed to deliver as much as what they deliver in the next cycle. Formulating a holistic plan against sustainability goals is only the start of the race. Delivering ahead of the plan is the desired solution.”
The time for a fundamental review of operations
Now is the time for miners to rethink their operations – from how they assess the feasibility of a project to how they deploy technology to boost mine productivity. This discussion must be had in a rational, robust and meaningful way.
It requires new thinking that comes from a thorough understanding of the essential elements of mine operations, from assessing orebodies to selling finished products. At every stage, miners must consider how they can optimise extraction, while minimising lifecycle impact – whether that is environmental, social or fiscal.
Bell concludes. “This is the sort of thinking and expertise that has coined the term deep domain experience. Plenty of consultants claim to be capable of offering advice, but they can lack the practical experience that comes from designing and constructing mines and associated plants and infrastructure.”
Creating a roadmap to navigate the next supercycle and identifying when to invest in the right solutions at the right time, will give miners the assurance they need to transform their businesses and re-emerge stronger.
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