Oil and gas production is rising, and coal remains the world’s most intensively mined commodity. But, to transition the world’s energy supply to more sustainable alternatives, mining companies are racing to open new frontiers of extraction for metals such as lithium, nickel, cobalt and copper — which will be crucial to building batteries and powering other green technologies.
Demand has surged for these critical minerals, as well as for rare earth elements such as neodymium, which is used to build powerful magnets for wind turbines. Demand for copper, too, is expected to surge by 50 per cent by 2040, while lithium will see eightfold demand growth in the same period.
Consultancy Wood Mackenzie estimates that about $4.1tn needs to be spent on mining, refining and smelting these critical minerals, in order to meet global climate goals.
Any persistent shortage in supply of the minerals could cause a bottleneck in the clean energy transition. However, with key metals concentrated in regions that have become battlegrounds for green resources, increased geopolitical competition could help bring more of them to market.
China currently dominates both the extraction and refining of critical minerals, controlling more than 80 per cent of processing. The US defence industry has complained for decades about this exposure to Chinese supply chains for the minerals, but their uses in green goods have more recently brought the issue to mainstream attention.
National security concerns are also likely to make the issue a priority in the incoming administration of US President-elect Donald Trump, with several bills on critical minerals and rare earth elements receiving bipartisan support.
Retail investors seeking exposure to these in-demand commodities might consider listed mining companies such as Glencore, BHP and Anglo American.
But, while the metals they mine have received outsized media attention, the companies can be a volatile investment pick. VanEck’s Rare Earth and Strategic Metals ETF, a metals-focused fund launched in 2021, was the single worst-performing ETF in the first quarter of this year, according to research company Morningstar.
George Cheveley, portfolio manager at asset manager Ninety One, says that while “a lot of attention is often paid to important but niche areas such as rare earths and lithium”, familiar metals such as copper, aluminium and steel will be more “critical” to the success of the energy transition.
“Without the investment in supply of these major metals, there will not be enough infrastructure to support the energy transition,” Cheveley adds. “For investors, these metals provide a greater opportunity to deploy capital in proven businesses with diversified asset bases and the promise of strong risk-adjusted returns if the transition is successful.”
Wealthy nations’ response to China’s influence has been to form the US-led Minerals Security Partnership (MSP) — a coalition of 14 governments and the European Commission, which has emphasised its intention to pursue responsible labour and environmental standards.
But disentangling supply chains will be tricky. “China is the biggest purchaser of anything that’s dug up in Africa,” says Chris Vandome, a South Africa-based researcher with think-tank Chatham House. He point out that big US- and UK-based mining companies depend on China for processing.
Some Gulf nations seeking to diversify away from oil and gas have also made inroads into mining ventures spanning Africa and central and south Asia.
Saudi Arabia hopes mining will contribute $75bn to its economy by 2035, and the UAE’s International Resources Holding recently acquired a 51 per cent stake in Zambia’s Mopani Copper Mines. Developing countries including Indonesia and mineral-rich states in Africa have seized the opportunity to create jobs for their large young populations, as well.
For example, in the Democratic Republic of Congo, small-scale and artisanal mining employs 2mn workers, according to Delve, which provides data on this sector. And more than 70 per cent of the world’s cobalt now comes from the DRC. However, campaigners say there is a need to raise labour standards in a notoriously murky sector. In addition, labour scandals, including the use of child labour, represent a business risk that could, potentially, disrupt supply.
“Artisanal mining employs thousands of people in a region with very limited economic opportunities,” says Papa Daouda Diene, a Dakar-based analyst with the Natural Resource Governance Institute. “The solution is not to eliminate these activities, but to formalise them. In order to ensure stable supply, he says, countries should ensure that workers in producer countries benefit. Otherwise, projects could face tax disputes, export bans and strategic litigation.
Governments and financial institutions in the US and Europe have already set a variety of requirements for environmental, social and governance (ESG) compliance, including the long-standing Equator Principles — a benchmark used by the financial industry. However, with so many new laws coming into force, such as Europe’s carbon border adjustment mechanism — which taxes some greenhouse-gas-intensive imports — and a new due diligence directive, mining groups have complained that compliance with an alphabet soup of ESG standards could harm competitiveness.
Supporters retort that ESG risks are also financial liabilities — particularly in resource-rich regions where climate change is already exacerbating conflict. The diamond industry was long plagued by association with violence, with so-called “conflict diamonds” mined and sold to finance war in Africa.
Andrew Gilmour, executive director of the Berghof Foundation, which seeks to promote peace, wrote in the FT in July that accelerated demand for critical minerals driven by global warming now threatens, without oversight, to create a new class of “conflict renewables”.
