Q&A with John Meyer, Partner & Mining Analyst, SP Angel
It’s been an unsettled few years for commodities in general, but things are really starting to take off – particularly for clean energy metals. What have been some of the key developments that have led markets to where they are now?
Without doubt, one of the major agents of change has been Elon Musk and Tesla which is spearheading the electric vehicle revolution. Governments across the world are also passing legislation against diesel cars, and other polluting vehicles, in cities.
Biden’s stimulus plans, worth between US$3-4 trillion, are focusing on clean energy as part of their decarbonization strategy, stimulating greater investment in offshore windfarms and driving demand for clean energy metals.
The IEA recently said that governments should consider stockpiling battery metals. Do you think this recommendation is something we are likely to see being adopted?
Already, the UK is looking into stockpiling battery metals, and we expect the U.S. and China to continue to add to existing stocks of critical raw materials already in their possession. We expect Japan, South Korea and others to do the same to support the ongoing development of battery manufacturing and other emergent industries.
Chinese parastatal companies continue to bid for mining companies and processors while the U.S. is also looking to invest to secure new critical commodity supply. Other nations are also looking to secure sources of minerals to support the development and investment in the critical components for electric vehicles and wind turbines. Rare earth supply is of particular concern for permanent magnet manufacturing with the UK and Japan looking at investment in deep-ocean ventures for the recovery of polymetallic nodules.
We are likely to see far more M&A activity as miners move to expand and consolidate production
How do you foresee the ongoing political dispute between China and Australia affecting clean energy commodities, such as China’s unofficial ban on copper imports from Australia? Will this hamper EV development in the region – or could China be a major disruptor of global markets?
China may continue to restrict imports and changing tariffs as it exerts political influence over Australia. But we suspect this is purely a taste of the dramatic squeeze it could exert on supplies of rare earths and permanent magnets, if it so chooses. China has the potential to critically disrupt Western manufacturing, a move that would enable its producers to gain even greater market share as well as a substantial advantage over its rivals in electric vehicle manufacturing. China is already ahead in government support for semiconductor manufacturing with many manufacturers now suffering as a result of chip shortages.
The outlook for copper market supply and demand fundamentals has shifted dramatically since early 2020. However, given the recent surge in price, what’s your view on potential M&A activity in the copper space for the year ahead?
We are likely to see far more M&A activity as miners move to expand and consolidate production. We are seeing a dramatic rise in the number of joint venture proposals for new exploration projects, and we suspect any new discoveries may be quickly acquired to boost failing production at many majors.
Higher taxes and political uncertainty in Peru and Chile is likely to direct investment into other regions until stability returns.
In terms of copper exploration, where do you see the most exciting drilling activity taking place in the next few years?
We see the most active exploration focused on the principal production regions of Zambia, North America, Chile, Ecuador, Australia, the DRC, depending on government legislation and taxes. A new focus on the discovery and delineation of near surface copper oxide projects which are relatively quick and simple to access should help to restore the supply demand imbalance which has raised prices and looks likely to persist for some time.
What will be some of the key challenges to producing enough copper to meet demand over the next decades, particularly in light of mass EV adoption and governments aiming to achieve net-zero carbon emissions?
Many larger copper mines are nearing the end of their planned life spans and face the challenge of maintaining production rates and safety in limited areas.
Rising costs, partly driven by inflation in the mining industry, will also hit many more marginal producers, and may even squeeze some out of business if they are unable to invest in their future development.