Until recently, ESG investors avoided the mining industry. Fairly or not, to many it had a reputation for environmental degradation, child labor, political corruption and neo-colonialism.
Yet now, the entire energy transition depends on this industry. Without massive investments in base metals and key minerals, Europe and North America will fail to meet their carbon emissions targets and face a new form of energy insecurity.
Although ESG investors may hesitate to fund mining as it exists, a cleaner and safer industry is coming. As an investor in this space, I see how various startups and mining majors are working to address the industry’s environmental, social and geopolitical shortcomings. Can they clean up mining to the point where ESG investors would fund the massive capital requirements, Western governments would welcome it home and production would expand enough to power the energy transition?
As is usual with climate change, the window to solve our mining conundrum is short. And renewable energy value chains aren’t renewable. Rather, they depend on massive inputs of finite metals and minerals that are not easily accessible or equally distributed on the planet.
First consider the scale of the supply problem. To limit global temperatures within 1.5° C above preindustrial levels, the world needs a fivefold increase in base metal supply by 2040 according to analyst firm Wood Mackenzie (which it deems “mission impossible”). Production of aluminum, copper, zinc, high-grade nickel and lead must increase immediately. Likewise, the World Economic Forum expects production of minerals like lithium, graphite and cobalt to increase fivefold by 2050 to meet demand for clean energy technologies. Why, exactly?
According to the International Energy Agency, an onshore wind plant requires nine times more metals than an equivalent gas-fired plant. The electric vehicle (EV) that wind plant powers requires six times the mineral inputs of a combustion-engine vehicle, due in large part to the batteries. The mining industry has made clear that it cannot meet cleantech’s demand with its available technology and capital. Indeed, shortages of lithium already threaten the European Union’s 2035 ban on new sales of combustion-engine vehicles.
Moreover, the world’s mineable minerals are not conveniently located. 64% of the known cobalt reserves—critical for extending the range and longevity of EV batteries—are in the Democratic Republic of Congo (DRC). China, known for its dominance in rare earth elements, is also rich in three of the five minerals needed for photovoltaic cells: gallium (73% of known reserves), germanium (67%) and indium (57%). Even in areas known for their mineral endowment, discovery is challenging and takes a long time.
Refining and manufacturing capacity for green minerals isn’t distributed equally, either. China, again, refines 70% of the world’s lithium, 84% of its nickel and 85% of its cobalt and controls almost 80% of global battery cell-manufacturing capacity, as The Economist reports.
International trade clearly is necessary to meet the mineral demands of the energy transition, but geopolitics could interfere. Just as conflict in Ukraine limited access to Russia’s high-grade nickel (20% of world supply), conflict in the Taiwan Strait could throttle the mineral trade. Meanwhile, our government here in Canada has permitted Chinese companies to buy up our critical mineral assets, including Canada’s only operating lithium mine.
Emissions and NIMBYs
In an ideal world, Western countries would protect the energy transition by mining and refining at home and then trading. However, the mining and metals industry already accounts for 8% of global carbon emissions. Expanding the industry as is would undermine (no pun intended) decarbonization and probably trigger a backlash.
Traditional mining is inherently a messy business. For the last half century, mining outfits have found and evaluated deposits using increasingly sophisticated techniques informed by geophysics. Still, mining continues to require the breaking and moving of rocks in order to separate ore from waste. This generates vast amounts of coarse waste rock and finely ground rocks (aka, tailings) that can generate acid and release toxic metals for many generations.
Today, the industry often does a good job of recycling and treating water, but toxic water can still result from the decay of waste over time. Moreover, leaks or breakages at tailing dams, among the largest man-made structures on Earth, can be both deadly and ecologically destructive, as Brazil’s Brumadinho dam disaster tragically showed in 2019.
Although Western, green NIMBYs (not in my back yarders) want EVs on every road, they don’t want those EVs made with locally sourced metals given the risks. If pushed, most would prefer to expand existing mines—indeed, that is how we’ve avoided running out of metals despite dire predictions of shortages dating back to the 1972 report from the Club of Rome, The Limits to Growth. The downside is that mine expansions usually result in lower grades of ore, meaning we use even more diesel and water to extract the same amount of metal—not ideal if we’re aiming to decarbonize mining.
Investors, understandably, loath the idea of funding new mines in countries like the DRC, where miners often work in inhumane conditions and armed groups threaten their investment. Countries like Bolivia, where in 2007 former President Evo Morales nationalized the mining industry, aren’t appealing either. And that brings us to the reinvention of mining technology.
Creating a Smart, Sustainable Mining Industry
The energy transition now hinges on mining startups and established players with a knack for innovation. Their task is to transform mining such that responsible investors, NIMBYs, governments and mining operators will be on board with expanded domestic extraction. To illustrate the challenges and potential solutions, I will reference actual companies (including several in which my company Chrysalix has invested: MineSense, VerAI, Novamera and Rithmik), while noting that some mining majors are working in-house towards smarter, sustainable mining.
The first challenge is to make existing mines less carbon intensive. MineSense, for example, rigs the scoops of excavation machines with sensors that distinguish waste rock from good ore. That way, 30% less rock is transported and processed, reducing use of diesel and water and processing chemicals. Mining equipment manufacturers such as ABBABB +1.7%, Epiroc and Sandvik are electrifying the industry with battery-powered mining vehicles that can move metals for the battery-powered economy. Rithmik uses artificial intelligence and machine learning (AI/ML) for predictive equipment maintenance, resulting in better engine performance and lower diesel fuel consumption.
Second, to reduce impact of exploration, the mining industry needs new technology to pinpoint worthwhile deposits. VerAI Discoveries does this using AM/ML to develop a geological map of concealed deposits. KoBold Metals, backed by Jeff Bezos, Michael Bloomberg and Bill Gates, is using AI-powered exploration to find cobalt and nickel under Greenland’s melting ice. OreFox, Imago, Goldspot Discoveries and Exiro Minerals, likewise, identify targets by applying AI/ML to massive sets of geological data.
Third, the mining industry needs cleaner, scalable ways to extract metals and minerals. In the base metal space, Jetti Resources has a low-emissions process to extract copper from low-grade primary sulfides, which are currently ignored by copper miners. Novamera uses “surgical mining” techniques combining sensors, AL/ML and drills to mine narrow veins, minimizing waste and to a large extent eliminating the need for open pit mines. A slew of lithium startups—EnergyX, Lilac Solutions, Medaro and Summit Nanotech, among others—are promising cleaner and faster ways to attract lithium, whether from hard rock or brine pools.
Fourth, we need to increase investment in local metals and minerals refining. This part of the industry is dominated by China and powered by coal. President Biden’s Inflation Reduction Act will help in this regard. It includes consumer tax credits for EVs, but only if the batteries use a qualifying percentage of metals extracted and processed in the US or a free trade partner country (40% today, 80% in 2027).
Fifth, we need better ways to manage mines and minerals at the end of their lifecycle. Sortera Alloys, with its AI-driven system for sorting mixed scrap metals for reuse in manufacturing, shows much potential here. Travertine Tech also has a circular economy play: capture carbon by upcycling sulfuric acid from mine waste and then use that acid for the extraction of lithium, nickel and cobalt. Nth Cycle, in kindred spirit, is developing technology to extract cobalt, nickel and manganese from tailing ponds and low-grade ore.
ESG investors may not be ready to fund mining operations directly, and that’s fine. But what could be more ESG than investing to transform a historically dirty industry that, in a twist of fate, is now vital to cleaning up our planet?
Energy Independence Starts With Metal Independence
Throughout the 20th century, governments shaped history in their attempts to secure fossil fuels. In North America and Europe, “energy independence” became a battle cry of policymakers and pundits who lamented their dependence on authoritarian regimes for energy security.
On our current course, the 21st century will perpetuate that dynamic with metals and minerals. Mining independence is the new energy independence. Without a revolution in clean mining and domestic enthusiasm for it, Western nations will find themselves as dependent on China and the DRC as they were on OPEC.
A cleaner mining industry in the West is a matter of climate responsibility, economic resilience and geopolitical security. To demand decarbonization but decry mining is folly. It’s time to put our money where our metal is.