Mining firms’ cautious spending threatens shift to green energy

Metal prices are rising, but mining companies are not spending. Their restraint could keep supplies tight and exacerbate shortages of raw materials such as copper and zinc that are vital to the transition from fossil fuels.

Project expenses by 10 large mining companies, including

Rio Tinto Plc,

Rio -5.14%

BHP Group Ltd.

And

Glencore PLC,

GLNCY -1.05%

This year and next year is expected to be around $40 billion, according to data compiled by

bank of america corp,

The bank’s figures suggest that this would push capital expenditures down from the 2012 peak to close to $80 billion.

much like the oil industry, mining companies Responding to investor pressure Prioritizing dividends and sharing buybacks rather than heavy spending. A recent push to limit the area’s environmental damage also slashed spending.

Lower spending set the stage for the recent rally in copper and iron ore, the main components in steel. Both ingredients have grown by over 40% in the past two years, cost escalation For solar panels, wind turbines and batteries. This trend threatens to hinder the transition to renewable energy, driving the growing demand for these metals.

Rising iron-ore prices are contributing to the higher cost of solar panels, wind turbines and batteries.


photo:

Ian Waldy / Bloomberg News

Manufacturers have taken some steps to increase the supply of specific materials such as lithium and cobalt which are important ingredients in batteries, but not enough to meet the expected shortfall.

Despite seeing some of their highest profits in a decade, many mining executives remain cautious due to rising fuel and equipment costs, high interest rates and the challenges of developing deposits in emerging markets. Seeking a larger share of the industry’s earnings,

“Things are just piling up which is increasing supply constraints,” said Richard Adkerson, chief executive of the copper miner.

Freeport-McMoRan Inc.,

FCX -3.01%

, said on the company’s most recent earnings call. Most of Freeport’s spending is for a copper and gold mine in Indonesia, but the company recently forecast that capital expenditures will drop in 2023. Freeport recently launched a more aggressive buyback and dividend program.

Loss of demand due to the coronavirus lockdown in China, the world’s largest consumer of the industrial metals, has led to a fall in copper prices recently, but has been rising sharply over the past few years. Prices of metals such as lithium and cobalt that count batteries as a major source of demand grew even faster,

Restricted spending by oil and gas companies have contributed to higher prices around the world, weighing on economies. Some investors are more concerned about long-term metals shortages as consumption is expected to rise in the energy transition as oil and natural gas use declines.

Total global mining capital expenditure, which includes small firms and state-owned enterprises, has averaged about $100 billion annually over the past decade. Bank of America analysts say mining companies need to spend $160 billion a year to make the energy transition from fossil fuels to limit the effects of global warming.

“It could become a crisis if we don’t make adjustments,” said Michael Widmer, Bank of America’s head of metals research.

auto manufacturers like

General Motors Company,

And

Tesla Inc.,

are partnering with producers to ensure the supply of essential metals, but many industry executives say existing agreements won’t be enough to meet their battery needs. Some analysts say automakers need to be more aggressive in increasing supplies to mining companies or investing directly in the metals supply chain.

im 565931?width=700&height=439

A factory that makes lithium batteries for cars in China’s Jiangsu province last year. Lithium prices have risen.


photo:

str/agence france-press/Getty Images

Environmental concerns are holding back many projects supported by governments. Earlier this year, Serbia revoked Rio Tinto’s license involving a lithium investment of about $2 billion after protests over potential environmental damage. Content startups in the US, from North Carolina to Minnesota, are struggling to obtain the permits and support needed to advance projects.

In response, some metal producers such as the iron-ore company

Fortescue Metals Group Limited,

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They are hoping to power their operations using solar or wind power, batteries and hydrogen fuels made from renewable energy so that they can reduce their environmental footprint.

Investors are also backing battery-recycling companies that Can harvest material from old batteries and reintegrate them into global supply chains. Glencore announced $200 million debt investment last month

Li-Cycle Holdings Corp.,

Which will be converted into equity on fulfillment of certain conditions.

share your thoughts

What should mining companies do to support the transition away from fossil fuels? Join the conversation below.

But unless spending on new mines increases, many analysts see a more serious brake on clean-energy progress.

“It’s going to be a huge issue,” said CEO of John Evans.

Lithium America Corp.,

A startup working to produce lithium in Nevada that also co-owns a project in Argentina with a Chinese partner.

Write to Amrit Ramkumar [email protected]

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