Brighter prospects as mining sector transforms towards net zero

KPMG
  • Critical minerals transformation to drive activity in 2022
  • Australia emerges as a critical minerals refining hub
  • Strong decarbonisation focus in resources sector as 87 percent of mining leaders flag net zero by 2035

Metals and mining companies are vital if the world is to reduce its reliance on fossil fuels according to the latest global report from KPMG, “Sustainability on the horizon – the prospects of a net-zero future for metals and mining companies”. The report captures the views of global mining leaders with a call to accelerate the production of minerals needed to help reduce the carbon footprint – and sets the scene for Australia’s critical minerals to play a vital role in a decarbonised future.

“Our latest report captures the challenges and opportunities for the global mining sector in getting to net zero,” said Trevor Hart, Global Mining Leader KPMG. “Notably, 29 percent of the 322 global mining executives surveyed said they planned to achieve a goal of net zero emissions by 2025, whilst a further 40 percent said by 2030. A total of 87 percent of the miners surveyed said they will have delivered net zero emissions by 2035.”

Trevor Hart emphasised that at the same time, miners have to transform their own operations to conform with increasingly important ESG considerations, while reducing their carbon emissions to net zero – involving clear decarbonisation pathways. “The industry realises that leading by example in decarbonising and reducing environmental impact is fundamental to trust of the sector.”

“Over half of the companies we surveyed are large with $10 billion+ in market capitalisation,” said Mr Hart. “More than 40 percent of the survey cohort said they will accelerate investment, opening the prospect of transforming the industry in ways that help the global economy meet its ESG goals. Yet only 30 percent said they have integrated ESG goals into enterprise strategy. Others admit they have a long way to go. We see a picture of an industry that has challenges and is undergoing rapid transformation but which is responding quickly – and has bright prospects.”

Critical minerals focus for 2023

Nick Harridge, National Mining and Metals Leader at KPMG Australia spoke to the challenging but largely positive outlook for Australian mining when he said the economic shift toward a low-carbon future was being seen by mining executives as an opportunity for metals and mining companies.

“The Australian experience reflects the KPMG report where more than one third of respondents predicted they will significantly change their portfolio of products toward commodities and metals used to accelerate the transition to cleaner energy,” said Mr Harridge. “Locally, we continue to see critical minerals as the centrepiece for the sector in 2023. Australia has an abundance of the five key critical minerals: lithium, nickel, aluminium, cobalt and copper together with a number of rare earths and mineral sands. The key demand story is highlighted with lithium.”

Battery minerals and EVs

KPMG says that given the current transition away from fossil fuels, considerable minerals will be needed, driving demand for mining output. In considering electric vehicles as just one of the key users of lithium for batteries, estimates show there are around 1.4 billion cars in the world, of which only around 15 million, or approximately 1 percent, are electric vehicles.

KPMG estimates that more than 2 billion EVs will need to be manufactured to accommodate world demand and fully transition away from internal combustion engine vehicles by 2050. The pace of EV sales is increasing with nearly half of the current stock of EVs sold in the last year. But the transition away from fossil fuels will continue to require a rapid increase in the number of EVs manufactured. On that basis the production of critical minerals used in battery technologies will also need to increase substantially.

Lithium Demand

Global production of lithium was around 550kt of lithium carbonate equivalent and that is forecast to rise to 1,000kt by 2024. At that level it would take around 100 years to produce enough lithium to have 2 billion lithium-ion EVs in service. This ignores other uses of lithium and does not consider the potential to meet some of this demand through circular minerals, but still highlights lithium mining is in its infancy.

“Lithium investment is really just beginning to meaningfully increase in Australia,” said Nick Harridge. “Mining investment is increasingly turning towards it and other critical minerals. Given that the price of lithium has surged in the last year, the incentive to invest further in lithium production and circularity remains very high.”

“We estimate lithium production would need to grow by around 12 percent per year every year until 2050 to produce enough of that mineral to have two billion EVs on the roads. Given that lithium production is expected to grow at nearly double that pace in the near term, and that lithium investment is likely to accelerate, rather than slow, that pace of growth over time is reasonable. If we assume that lithium production continues to increase by 20 percent per year until 2030, then production would need to rise by around 7 percent per year thereafter to meet EV demand – with other producers coming online, the pace of growth in Australia could slow to this and the world would still be able to meet total demand for lithium.”

Technology innovation

In addition, KPMG says there are likely to be improvements in technology which will reduce the volume of lithium required in car batteries and other technologies which will provide a partial offset to the level of lithium required.

KPMG’s view is that alternative technologies, whilst not yet of commercial scale, highlight a counter to lithium demand. Yet overall, lithium demand will remain very high in the near term and strong investment will be needed to ensure that production of new and circular minerals keeps up with demand, but the required level of production is attainable.

Australia as a lithium refining hub

“Australia currently produces just under half of the global supply of lithium. This share is expected to remain broadly stable in the near term,” said Mr Harridge. “What’s more, the significant volume of investment that is set to take place should support supply in Australia over the next decade. We see the incentive to increase lithium mining is set to rise and that means not just production but also refining.”

Mr Harridge emphasised that it is not just about Australia increasing refining capacity – but also conducting its refining activities with greener credentials – using renewable energy for instance. Australia has historically exported unrefined lithium to China which refines the lithium for use in batteries. But Australia is now investing into lithium refineries.

By 2024, Australia should have about 10 percent of global lithium hydroxide refining capacity, rising to about 20 percent of global lithium refining by 2027. Given the higher price for refined lithium – even more for refined lithium with sustainability credentials – the increase in lithium refineries in Australia should help support investment in lithium mining in the years ahead. We therefore expect Australia to maintain a high share of global supply of lithium in the decades ahead.

Net zero outlook for mining

KPMG’s “Sustainability on the horizon” report finds that more than three quarters have set net zero targets for carbon emissions. At the same time, 69 percent say they aim to achieve them by 2030. Integrating ESG goals into corporate strategy entails ensuring C-level executives lead the effort. The heavy lifting on sustainability will be delivered by an organization’s culture, on which a sustained focus can deliver the best outcomes.

Dr Cle-Anne Gabriel, National Leader Decarbonisation Transformation at KPMG Australia noted that metals and mining companies are ambitious about their net-zero targets: “Our global report shows that more than three quarters have set a net zero objective at their companies and of those who have done so, 29 percent expect to achieve it by 2025 and another 40 percent by 2030. Executives say the most effective measures that will help their companies meet net zero targets are, first, to ensure their company communicates clearly and fully to stakeholders and, second, to see to it that net zero objectives are incorporated into overall corporate strategy.”

Her view is that this is about setting clear decarbonisation pathways both in the scope of what a company is producing and also for the operation of the business itself. As with ESG objectives, miners face a number of obstacles to reaching their net zero goals, the largest of which are the difficulty in measuring progress and a lack of resources to bring them about. Investment in new technologies to help companies reach net zero holds promise, but 58 percent admit they either have a long way to go in using these technologies or haven’t even started to plan ahead.

Dr Gabriel said that demand for critical minerals for decarbonisation was already outstripping supply. “The supply of minerals essential for decarbonisation, and for energy sustainability and security, is already an area of geopolitical rivalry, and will continue to be, creating unpredictability in markets,” she said. “Looking to the future, partner countries are likely to be prepared to pay a premium for “friend-sourcing” their supply of these minerals to ensure reliability, and sustainability. That means there is potential for Australia – a country regarded internationally as a safe democracy with a stable financial market and strong trade credentials seen- to move into the supply of critical minerals essential for decarbonisation.”

Highlighting that balance will be needed, she said that, at the same time, Australia will need to ensure any delivery is environmentally and socially sustainable – a challenging situation.

About KPMG’s Sustainability on the Horizon Report

Sustainability on the horizon: The prospects of a net-zero future for metals and mining companies report is based on a survey of 322 metals and mining executives around the world, more than half of whom work at companies with annual revenue of more than $10 billion.

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