The Critical Mineral Key to Energy Transition

By Jonathan Gorvett

1236 words - 4 mins read

The Critical Mineral Key to Energy Transition

Back in 2014, in the heart of the Egyptian desert, archaeologists were stunned to discover amid the building blocks of an ancient pyramid some 5,000 year-old copper piping.

Designed to drain rain water, that millennia-old guttering still worked, too, demonstrating the great resilience of the material, as well as the great genius of the pyramid builders.

Nowadays, copper is still a key metal, though not so much for conveying water as for conveying electricity.

Indeed, as countries and corporates the world over commit to a huge boost in solar panels, wind turbines, electric vehicles (EVs) and a thousand other electrical replacements for hydrocarbon-based systems, copper’s great conductivity is in the limelight once again.

Demand for copper wiring and other products is set to jump exponentially – as is demand for a whole range of other resources vital to our electric future.

Known collectively as ‘critical minerals’, these resources include copper, lithium, cobalt, nickel, manganese, graphite, zinc, platinum, and rare earths.

An electric car, for example, requires six times the amount of critical minerals as the petrol driven car it will replace. Meanwhile, each megawatt produced by a wind farm needs 11 times more critical minerals than one produced by natural gas, according to International Energy Agency (IEA) statistics.

A tsunami of demand is therefore coming for these precious resources. Yet it is by no means clear how the mining industry – long neglected in many countries – will be able to match up supply.

“To meet current global targets for the energy transition,” Jedd Townsend from the Critical Minerals Association (CMA) in London told Everose, “we’ll have to mine as much copper in the next 25 years as we have in the last 5,000.”

In other words, as much as we’ve mined since those ancient Egyptians first installed their copper piping, back in the time of the Pharaohs.

Mining for Change

While definitions of ‘critical mineral’ vary – in 2022, the US listed 50 of them, but in 2023 the European Union (EU) listed just 34 – one key risk with all of them is that their current mining is concentrated in just a few places.

Cobalt is one example. According to the US Geological Survey, in 2021, 46% of the world’s known cobalt reserves lay in the Democratic Republic of Congo (DRC), with the DRC also responsible for 71% of world cobalt production.

Other countries, too, have particular dominance. Chile, for example, is both the world’s largest copper producer and the location of the world’s largest known lithium deposits.

This gives certain governments major leverage when it comes to negotiating mining concessions, royalties and other fees. Administrations have also been known to change payment structures, local content requirements and other clauses during the lifetime of a concession agreement (sometimes even retrospectively).

According to a 2021 Maplecroft study, this ‘resource nationalism’ is one of the chief risks to critical mineral supply chains, with a rise in legal disputes over mining rights also one outcome of the rise in demand for critical minerals.

This does not bode well for a further critical minerals challenge – reversing investors’ long-term neglect of the mining sector.

Indeed, that neglect has often left critical minerals mining in the hands of small, under-capitalised operators.

Lack of supervision and enforcement of mining codes and laws has also led to poor mining practices – and bad publicity – leading to a further lack of investment in the mining upstream and a downward spiral in quality and sustainability.

Some new projects therefore now face considerable difficulties when it comes to raising finance. Banks and other investors are often wary of involvement in potentially controversial projects, while a lack of environmental, social and governance (ESG) standards undermines the interest of potential downstream off-takers, too.

A further challenge is time. Mines are long-term projects requiring much investment over many years before they even start producing.

“The minerals that I find today, in 2023, would probably start to come online in about 2040,” adds Townsend. “So the idea that everyone will have an EV by 2030? The timelines just don’t work out.”

China Rising

A further challenge for many, too, is the fact that the midstream of the sector – and a big slice of the downstream – has become dominated by just one player: China.

The People’s Republic has a near monopoly on refining many critical minerals. It has 80% of global lithium and graphite refining capacities, for example, along with 66% of cobalt and aluminium. Downstream, it accounts for over 80% of the world’s polysilicon, PV cell and PV module production capacity and for over 90% of global silicon wafer production.

For many corporates and governments worldwide, this poses a major supply chain risk, with a single player able to exercise an enormous amount of control over quantity, quality and price.

The global shortage of electronics for vehicles in 2021-2022, as China’s pandemic lockdown slashed supply, was a powerful recent reminder of this challenge.

Finding Solutions

With critical minerals now more widely seen as critical to the energy transition, however, things are now changing.

Mining majors are entering the critical minerals space, while old geological surveys have been dusted off, revealing long known-about, yet never exploited reserves.

Some downstream players are also entering the upstream field.

In March 2023, Volkswagen, for example, announced plans to partner with Canadian mining companies to secure supply of critical minerals to its newly-established battery manufacturing unit, PowerCo.

At the same time, there is heightened interest in recycling existing critical metals, particularly as the first generations of solar panels, storage batteries and wind turbines are now reaching the end of their life cycles.

Experiments in closed-loop supply chains are thus underway, such as between US EV manufacturer Tesla and Redwood Materials, with the latter recycling batteries from a variety of sources to supply new battery materials back to the car giant.

There is also a growing realisation that recycling also requires re-designing of existing products so that their different critical metal components can be more easily separated out.

Gulf Growth

These kinds of developments require major investment by both the private and public sectors, however. Challenging China in the midstream and downstream may also even require some re-industrialisation in Western economies.

That will be a huge challenge. Yet here in the Gulf, such developments dovetail much more easily with a strategy countries like the UAE have been pursuing for decades: diversification. Saudi Arabia, for example, already produces copper and has exploration projects in nickel and lithium. In 2022, the Kingdom also announced plans to issue a dozen further exploration licenses to international firms.

In January 2023, Saudi mining company Ma’aden and the Saudi Public Investment Fund (PIF) also announced a multi-billion dollar joint venture to invest in critical minerals mining assets abroad, over the next few years.

In the UAE, while there is domestic production of copper and metals refining, it is, perhaps, in finance and R&D that the Emirates has its biggest role to play.

January’s Kazakhstan-UAE investment roundtable, for example, brought together Emirati financing power with the possessor of the world’s largest chromium deposits.

In R&D, boosting the efficiency of existing low-carbon technologies, as well as inventing new ones is also critical. The UAE’s investment in renewable technology R&D via outfits such as Masdar leaves it well placed to be a leading source of critical minerals research.

While some enormous challenges lie ahead, then, if energy transition targets are to be met on time, the Gulf may have an increasingly important role, as the world digs deep to beat the ticking clock.