BMI Research considers mega-trends that will shape the mining industry over the next thirty years from a supply side and demand side perspective.
On the supply side, technological innovation and tightening environmental standards will modernise operations and push exploration to increasingly far-flung locales, while consumption growth patterns will reflect the shift to a low-carbon economy.
BMI Research is a unit of the Fitch Group.
Smart mining - Investment in advanced technology will become increasingly central to miners’ quest for efficiency gains and cost control, resulting in new exploration methods, streamlined operations and a more transparent industry.
This contrasts with the volume-oriented strategy over the previous decade.
Environmental regulations - The global shift towards a low-carbon economy will result in increasing scrutiny of mining practices and tightening environmental standards that raise costs for miners.
Meaningful efforts to reduce the environmental impact of the extractive industries require significant up-front costs, while the long-term cost savings and reputational boost will benefit companies that are ahead o the curve in prioritising green strategies.
Final frontiers - Riskier mining projects will increasingly gain commercial viability in the coming decades as mineral prices rise and traditional reserves are depleted.
Pioneers with the technological know-how and capital to mine the final frontiers, namely the Artic, deep sea and space, will hold a significant advantage as first movers in these fields for a time to come.
Metals consumption growth to slow - Although consumption of key metals including iron ore (steel) and base metals will grow over the next
few decades, the rampant growth witnessed during the decade prior to 2014 is unlikely to return.
We expect waning Chinese demand, increasing metal substitution and recycling to all play a part in consolidating this long-term trend.
Commodities of the future to gain prominence - Demand patterns for various commodities will change over the coming decades.
We expect that demand for battery metals including lithium, cobalt and nickel will outperform driven by the battery revolution, setting their place as the commodities of the future.
Coal to shift east, then peak - Both coal production and consumption will shift to the east, as countries such as India, Indonesia and Vietnam increase coal as a source of power generation, while countries such as the US, Canada and those of the EU tighten environmental regulations and invest in clean energy. Overall coal use will peak over 2020-2030
Smart mining to be the new standard for low-cost operations
The integration of advanced technology in mining operations will accelerate over the coming years, increasingly becoming a necessity for firms to remain competitive.
Digitalised mining operations, enabled by the deployment of Internet of Things (IoT) applications, will see the shift of the competitive edge to
developed markets over emerging markets, as the use of advanced technology requires the availability of strong network connectivity, power and highly skilled labour rather than the advantage of cheap labour in traditional low-cost producers.
Additionally, miners will turn to leading technology firms to supply the latest innovations, creating partnership opportunities for technology providers while eating into traditional mine services firms' share of mining capital expenditure. Here we identify the most disruptive trends for the industry:
Automation: Automation is already prevalent in the industry and adoption will be significantly ramped up. It will significantly reduce costs for miners by eliminating human labour.
Automation includes process and software automation as well as applying robotic technology to vehicles and equipment.
Rio Tinto has been a leader in automating operations, at its Australian iron ore mines.
Artificial intelligence: The integration of artificial intelligence (AI) into mining operations, from the exploration stage to processing, will streamline operations and improve safety at mines.
Using vast amounts of data inputs, such as drilling reports and geological surveys, AI can make predictions and provide recommendations on exploration, resulting in a more efficient process, higher-yield results and less environmental impact.
In the production stage, machine learning can predict failure, facilitating repairs, and better identify valuable ore during the fragmentation assessment.
Blockchain: This technology will streamline and accelerate supply chain transactions and the international trading of commodities, and will be of import to mineral end-users concerned with supply chain transparency.
For instance, diamond giant De Beers announced in January 2018 that it will use blockchain to ensure all registered diamonds are conflict-free and natural, in addition to improving efficiency.
Similarly, blockchain technology will reportedly be used to track cobalt mined in the Democratic Republic of the Congo, as many consumer
conscious technology firms look to ensure their material is conflict-free and not sourced from child labour.
The technology eliminates the need for intermediaries, providing consumers with more direct access to ensure the legality of the source.
Drones: Drones improve safety by ensuring areas are clear before blasting, tracking fumes post-blast, monitoring traffic and road conditions, and inspecting overhead cranes and towers etc.
They provide real time aerial footage and 3D maps of mining sites with significant cost savings compared to planes and faster and more accurate measurements of stockpiles.
3D printing: Beyond the additional efficiency gains to be realised from having 3D printing integrated with mining operations, this technology will significantly condense the metal production/refining process.
Additive manufacturing as opposed to the traditional metal production process provides a shorter timeframe, less waste due to less energy-intensive process, custom designs, and allows smaller operations to be profitable.
Environmental regulations to target pollution, water
Mineral extraction and smelting, among the most power intensive and environmentally disruptive sectors, will come under increasing social, investor and regulatory pressure to lower emissions and reduce environmental impact.
We reiterate that the coal industry will face particular scrutiny, underscored by major banks refusing to fund new projects.
However, the shift in mentality and regulation will affect all commodities, be global nature and target several aspects of the environment.
Companies will need to adapt their corporate strategy to the low-carbon economy.
Reducing carbon footprint will receive special attention.
As such, the solution of carbon pricing will become increasingly popular and significantly raise costs for miners and metal producers.
Among major mining countries, Chile and Canada will implement national carbon pricing systems in 2018 and South Africa is also considering a price on carbon.
Meanwhile, China’s drive to improve air quality, including a planned nationwide carbon trading system, and economic shift away from heavy industry to service-based growth will aggressively target out-dated overcapacity in the coal and metal sectors, weighing on output from the largest global producer of these materials.
In terms of lowering emissions, targeting cleaner energy use and upgrading the metal refining process will prove the most effective method to achieving results.
Rio Tinto estimates that energy use accounts for more than 90% of the firm's total greenhouse gas (GHG) emissions, and thus the main area in which to invest when considering carbon footprint.
Integrating renewable energy, including solar, wind and hydro-power, into power mixes and investing in technology to upgrade smelters and innovate less polluting methods for refining metals will yield the largest reductions in emissions for mining companies.
In addition to reducing carbon footprints, reducing water usage and preventing contamination will become increasingly central to miners’ social license to operate.
Local opposition to mining projects over usage of scarce freshwater resources will intensify, leading to project delays, environmental fines and, in some cases, severe regulatory crackdowns on the mining industry.
In particularly dry regions, such as Chile's Atacama Desert where the country’s copper mining is concentrated, mining firms are anticipating the need to reduce freshwater usage and investing in multi-billion-dollar desalination plants to rely to seawater instead.
In other cases, miners may invest in waste water treatment to increase use of recycled water.
Despite the high up-front costs, recognising the need for s table and substantial access to water over the long -term will prove advantageous to miners conscious of their relations hip with local communities.
Exploring the final frontiers
Although mining in remote and previously inaccessible locations still faces major hurdles and bears tremendous risk, we believe projects to explore and mine commodities in the final frontiers will gain traction in the coming decades.
As traditional and known reserves start to deplete and ore-grades fall, rising mineral prices will enable riskier projects to gain commercial viability, significantly rewarding pioneers with the technological know-how and capital.
Rising environmental standards will also incentivise miners to develop increasingly remote deposits to avoid conflict with local communities.
Among the final frontiers for mining - namely the Arctic, deep sea and space mining - Arctic mining is thus far the most developed venture of the three, occurring mostly in Canada, Russia and the United States.
It is followed by deep sea mining, for which the first expedition is to start in 2019 off the coast of Papua New Guinea by Canadian miner Nautilus Minerals.
Asteroid mining exploration is scheduled to start shortly after between 2019 - 2020 through Deep Space Industries and Planetary Resources.
Most commodities can be found in these locales, including base metals, precious metals and rare earths.
Mining in the Arctic will become increasingly attractive over the next decade, driven by junior miners investing in greenfield exploration and larger firms expanding existing operations.
Rising mineral prices will allow for riskier projects, declining ore grades at traditional operations will push exploration to more remote locations and melting ice due to climate change will open trade routes north of the 60-degree line of latitude, all of which will catalyse this trend.
The major countries with Arctic coastline, namely Canada, Russia and the US, rank highly on our BMI Mining Risk/Reward Index, which quantifies the attractiveness of mining investment destinations, indicating stable operating environments and significant reserves for project development.
Demand for rare earths and precious minerals will make the commercial viability of deep sea mining more attractive as land-based reserves struggle to meet demand from new centres such as batteries and electric vehicles (EVs).
As prices for minerals like copper, cobalt and lithium increase and supplies tighten, we expect miners with the capital might and technological know-how to explore this frontier.
Environmental criticism will remain the major impediment to deep sea mining in future.
Space mining will become increasingly mainstream within the next two decades as a necessary tool for the rapidly expanding space industry and a viable long-term solution to depleting ore reserves on earth.
Increasing levels of investment and innovation among private players will dramatically improve the cost-efficiency of space missions, while government support continues to grow.
However, regulatory uncertainty surrounding still-nascent commercial space mining activity will be a key constraint to the successful development of the industry.
Metals consumption growth to slow
Although consumption of key metals including iron ore (steel) and base metals will grow over the next few decades, the rampant growth witnessed during the decade prior to 2014 is unlikely to return.
We expect waning Chinese demand, increasing metal substitution and recycling to all play a part in consolidating this long-term trend.
Chinese decline will not be replaced – We do not expect other high-growth emerging markets to effectively replace China’s declining role as the key driver of global metals consumption in the coming decades.
The National Party Congress celebrated in the fall of 2017 certified China’s likely declining appetite for metals in the coming years as President Xi announced efforts to focus on a more sustainable economic growth model away from heavy industry and construction.
While India will emerge as the new bright-spot for commodities demand growth, industrial metals consumption from the country some bill as the ‘next China’ will be just a fraction of the size of China’s demand surge over the past t decade.
Substitution to reduce demand - Substitution of metals in various applications, will rise in the coming decades, although we believe the pace of substitution has already peaked during the commodities super-cycle period when most metal substitutes were researched on and technological innovations initiated.
Although the pace of substitution will slow, as historical price-relationships persist, the risk of certain metals losing their market share to alternatives will remain high.
For instance, we expect refined nickel will increasingly lose its prominence to cheaper alternative, nickel pig iron.
On the other hand, steel will remain in demand due to the unique qualities it possesses at such a low cost, while copper will lose dominance in traditional markets to aluminium but regain ground in advanced applications of the future.
Metals recycling to increase - Stricter environmental regulation and improved technology will increase metals recycling rates, particularly among ferrous metals.
While recycling will not necessarily reduce overall metals consumption, it will reduce primary (non-recycled) metal consumption.
As an example, iron ore demand will be impacted by the growing use of electric arc furnaces which require less iron ore than traditional blast furnaces.
Consequently, the call on mines to extract and smelters to refine ever-g rowing volumes of mineral ores will weaken.
Commodities of the future to gain prominence
Demand for battery metals such as lithium and cobalt will outperform driven by the battery revolution and will set their place as the commodities of the future.
The lithium-ion battery storage market, whose use will boom in key markets such as the US, EU and China thanks to its attractive efficiency features, will be backed in the future by the fast development of portable electronics, residential and utility-scale electricity storage, and electric and hybrid vehicles.
Demand for battery components including cobalt, lithium and nickel will therefore rise in the coming decades.
Currently lithium and cobalt reserves are overwhelmingly located in concentrated areas where they are already produced, such as the 'lithium triangle' in South America, namely Argentina and Chile, for lithium and the Democratic Republic of Congo for cobalt.
As such we expect these countries to lead the way in terms of production growth for both metals in the coming decade.
Another metal that is set to benefit from the battery revolution is nickel, due to its use in various key cathodes (NCA and NMC) found in lithium ion batteries.
Regarding other traditional industrial metals we believe tin and copper demand is set to outperform.
Copper demand and prices will be supported by strong power grid investment and falling mine ore grades in the coming years.
Primarily used in power grid construction, the outlook for this sector remains strong.
China accounts for approximately 50% of copper consumption, and although we expect demand to slow in the coming years compared with the previous decade, consumption growth will be faster than that of pure-construction metals like steel and iron ore.
Moreover, supply constraints such as falling ore grades are more apparent for copper than iron ore or coal.
Meanwhile, tin's versatility and use in multiple arenas will sustain demand for the metal on a multi-decade horizon.
Tin is used in the manufacture of electronics, soldering, and chemicals.
We expect global consumption growth of tin to outpace production growth over the years with demand from consumer electronics being the main driver.
On the supply side, ore reserves are depleting and there is a very sparse tin project pipeline globally.
Over the years, major countries such as China, US, Japan and the EU will see increasing tin deficits.
Coal demand to shift east before peaking
Coal as a commodity will lose dominance over the years due to tougher global environmental rhetoric and the ratification of the UNCOP21 climate change framework, as well as the growth in cheap alternative energy.
We expect the growth of coal us e in electricity generation to slow past 2025 and reach a peak over 2030 -2050.
During this time there will be a geographic shift of coal use from the West to the East, as demand declines in traditional markets in Europe and the US, but will continue to account for account for a large share of the power generation mix of developing markets due to its price competitiveness.
Coal usage will therefore remain elevated in high-growth major Asian economies including India and Indonesia as well as other second-tier markets such as Vietnam, Pakistan and Egypt.
An exception to this trend will be China, where we see the government's strong commitment to curbing pollution stemming from coal mining and coal generation leading to an erosion of coal's s hare in the domestic power mix from 64% in 2018 to 51% in 2027.