Boris Ivanov, founder of Emiral Resources Ltd – a global mining group that focuses on exploration and the production of Earth’s mineral resources, makes predictions for the mining industry in 2022.
INTRODUCTION
2021 was a year of strong performance and high volatility in metal prices due to a demand and supply mismatch. Several commodities reached new historical highs such as gold, iron ore and copper leading to a strong profitable sector for producers and explorers.
The global push towards a green transition and a low-carbon economy continues to gather momentum, bolstered by the latest agreements at the COP26 summit in November 2021. The pace, trends and demand versus price of critical raw metals and minerals needed to accelerate the global energy transition will remain top of mind in 2022 for explorers and producers as they assess the opportunities and risks. It is clear the energy transition presents exceptional challenges for metals and mining companies, who will need to innovate and rebuild their growth agenda faster and cleaner than ever before.
In addition to climate change, perceived gaps between investment and technological capabilities, supply chain constraints, government intervention and rising stakeholder expectations will continue to pose as challenges. Miners will also face pressure to meet ESG criteria to access project funding and wider buy-in. This is likely to raise the vulnerability of players to issues such as community opposition and water access.
The mining industry is bracing for change companies will need to shake off their ‘dinosaur image’ to adapt to a new era. 2022 is looking to be a strong performing year for the mining sector, but it won’t be ‘business as usual’ anymore. We look at some of the key issues for 2022.
SUPPLY CHAIN CONSTRAINTS
Lockdowns hamper operations and put pressure on demand for key commodities which in turn disrupts global supply chains. While vaccination programmes are gaining traction, they have not proved the absolute protection many hoped. This has curtailed operations at mines – particularly those who have had outbreaks of the COVID-19 Omicron variant in the workforce.
One added complication is that some important supplies – particularly mineral and metal deposits needed for low carbon technologies are generally concentrated in specific regions like South Africa, Democratic Republic of Congo (DRC), Chile and Bolivia. This can result in supply bottlenecks should investments in production capacity not meet demand, or if there are disruptions and breakdowns in their institutions, regulations, or policies. Changes in mining codes specifically higher royalties and taxes to plug budget deficits caused by COVID-19 can also impact supply chains.
The supply constraints will continue despite intensive exploration efforts. While exploration is likely to focus on regions that have largely mitigated the pandemic’s impacts and those on the road to recovery, few of the resulting discoveries will be developed in time to meet medium-term supply requirements.
EXTERNAL STAKEHOLDER INFLUENCES AND THE GREEN TRANSITION
Government intervention will continue to rise across emerging and developed markets as countries race to control critical and strategic minerals for the green and digital economy and capitalise on high commodity prices.
Mining resource nationalism isn’t a new trend but we have witnessed an explosion in 2021, posing risks to project cycles. Rise in taxes and royalties along with changes in policies and contracts being renegotiated are likely to lead to more clashes with mining companies. The trend is spreading across the world and is now noticeable in sub-Saharan Africa (the DRC, Mali, Zimbabwe, South Africa, Guinea) and Latin America (Mexico, Peru, Chile) among others.
With increased oversight in mining projects and higher costs due to tax increases, project cycles will slow causing project delays and backlogs which inevitably will lead to depleted stockpiles.
The energy transition is full of complexities and paradoxes, one of them being that metals are critical for green transition technology, including renewables and batteries, while the mining sector’s social license to operate is increasingly being battled amidst rising public opposition to mines. With more watchful eyes from the public, government, and investors on environmental issues, mining operations are under scrutiny. This has led to a surge in community protests against mining companies in countries like Peru, Chile and Serbia most recently. This creates volatile ground for new mining projects which are now at risk of delays, overrunning costs or even cancellations. As a consequence, the supply pipeline will be constrained, and higher metal prices could slow down the progress of the green transition.
TAPPING INTO AFRICAS MINING POTENTIAL
Africa is endowed with abundant mineral resources, including gold, silver, copper, uranium, cobalt, and many other metals which are key inputs to manufacturing processes around the world.
In 2021, the world woke up to this as demonstrated by global interest from Australia, Europe and the Americas.
Under-explored mineral resources in Kenya, Egypt and Morocco were tapped into by large companies such as Base Titanium and invested into by high-profile businessmen such as Mr Naguib Sawiris.
Even emerging economies such as Russia, India and Brazil began to expand in Africa’s mineral resource, a trend we will undoubtedly see continue and grow this year.
Africa will continue to incentivise multinational companies given its offering – low costs of production and a growing workforce across the continent. And as more companies and countries invest in Africa’s mineral potential, we’re likely to see modernised mining codes and regulations take shape in individual countries.
In turn, this will make Africa, often overshadowed by its political instability, a credible player in the mining game.
GOLD VS CRYPTO VS GREEN METALS AND MINERALS
Despite the political triggers such as the pandemic in 2021, gold remained a strong asset for investors to build into their portfolios.
2022 won’t prove any different. However, I do believe that in the future, there needs to be some type of convergence between gold and crypto technology. By supplementing gold with blockchain technology, you can create a new asset class with the stability and returns of the bullion and the versatility and speed of crypto.
Whilst gold may continue to gleam and be seen as a safe haven against high inflation, demand and therefore price points for green transition commodities will outpace traditional more favoured commodities.
2022 is a pivotal year for mining as the sector lies in the centre of a global energy transition and the industry will be expected to “mine with principles” and force mining companies to reshape their role. Digital innovation should no longer be a ‘nice to have’ and strategies and business models will need to be bolder to create long term value and a secure future in a new energy world.
