Energy transition, exploration and coal remaining the dominant mineral will characterise the global mining industry in the next few years, PwC said on Wednesday as it is released its Mine 2023 and Top 40 resource companies that include South African groups Anglo American, Impala Platinum and Gold Fields, among others.
Transition to cleaner energies is dominating the global mining industry although coal has remained the dominant mined metal, especially in developing countries such as South Africa that are facing power deficits.
Standard Bank has been defending its exposure to fossils to meet the continent’s energy requirements, with its exposure to oil and gas, coal and other fossils rising a massive 21% to R120 billion in 2022.
Coal stocks in South Africa, such as Thungela Resources, have top performed owing to the mineral’s importance in light of sustained energy deficits in South Africa and elsewhere in the region.
It is not just a South African story of the allure and dominance of coal. According to PwC, the mix of revenue from mining commodities has shifted, with “surging demand” making “coal the biggest contributor to the Top 40’s revenue” for the first time since 2013.
This means that “coal miners still have a role in meeting the world’s energy” needs. In fact, 11 of the Top 40 miners earned revenue from coal, making it the mining industry’s biggest revenue generator for 2022.
In the Top 40 global mining companies index, Anglo American remained unchanged in seventh position, with BHP and Rio Tinto taking first and second spots respectively. Glencore dislodged Vale from number three, while Impala Platinum is ranked number 30, Gold Fields Number 34, AngloGold Ashanti number 36 and Sibanye at number 39.
“In 2003, the market capitalisation of the Top 40 mining companies was less than $400 billion (R7.6 trillion). Last year it was more than $1.2 trillion (and) as we look to the next 20 years, the theme of transition, particularly energy transition, will remain dominant,” said Paul Bendall, PwC’s global lead for mining.
Yet, according to the PwC report, miners can no longer depend on yesterday’s portfolios and practices to create value in a “newly dynamic and fiercely competitive” landscape. About 41% of global mining CEOs polled for the PwC report “don’t think their companies will be economically viable in 10 years if they continue” on their current path.
This means that critical or energy transition minerals are increasingly coming into sharp focus, while miners are also ramping up their efforts to contain decarbonisation. Companies such as Sibanye are already venturing into battery minerals such as lithium.
“Miners will have to ramp up production to meet rising demand for the critical minerals and other commodities that are required for the energy transition. But they also know they must reduce their carbon emissions. More than one-third of mining CEOs see their company as highly or extremely exposed to climate-related risks,” notes the PwC report.
But thanks to solid awareness among funders, there has been a steady flow of capital towards renewable and critical metals. Incidentally, the global energy transition is creating both opportunities and risks for big mining companies.
“On the downside, as investors divest fossil-fuel assets, miners may find it hard to obtain capital from traditional sources. But on the upside, the volume of sustainability-related bonds and other financing mechanisms is rising – providing miners with new, attractively priced sources of capital.”
On the global market, green bonds grew from around $150bn in 2017 to $450bn in 2022 and are expected to grow a further 30% in 2023. In 2021, Newmont issued $1bn of sustainability-linked bonds and in 2022, Anglo American issued a $741m clean bond.
In 2019, the World Bank launched the Climate-Smart Mining Initiative, a fund dedicated to supporting sustainable mining practices.
But as the Top 40 miners seek to decarbonise their activities and expand mines to meet the world’s future minerals needs, “sustainable capital can help them meet their financing” requirements. The value of critical minerals merger and acquisition deals increased by an impressive 151% from 2021, accounting for 66% of all deal value in 2022.
Copper – which accounted for 85% of all critical minerals transactions and 56% of the Top 40’s M&A activity – is projected to be high demand “during the years ahead” as a key metal that enables electrification and renewable energy.
BUSINESS REPORT