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Inadequate Spending on Mining Hampers Transition to Green Energy

  • Mining corporations are giving in to investor pressure to prioritize dividends and share buybacks over capital investments
  • Low spending prepared the stage for the recent rally in the prices of copper and iron ore, a critical component of steel
  • Insufficient supply of essential minerals used in clean energy technology could slow down the energy transition

Mining corporations are not increasing their capital expenditure despite increase in the prices of metals. Reduction in investment could stifle supply and exacerbate the shortage of raw material such as copper and zinc, which are critical for the shift from fossil fuels. Major mining corporations such as Rio Tinto PLC, BHP Group Ltd., and Glencore PLC are expected to keep their project investment at a minimum in 2022.

Green Energy Mineral Scarcity Could Derail Energy Transition

Minerals such as cobalt, copper, and lithium are required for the transition to clean energy to prevent climate change. These critical minerals are needed in a variety of green energy applications, including electric vehicle (EV) batteries, wind turbines, and solar panels. Low spending resulted in an increase in the prices of copper, and iron ore, the primary component of steel. The prices of solar panels, wind turbines, and batteries increased by more than 40% since 2020. The tendency could stymie the transition to renewable energy, which is increasing the demand for these metals.

Metal Prices Soar Across Industry

Iron ore, for example, rose from a little over $82/tonne in November 2021 to more over $125/tonne now. Despite being hypersensitive to news from China, similar to iron ore, and the fear generated by COVID-19 curbs such as lockdowns weighing heavily on prices, copper has been on a steady ascent since 2020, with prices doubling since then. Lithium, however, increased 432% in 2021.

Mining Industry Replicating Oil and Gas Sector

For the first time, miners appear to be focusing almost entirely on repaying cash to shareholders, similar to their oil and gas counterparts. This is said to be the reason for the limited growth in the availability of basic metals and minerals required for renewable energy installations and electric automobiles in the US. Added to this is the overall inflation, which, similar to oil and gas, is increasing the costs of new developments. Oil and gas companies consider this to be a result of equipment constraints, manpower limitations, and other shortages that are increasing the costs of new products.

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