Until recently, I was living in a suburb of Perth that had a very ‘green vibe’, in fact, both my neighbours had big signs in their front window, stating: ‘Take Action on Climate Change Now!’.
As someone working in the resource industry, I was on the receiving end of some friendly, but at times, intense neighbourly debates about the role of mining, its impact, and sustainability.
But it always seemed to boil down to climate change rather than mining itself.
The problem is most folks pushing hard for this energy transition just don’t understand the vast amounts of raw materials needed to make this change a reality.
It begs the question, what is the impact of all this future mining?
Fossil fuels have been ingrained in the industrial fabric of our society for more than 100 years.
It’s been the driving force behind everything we do from global conflicts to putting humans in space.
Giving up our reliance on this economic lifeblood will NOT be an easy task.
The costs will be extreme. And I don’t mean economically.
Paradoxically, the biggest harm from this major energy transition will be the environment.
To understand the scale of raw materials needed to shift the way billions of people drive to work, operate business, heat homes, and power their devices, means the current supply of critical metals must growexponentially.
The transport sector, alone, requires a six-fold increase to current supply!
On its own account, the vehicle manufacturing industry is set to drive critical metal demand to unsustainable levels. The International Energy Agency (IEA) reports conventional cars need around 30kg of these metals versus electric cars that need more than 200kg. See for yourself below:
The IEA also estimates each electric vehicle (EV) will need around 50kg of copper versus the conventional car that uses only 20kg.
While a whole host of new critical metals will be needed to manufacture these technologically advanced vehicles, including zinc, graphite, cobalt, rare earths, and nickel…then add in all the world’s residential and industrial energy requirements, and the demand for critical metals becomes inconceivable!
So, what does all this mean?
An enormous increase in the number and size of mining operations…
In a twisted fate of irony, mining the vast supplies of raw material needed to ‘clean up’ the way we generate energy might just turn out to be far worse than the impact of global warming itself.
It’s something environmentalists pushing ‘carbon zero’ haven’t fully digested. I doubt they’ve ever stepped foot on a mine to see first-hand the change these operations have on the landscape.
What makes this issue concerning is that the world’s largest rainforests host some of the richest mineral deposits on the planet.
South America’s Amazon, the rainforests of Borneo and Central Africa, are all prime real estate for producers sourcing the metals to build solar panels, wind turbines, EV batteries, and other renewable technologies.
How we extract the critical metals of the future is an issue that’s grossly overlooked by those with good intentions.
As the BBC reported, in 2017, the Brazilian Government opened vast areas of the previously protected Amazonian rainforest to unlock new frontiers for mineral exploration.
This will have enormous consequences for indigenous communities and the rich biodiversity found in this ecological powerhouse. You can read more on that here.
So why is this allowed to take place? The push for net-zero carbon.
The ‘green energy revolution’ is driving the planet toward an environmental catastrophe!
It’s set to become one of history’s greatest contradictions.
It begs the question: Will environmentalists and policymakers look back on all this and ask themselves if it was really worth it?
But whether you or I like it, the trend is here to stay. The scale of which we can barely comprehend.
Australian mining has an enormous opportunity to benefit
Herein lies the opportunity for investors, specifically those concentrating on Australian-based resource companies. It’s a chance to profit while also shifting pressure away from these ecological treasures!
While it’s inevitable mining has some level of impact on the environment, some places are better than others when it comes to sustainability.
Take Australia, for example.
With our vast outback, mining has a relatively small effect on the people and environment.
Yes, there are disasters, including the blowing up of thousand-year-old heritage sites and generally poor communication between some mining companies and indigenous communities.
But in Australia, populations are sparce, meaning social impacts are significantly less. Laws focused on compensation for indigenous populations are improving in line with community expectations.
Sustainable mining in Australia is bringing employment and the construction of schools, housing, and hospitals in remote areas.
And while Australia contains unique flora and fauna, the biodiversity is dispersed over many hundreds of kilometres and holds nowhere near the same density as a tropical rainforest.
Limited inland water means tailing dams can be controlled easily with little potential for failure and contamination into surrounding areas. It’s only too frequent we see a tailing dam catastrophe in some developing country that results in widespread contamination of rivers, dead fish, and long-term health consequences for indigenous communities.
Moreover, Australia’s strict environmental laws ensure mining takes place with far greater integrity than almost all other mining jurisdictions.
Why this matters for your returns
If you think this is irrelevant to your bottom line, then think again…
You may have already heard the term ‘ESG’.
If you haven’t, it stands for Environmental, Social, and Corporate Governance. Company ESG branding is the equivalent of food products being designated as ‘certified organic’ or ‘cage-free eggs’ etc.
The trend toward ‘green mining’ and sustainably sourced raw materials is growing traction, particularly for mining operations linked to green energy technologies.
It’s why mining companies are starting to structure their business so they can legitimately comply with ESG.
It allows them to access institutional investor capital, which is critical for mine development. They understand the growing number of fund managers screening investments for ESG compliance.
For mining companies, it means a high-grade deposit is no longer a ticket to guaranteed riches.
The growing ESG trend puts pressure on companies operating in areas that pose significant social or environmental impact. With fewer potential buyers, it devalues the assets while constraining access to investor capital.
It poses additional risks…
It’s why Australian producers are at an incredible advantage in this coming boom.
Holding assets away from regions that contradict the ‘ESG’ philosophy will command a premium.
The world’s second-largest accounting firms agrees
A recent survey conducted by PricewaterhouseCoopers (PwC) showed that eight out of 10 US investors plan to increase their allocations to ESG products over the next two years, as the firm states:
‘The race is on to shift allocations and retrofit existing funds to keep pace with investor expectations.’
PwC expects this trend to exceed US$1 trillion over the next two years.
ESG is pushing ahead in Australia. The copper/gold producer Oz Minerals [ASX:OZL] already operates on renewable energy, while Fortescue Metals Group [ASX:FMG] has plans to be decarbonise its entire operation by 2030.
Australian mining is leading the ESG race.
Whether it’s investment for maximum profit or an ethical conscience that drives your portfolio, choosing ‘Australian-sourced ore’ may compound your returns while also doing the planet an enormous favour.
One final note…
This concludes our special three-part series on critical metals.
If you’ve read this series, you’re no doubt aware of the hugely complex and dynamic forces affecting commodities into the future. However, it’s these global challenges that are putting Australia at the front of the queue in this coming boom.
So, on that note, over the coming weeks, we’ll be announcing an exciting new product launch for Fat Tail Investment Research readers.
Specifically aimed at resource investing.
Editor, The Daily Reckoning Australia