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Capital is the top risk facing the mining industry this year, up from the number two spot last year, as tough financing and economic conditions make it more difficult to deliver the metals needed for the energy transition, according to a new report from EY.
“We need about $1 trillion in investment to produce enough metals for the energy transition,” Theo Yameogo, EY Americas and Canada Mining and Metals Leader told The Northern Miner. “We haven’t seen that coming in. Now it’s the #1 (risk) because people are really worried. We’ve seen some M&A, but we haven’t seen direct investment in the mining sector.”
The report, based on an annual survey of senior mining and metals leaders from organizations with $1 billion in revenue, outlines the top 10 business risks and opportunities for mining and metals as 2025 approaches. EY conducted the survey in June and July, collecting 353 responses.
Second in the ranking is environmental stewardship, and companies focus on preserving nature amid mining activity; and in third is geopolitics, such as the United States’ plan to source and process critical minerals from countries outside China’s influence; in fourth place is resource depletion; and in fifth is miners’ licence to operate.
Costs have increased not just because of inflation, but also because community standards are changing, Yameogo said. For example, miners in Chile need to build desalination plants rather than using fresh water that local communities depend on.
“It makes mines more costly to build. You have capital to do just business as usual, capital for the energy transition and capital for the new standard of mines,” he said.
Mining companies are seeking a wider range of capital sources, the EY report states, while companies are also considering partnerships or JVs to help reduce risks and financing requirements. Among respondents, 41% said they were considering commodity traders as a source of funds, 40% supplier funding and 40% export credit finance.
As miners struggle to secure new capital, it shows the need to change gears in their strategy, the report states.
Yameogo explains that compared to several years ago, capital strategies have shifted towards being more productive with less capital, and companies are streamlining their business to focus on a smaller number of metals.
“In the last year and a bit, the separation of businesses is now a big deal,” he said. “Some companies say, ‘we’ll just do copper now,’ or ‘we’re going to do base metals and get rid of our coal.”
Another trend emerging among critical minerals portfolios is tendencies towards M&A, and EY says it expects to see more consolidation of copper assets by majors as the demand outlook for the red metal is strong.
The report cites another April CEO survey conducted by EY, which showed that all mining and metals respondents plan to do some type of transaction over the next year. Of those surveyed, 76% said they expect to pursue divestments, spin-offs or initial public offerings; 54% expect to do M&A and 33% expect to pursue joint ventures and strategic partnerships.
Yameogo suggests that miners view the capital risk as connected with the other risks in the ranking, especially if they’re looking to finance projects in geopolitically or environmentally risky jurisdictions.
“So even if capital is the biggest risk for 2025, we need to understand that it’s because there’s other pieces that are impacting capital,” he said. “If you’re raising capital, you better make sure that your environmental stewardship is solid, right? We need to transform the sector to be ready for the energy transition.”
Environmental, social and governance (ESG) priorities came second in this year’s risk ranking, down from first last year, but this year the “E” has taken on more prominence, EY reported.
“Nature-positive initiatives” or a focus on reversing the loss of nature were a goal of 46% of respondents, and company sustainability teams are dealing with growing expectations around performance.
That focus comes as new standards such as the Taskforce on Nature-related Financial Disclosures (TNFD) and Global Industry Standard on Tailings Management (ISTM) take shape.
The EY study found that 44% of respondents said waste management would be the top concern for investors in the next 12 months. That focus was broad and went beyond tailings to include improving mine performance with higher strip ratios, using closed loops to cut waste and emissions and reprocessing tailings.
But by the same token, the “G” in ESG fell out of the top 10 risks in the report, with EY stating that its de-prioritization compared to last year was unexpected and a “gap” for miners.
A focus on governance is important because board-level oversight is needed to ensure projects aren’t subject to accusations of greenwashing.
Resource depletion is a new risk on the list this year. Declining ore grades are raising the cost of extraction, while high-grade resources have almost been mined out, EY states.
EY suggests miners consider investing in new exploration technologies, replacing lower reserves through M&A, improving productivity with better techniques and processing, and exploring in settings such as on the ocean floor or on asteroids.
Another new risk on the list, in eighth place, is new projects, which will be necessary if the world is to meet the huge demand for critical minerals in the energy transition.
Numerous challenges complicate the task of opening new mines, such as regulatory issues, high taxes, lack of standardization, inflation and lower ore grades, which raise costs.
The report suggests miners build deeper connections with stakeholders to strengthen the licence to operate; derisk capital projects by integrating across supply chains to lower costs; and develop new talent pools to access skills needed for sustainability, automation and electrification which might be outside the traditional mining industry.
