This year will likely be a wild ride as project developers navigate through inflation, labor shortages and strained supply lines
By Joe Govreau
Global mining industry project activity is brisk and is forecast to continue an upward trend in 2023 that has seen project spending increase every year since 2017, with the exception of 2020 when project activity slowed due the pandemic. Mining firms are tasked with increasing production to meet expected growth in demand being turbocharged by an energy transition. Energy transition technologies including renewable energy (wind and solar), electric vehicles and lithium-ion batteries are metals intensive, and there is tremendous project activity being generated by the electrification and decarbonization of industry.
The challenge for mining companies will be in how they meet this demand while at the same time dealing with rising project costs, ever tightening environmental social and governance (ESG) requirements, and technical hurdles. This comes at a time when the war in Ukraine continues to magnify an energy crisis in Europe and inflation threatens to throw the global economy into turmoil in 2023.
Globally, there are more than 12,000 active capital and maintenance projects in the mining sector representing $1.2 trillion (all figures are derived from Industrial Info.’s Metals & Minerals Global Market Intelligence). Of the total value of projects, 19% of that value, or $231.1 billion, are under construction from 2,118 projects.
Mining firms will spend more in 2023 than they did in 2022, according to the plans of most large multinational mining companies such as Rio Tinto, Glencore and Anglo American. However, constraints continue to impede project activity. Project delays are increasing due to supply-chain issues, inflation and skilled labor shortages. More stringent financing requirements surrounding ESG requirements are adding another layer of complexity for funding projects.
Bringing new mines online is a growingly complicated proposition. Project costs are rising. There are increasing examples of project cost blowouts such as for IAMGOLD’s Cote project in Ontario, Canada, one of the largest gold projects currently under construction. Project costs have exploded from $1.8 billion to almost $3 billion and the project has been delayed by several months and is now targeting start-up in early 2024. Delays and cost overruns are being blamed on pandemic- and Ukraine War-related supply-chain and inflation issues. The Cote project is one of 480 grassroot mines under construction around the globe. Those mines represent more than $106 billion worth of capital expenditures. China accounts for 60% of the mines currently under construction with 291 mines; 100 of those are coal mines. Russia is second with 24 mines under construction and Australia is third with 19. (See Map)
The difficulties with developing and permitting new mines is causing more miners to look at expanding existing operations, which requires less time to permit and takes advantage of existing assets and infrastructure, reducing costs. Mine expansions account for 30% of the value of projects planned to start construction during 2023.
Mining companies are planning to start construction of almost 4,700 projects totaling $318 billion during 2023. Not all of these projects will kick off as scheduled due to delays in permitting, financing or other constraints.
ESG-related concerns are dominating the planning and implementation of projects. To decarbonize the mine site, renewables are replacing fossil fuels. A good number of new mines are being designed using renewable energy for electricity, or are building their own renewable energy plant on site. Mining companies are developing more than 480 projects totaling $22.8 billion to add renewable power generation units for new or existing mines. Some are incorporating state-of-the-art autonomous mining equipment or battery electric mining equipment in underground mines. Hydrogen fuel cells are also being implemented, with Anglo American planning to retrofit 400 haul trucks with hybrid fuel cell technology by 2030.
U.S. and Canada
Since the onslaught of COVID-19, the U.S. government has implemented a series of legislative acts providing economic stimulus and support of mining and processing of critical minerals and supply chains, starting with the Infrastructure Investment and Jobs Act that was passed in 2021. In 2022, the Inflation Reduction Act provided a 10% tax credit on mining and refining of lithium, and the Defense Production Act provides federal funding of up to $1 billion per year for critical minerals supply.
Canada has a Critical Minerals Strategy that will provide $C 3.8 billion ($2.8 billion) over eight years in the form of infrastructure investments and exploration tax credits.
Elongated state and federal permitting and regulatory requirements in the U.S. remain a roadblock to mine project development, but support for such projects is growing. Streamlining of the federal permitting process was promised in Section 40206 of the infrastructure bill, which addresses critical minerals supply chains and reliability, but little progress has been realized so far.
Albemarle and Piedmont Lithium are among 20 companies that will receive a combined $2.8 billion to build and expand commercial-scale facilities in 12 states “to extract and process lithium, graphite and other battery materials, manufacture components, and demonstrate new approaches, including manufacturing components from recycled materials,” according to the Department of Energy’s website.
Because of this stimulus, mining projects will see increased activity in 2023 in the region. The U.S. is the fourth-largest country in the world for mining project activity and Canada is eighth with $22 billion and $10 billion planned, respectively. (See chart)
Latin America is a natural resources and a leading producer of precious metals, base metals, as well as lithium and other important energy-transition metals. Uncertainty around royalty payments, taxation and regulatory requirements as well as social unrest continues to disrupt mine production and new project development. Geopolitical uncertainty, especially around mining royalties and taxation, is a growing deterrent to project development in certain countries including Chile, Mexico, Peru and Panama.
The Panamanian government’s call to halt production at First Quantum’s Cobre Panama mine due to the inability of the two sides to come to an agreement on increased royalty payments is a good example of this. This speaks to a larger trend in Latin America of resource nationalism, increased royalty and taxes for mining companies in some countries. Countries are looking to take greater income from mined resources for social and other programs. Meanwhile, the lack of a consistent taxation/royalty scheme places projects at risk at a time of growing metal demand due to the energy transition.
Latin American countries dominate the top 20 countries for mining projects in 2023 with Chile ($14.8 billion), Brazil ($8.8 billion), Argentina ($5.6 billion) and Peru ($3.4 billion) all falling into this category.
Continued pandemic-related lockdowns in China slowed the largest consumer of metals in 2022, but reopening of the country at the end of the year holds promise of economic improvement in 2023. China-U.S. and China-Australia trade frictions bring uncertainty of energy and raw metal materials supply to China. In response, China has increased production capacity of coal. In Shanxi province, it is planned to increase coal production by 107 million tons in 2022 and 157 million tons in 2023. The Chinese government will also quicken the approval of mining projects and make more investment in the non-ferrous mining industry. Furthermore, more intelligent renovation will be conducted in the mining industry by using 5G autonomous vehicle technology to improve its production safety and efficiency.
China continues to dominate the global mining project industry with $92.4 billion in projects on the books for 2023. About half of that is for coal mining projects worth about $45 billion. Iron ore projects are next with $11.6 billion followed by limestone with $8.6 billion and lithium with $7 billion.
India is third on the list with almost $25 billion on the books, of which about 70% is for coal mining projects. India is about 90% reliant on coal for power generation.
Indonesia, with $8.6 billion is ramping up coal production and has strong activity in nickel, gold and copper projects.
Mining activity in the Middle East is increasing as oil-based economies in countries like Saudi Arabia look to diversify. Iran ($4 billion), Oman ($3 billion) and Saudi Arabia ($2 billion) fall into the top 20 countries for mining projects in 2023.
As a major exporter of coal and iron ore and a leading producer of energy transition metals such as lithium, Australia stands to benefit from the energy transition trend, and alliances with Western countries to supply critical minerals. The U.S. has established the Minerals Security Partnership with allies including Australia, but also Canada, Finland, France, Germany, Japan, Korea, Sweden, the UK and the EU. The U.S. Inflation Reduction Act offers a $7,500 tax credit for electric vehicles where EV makers have to source two-fifths of the battery materials from free trade agreement partners including countries like Australia, Canada and Chile. Australia-based Lynas has received U.S. Department of Defense funding for facilities to produce light and heavy rare earths in the U.S., and construction should start mid-year on the $500 million expansion planned for the Mount Weld operation in Western Australia.
Pandemic-related delays around labor and a general skilled labor shortage continue to plague mining operations throughout Australia. And there have been several noted failures of large engineering firms such as Clough and AusGroup having financial issues impacting resource projects mainly in Australia.
Mergers and acquisitions for mining firms looking to increase exposure in energy-transition minerals will continue in 2023. In one of the biggest deals to start the year off, BHP Group has signed a $6.4 billion agreement, subject to approval, to acquire Oz Minerals, which includes the $1.1 billion West Musgrave nickel/copper project in Western Australia.
In Oceania, it’s still very strong activity for the traditional commodities of iron ore, coal and gold, which together account for 60% of the activity through 2023. However, we are seeing significant development for energy transition metals in Australia for cobalt, nickel and rare earths, and also bauxite and mineral sands.
Australia is second on the list of top 20 countries for project spending in 2023 with $29.6 billion. Papua New Guinea also makes a showing with $3.6 billion in projects.
African mining companies are facing challenges in the post COVID-19 era; including political turmoil, the Russia-Ukraine war’s impact on supply chains and looming possibility of recession. South Africa is the largest African nation on the top 20 list with $7.8 billion planned. Guinea ($5.2 billion), Ghana ($2.9 billion), Namibia ($2.2 billion) and Tanzania ($2 billion) also show up in the top 20.
Mining is an important contributor to all of these nations’ economies, but political turmoil, civil war or other conflicts threaten mining activity in some countries.
Burkina Faso, for example, is a promising, resource-rich country where mining accounts for about 10% of the country’s GDP, but its government is in an all-out war with Jihadist terrorist groups that occupy up to 50% of the country. The country has undergone two military coups amidst years of continued terrorism from Jihadist groups. The mining sector has seen a sharp spike in terrorist attacks resulting in temporary suspension of operations at mines including the Karma gold mine in Northern Burkina Faso owned by Nere Mining Group. In June, the Karma Gold mine was attacked, killing two. Subsequent attacks have continued ever since, curtailing operations. Nordgold closed its Taparko gold mine in April and declared force majeure due to security concerns. A $30 million expansion of the Taparko mine has been cancelled as a result. The security situation is not conducive to mining project development and existing operations like those of IAMGOLD and Endeavour Mining are tenuous even though Endeavour stated in an October press release that its mines and projects were unaffected by the turmoil.
In conclusion, 2023 is sure to be a wild ride as the mining industry navigates an ever-changing market place, rising project costs, and increased ESG initiatives, all while looking to increase supply of mined products for the energy transition future.
Govreau is vice president of research metals and minerals for Industrial Info Resources, based in Sugar Land, Texas. He can be reached at firstname.lastname@example.org.