The Economist - UK (2022-03-26)

TheEconomistMarch26th 2022 Finance&economics 73

providersbeyondthemajors’usuallycau­
tiouspublic­marketinvestors.Thesecould
includeverticallyintegratedmanufactur­
ersthatrelyonscarceminerals.Tesla,an
electric­carmaker,haspromisedtobuythe
futurenickelproductionofminesinAus­
tralia,MinnesotaandNewCaledonia.Priv­
ate­equityfirmsandstate­backednational
champions taskedwithsecuring supply
couldalsochipin.
A second problem is the worsening
qualityofmineraldeposits.Udokansaysit
isthelastpotentialminewithcoppercon­
tent above1% of the rock. The average
gradeofChileancopperhasfallenby30%
overthepast 15 years,to0.7%.Lowergrades
arepushingupextractionandprocessing
costs(andcarbonemissions).“Todaywe
use 16 timesmoreenergytomakethesame
poundofcopperaswedid 100 yearsago,”
saysMrCutifani.
Innovationmayhelp.Lastyearbhp, an­
otherminer,andEquinor,Norway’sstate­
backedenergyfirm,investedinanartifi­
cial­intelligencestartupthatsiftsthrough
20mpagesofstateandscientificarchives
toidentifywherenewdepositsmightlie.
Intimetechnologicalbreakthroughscould

evenmakeexploringseafloorsprofitable.

Theworld’s67,000kmofmid­oceanridges

containalotofcopper,cobaltandother

minerals. This, too, couldmint electro­

states:Fiji(8%)andNorway(5.5%)holdthe

mosteconomicrightstothoseridges.

Yetinnovation alsomakes future re­

turnslesscertain.Thedurablyhighprices

thatminersneedto investwillalsoen­

couragebigbuyerstoseekalternativesto

the dearestmetals. Tesla’s batteries in­

cludelessthan5%cobalt,downfromone­

thirdjusta fewyearsago.Innovationcould

alsofacilitaterecycling.By2040,theiea

reckons,extractingcobaltfromoldbatter­

iescouldhelpmeet12%oftotaldemand.

Gameofstones

Perhaps the biggest risk to investment

comesfrompolitics.Themineralsmania

standstomakesomepooreconomiesrich

overnight.Thestoryofcommoditybooms

overcenturies,includingthehydrocarbon

bonanza,showsthatthisresourceblessing

canalsobeacurse,whichcouldinturn

discouragefurtherinvestment.

Gigantic oil rents have made many

countries unstable.Rival factionsvie to

control riches, fuelling inequality and

strife.Vastdollarinflowsbuoylocalcur­

rencies,crushingexporters. Debtbinges

during boom times trigger fiscal crises

whenthecycleturns.Resentfulpopula­

tionsmake domesticpoliticsevenmore

fractious.TakeNigeria.In 1965 itexported

tendifferentcommodities,fromcocoato

tin.Twodecadesofoildiscoverieslater,

petroleumaccountedfor97%ofitsmer­

chandiseexports,andhadcontributedto

politicalinstability.

Theworrynowisthathistoryrepeatsit­

self. Some electrostates are poorly

equippedtomanagewindfalls.Themajor­

ity ofthe world’s 96 commodity­linked

sovereign­wealth funds are backed by

salesoffossilfuels;onlysevengreen­met­

alsexportershave established rainy­day

funds,accordingtoGlobalswf, a datapro­

vider.Thatisdespitea bigneedforthem:

muchofthespendingonmetalsisexpect­

edtotakeplaceby2050,afterwhichde­

mandwillebbandexporterscouldface

leanertimes.

Eventheprospectofa bonanzacould

temptgovernmentstoextractmorerents

from firms. Some tensions are already

emerging.RioTinto,theworld’ssecond­

largestminer,wasabletorestartalong­

stranded Mongolian project only after

agreeingtowriteoff$2.4bninloanstothe

government.InJanuarySerbiawithdrew

thefirm’sexplorationpermitsafterprot­

estsoverplansfora biglithiummine.Pe­

ru’snewleftistpresidentismullinghigher

taxes;oneofitsbiggestcoppermineshas

been blockadedfor weeks by locals de­

mandinga shareofprofits.Chileisdebat­

ingnationalisingcopperandlithiumasit

worksona newconstitution.

This volatile environment suggests

metalsmayhavetobecomepricierstillbe­

foreforeignfirmsthinkitworthtakinga

gamble.Pricerisessofarhavealreadysent

some Western miners to frontiers once

deemedtooperiloustoexplore.OnMarch

20thBarrickGold,a Canadianfirm,signed

a dealtoinvest$10bnina coppermineon

Pakistan’sborderwithIranandAfghani­

stan.bhpisreturningtoAfricawithanin­

vestmentinTanzania.

Butpricesmaystillnotbehighenough.

LastyearIvanGlasenberg,thenGlencore’s

boss,saidcoppermayhavetohit$15,000a

tonne,upfromtoday’srecord$10,000,to

trulyincentivisenewsupply.Thehigher

pricesgo,however,themoretheyrunthe

riskofdepressingdemand,ormakinglocal

politics yet more volatile. Either could

causeinvestmenttostallagain.

Manywould­begreengiantsknowthey

canhelpavoidclimatecatastrophe.“Ifwe

stopmining,wewon’tbeabletocutemis­

sions,”saysJuanCarlosJobet,a formeren­

ergy minister of Chile. To realise their

superpowers, though,they willneed to

breakthecurse.n

Green giants

Revenue share of largest producers, 2021, %

Sources: USGS; The Economist

3

Brazil

Australia

China

806040200

Aluminium

Australia

Russia

Congo

806040200

Cobalt

China

Peru

Chile

806040200

Copper

China

Chile

Australia

806040200

Lithium

Russia

Philippines

Indonesia

806040200

Nickel

Peru

China

Mexico

806040200

Silver

Mining lithium in Chile