The mining industry will continue to face considerable risks associated with Environmental, social and governance (ESG), resource nationalization, climate change regulation and shareholder activism in 2022, a survey has revealed.
Conducted by global law firm White & Case, the survey showed that ESG issues remained atop the list of concerns for the second consecutive year. Highlighting these sentiments shared, 24% of the respondents stated that ESG issues as the biggest threat, rising to approximately 40% when climate-related activism and regulation were included.
Particularly, when it comes to ESGs, the mining industry appears caught between two competing themes. On the one hand, this reflects the continued pressure from mining fossil fuels and the recent disasters that have done considerable damage to the entire industry’s reputation. This includes the fatal dam collapse in Brazil and the destruction of ancient aboriginal heritage sites in Australia.
On a positive side, however, this reflects how the industry has grown more adept at arguing that it is “becoming a far cleaner, and a more sustainable sector”, and thus, “with this improved ESG performance, it can be a reliable and trusted partner to mine the materials that will enable the green transition”.
Accordingly, “this shift opens up opportunities for the industry going forward, provided individual players can demonstrate their ESG credentials in all respects,” the report stated.
“While not necessarily a surprise, an increasingly sophisticated conversation is happening and companies are recognising that opportunity exists for those companies effectively managing this risk. Other risks are also elevated compared to 2021, with resource nationalism doubling to 16%, followed by supply chain disruption and a Chinese slowdown.”
White & Case report
Energy Transition opportunities, new focus for miners
But the spark of hope that remained for miners despite the many challenges still facing the sector, “from inflationary pressure, resource nationalism and continued trade disruptions,” was the fact that company boards were focusing on the window of opportunity presented by the global energy transition.
“This view is reinforced by our survey, which shows that responding to the challenges of climate change and the energy transition should be the number-one priority for the industry this year, at more than double last year’s 12% tally. Yet another takeaway is the relatively even spread of responses, with supply chains, growth and productivity all relatively prominent.”
White & Case report
The report noted that energy transition materials would be a significant focus for miners in 2022, with 20% of those companies surveyed saying that exposure to those commodities would be the best way to draw investors.
In addition, the report noted that diversified miners accelerated their transition in 2021, with major BHP announcing it was exiting oil and gas and that it continued to move away from thermal coal, while Anglo American exited thermal coal altogether.
“In its place, the biggest miners have been pushing aggressively into future-facing materials. Rio Tinto sanctioned a $2.4 billion lithium project in Serbia, which now faces significant local challenges, linking into our respondents’ growing concerns about resource nationalism in the sector, in addition to announcing the purchase of the Rincon brine project in Argentina.
“BHP sanctioned a giant new potash project, and has been actively looking to buy new copper and nickel assets, most recently investing in Tanzania’s Kabanga nickel project early in 2022.”
White & Case report
White & Case also predicted consolidation within the battery minerals sector, with mining majors likely to take stakes in junior miners sitting on forward-facing commodities such as copper, nickel and lithium.
“There was a small window at the start of the pandemic, when equity values plummeted, but now with many of the miners trading near record highs, transformational merger and acquisitions looks to be an unlikely prospect.
“According to our survey, that means opportunistic deals remain the most likely, especially as portfolios continue to shift toward more ESG-friendly commodities. Some 42% of respondents expect consolidation in the battery minerals space this year, up from only 13% a year ago.”
Report
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