Mining Majors Are Treading Carefully As Battery Metals Boom7 Feb 2022 06:33
Reuters reported this week that big mining majors were making joint venture deals with junior miners active in battery metals exploration and production instead of outright buying them. For Big Mining, the report said, expansion into battery metals was a fine balancing act between getting on the bandwagon of the energy transition and keeping shareholders happy.
Very much like Big Oil shareholders, the owners of Big Mining seem to have grown tired of the boom-bust cycle so typical of commodity industries and would rather have stable returns. Yet, at the same time, investors have also become more aware of the change in trends: ESG is all the rage now, and battery metals fit perfectly with ESG investing principles.
So, why is Big Mining not diving right in? Because it doesn't want to shoulder all the risks on its own. Mining is a risky business by nature, again very much like oil and gas. First, you can never be certain that exploration will be successful. Even if it is, as in Serbia, you may encounter local opposition strong enough to pull the plug on the project. Or the project may be in a politically unstable country such as the Democratic Republic of the Congo, which produces two-thirds of the world's cobalt. Miners are allergic to politically unstable jurisdictions even if they are forced to do business there.
Then there are the extensive lead times for a new mine: going from successful exploration results to actual mining could take a decade or even more. In the current environment, with all the forecasts pointing to a fast and strong surge in demand for metals and minerals used in batteries, it is faster to team up with a junior already exploring for, say, nickel, in Tanzania than start from scratch. At the same time, it appears safer to team up with this junior rather than buy it outright.
This is what BHP Group, formerly BHP Billiton, is doing with junior miner Kabanga Nickel. The major joined the junior as partner in its exploration work in Tanzania with a $50-million investment in the project. First production from the Kabanga mine is expected in 2025, and besides nickel, it will also include copper and cobalt.
According to energy consultancy Wood Mackenzie, the trend will intensify in the future: "We expect the diversified miners to enter new geographies in 2022 through the acquisition of early-stage projects," said research director James Whiteside, as quoted by Reuters.
The amount of money big miners are willing to spend on this expansion, however, may remain limited because of rising commodity prices. It may sound counterintuitive, what with all the bullish forecasts, but with their experience in reckless spending and the consequences of it, miners appear to have learned a valuable lesson and are unwilling to risk too much, even with the bullish forecasts. After all, forecasts are very far from set in stone.
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