Mining Viewpoint: Four Ways to Win as the Energy Transition Reshapes Demand for Critical Metals

Demand disruption is having current and continuing profound economic consequences that require new capabilities and strategies for mining companies. Value creation will not be equally distributed; CEOs urgently need a customized playbook to come out ahead. 

Miners face monumental and predictable change as global decarbonization efforts punctuate demand, remap competitive landscapes, and put pressure on critical ‘green’ metals supply.

Yes, many have recalibrated strategies, issued public ESG commitments, adopted technology, forged partnerships, and implemented portfolio adjustments, but meaningful change remains an imperative.

We expect advantaged shareholder return to be company-specific due to the nature of the challenges and likely shareholder response, enabling a select few to capture disproportionate future profits. While companies take different approaches to similar challenges, CEOs and operators need to separate themselves by implementing pragmatic and tailored approaches that focus on execution capabilities across partnerships and go-to-market capabilities, capital projects, operating assets, and de-carbonization. 

Metal Constraints: Meeting the Energy Transition

Mining plays a major role in helping meet the world’s climate goals. Critical, green metals are expected to see outsized demand. The annual value in energy transition for lithium is estimated to grow from $9 billion (2022) to between $45-$62 billion for BNEF’s Economic Transition and Net Zero Scenarios, respectively. Green demand for nickel is expected to grow by 22% per annum through 2030, with copper and aluminum expected to grow by 15% annually in the same period. Singling out copper, which has been recently designated a ‘critical metal’ by the US Department of Energy, we see rising use intensity to achieve equivalent energy outcomes (JPMorgan Research):

• On average, approximately three tons of copper is required for each megawatt of solar capacity; doubling what a typical coal-fired megawatt requires.
• Offshore wind requires about six times as much copper per megawatt compared to equivalent production from coal-fired plants.
• Electric vehicles – expected to account for the majority of global sales by 2035 – require roughly four times the copper of conventional vehicles.

Copper is not unique. Aluminum requires roughly four times the intensity for each solar PV megawatt versus its coal-fired equivalent. Many companies (mining and non-mining) are seeking exposure to these trends. Not only must miners manage heightened competition, but they must also address significant supply-side challenges, including:

• Overall, mining capital spend came in at just under $100 billion in 2022 (about 65% of the peak reached in 2012) and is projected to drop by 11% in 2023. Reductions are largely attributed to projects moving from construction to production, and fewer projects receiving final investment decisions to transition from engineering to construction.
• Super long-term grade trends continue to decline. Global copper ore grades, for example, are currently below 0.7% (from 1% in 2000, and 2% in 1900); some of the largest and highest-grade assets were discovered 50 to 100 years ago.
• Resource nationalism in the pursuit of country self-sufficiency is causing miners to reshape their strategies. Look no further than Mexico and Chile (lithium), or Indonesia (nickel) and the Democratic Republic of Congo (cobalt). Often, the known supply of critical minerals resides in countries that restrict foreign direct investment, set weak policy, and constrain trade freedom.
• ESG and decarbonization concerns have lengthened permitting. The spillover has caused increased litigation, shelved projects, and resulted in billions in judgements against both nations and mining companies.
• The pool of available talent is shallow and dwindling. The Energy Information Administration (EIA) projects more than half of the industry’s current workforce – representing roughly 221,000 people – need replacing by 2029. At the same time, there has been a 39% net drop in mining and mineral engineering degrees awarded since 2016, and university programs in the U.S. designed to supply future talent are becoming more scarce as demand dries up.

Four-point blueprint to drive execution

1. Pursue Partnerships 

Partnerships are an advantageous way to de-risk capital plans, drive value through at-scale projects, enter new markets, and complement capabilities required to win. Partnership options have never been more abundant for miners as supply chains are remade for other industries seeking green metals, and miners look to JV with technology partners to drive their own decarbonization progress. With more than 40% of recent transactions coming from outside of mining, miners must proactively evaluate options for new entrants -- from investment houses to automotive players to agricultural suppliers. Examples of factors driving successful partnerships include, but are not limited to:

• Shared objectives and a common north star.
• Common and unbiased understanding of each party’s capabilities and how they contribute to successful outcomes.
• Built-in risk management, including formalized and contracted dispute escalation and resolution processes.
• Clearly delineated decision rights and delegations of authority.
• Transparency to performance, with KPIs and intervention rights prescribed up-front.
• Pre-defined exit or break-up pathways.

At AlixPartners, our support for mining company strategy and partnerships is enhanced by our significant depth in performance improvement coupled with our roots in transaction and restructuring services. We have extensive experience across all aspects of mining strategy and partnership development, and we come together as one firm to support our clients.

2. Accelerate Projects

By one estimate, 300 new mines for materials including cobalt, copper, graphite, lithium, nickel, and rare earths, will be needed to meet the energy transition demand. 

However, metal prices in the initial years of a new project can materially and substantially influence present value investment returns. Mining projects can take careers to bring online as ‘first core to first ore’ timetables commonly span 10-to-20 years. Also, no one can predict prices, and miners must ensure project portfolios do not become constraints on reserve replacement or growth.

Bringing projects online in the face of uncertainty introduces risk that needs to be overcome. Miners must commit to:

• Utilize a mine-to-market approach to enhance capital deployment and resource stewardship through portfolio strategy and management.
• Prove and optimize design and economic profit across concept, pre-feasibility, and feasibility stages of development.
• Relentlessly drive productivity, rate, and readiness during engineering and construction phases.
• Accelerate interlock, stability, and first ore production during completions, commissioning, and ramp-up.
• Enhance capital processes, capabilities and tools, leveraging digital solutions.
• Actively manage hard-won fiscal-regime and regulatory constructs that impact both volume and realized margins.

To lead to productive outcomes, these measures require significant project team capabilities, a focus on input behaviors, organizational discipline, and managed EPC partnerships. 

AlixPartners assists its clients to drive success across the entire mining project lifecycle. Our mine-to-market approach and deep industry expertise enables us to optimize, de-risk, and deliver projects on-time and on-budget.

3. Optimize Assets 

While developing future projects is critical, optimizing asset productivity is often the first place to level-up. To accomplish this, miners should implement integrated mine and concentrator (four-wall) productivity measures across their operating portfolio, and operating teams must address several areas to drive site net asset value, including:

• Short- and long-term mine planning.
• Mining rate, costs (including direct and indirect procurement), and efficiency.
• Throughput and recovery.
• Site infrastructure and logistics.
• Optimizing site operating model and organizational discipline.

Today, no asset optimization can overlook its march toward the mine of the future. Harnessing technology and data can unlock significant value and enable four-wall productivity, especially in predictive maintenance, future fleets, and metal recovery. AlixPartners assists miners to design and deliver the ‘future mine’ and ‘future processing plant’, unlocking significant value.

Asset optimization often comes with a focus on standard work and procedures while also building capability and capacity across the team; this requires significant coaching to ensure gains are sustained. Building a pipeline for continuous improvement, embedding the right operating model and cascaded reviews, and ensuring front-line employees are actively engaged in the change process are all critical to rapid and sustainable outcomes. AlixPartners’ approach to drive sustainable site-level behavior change is delivered through a combination of the right team, the right operating model to build capabilities and behaviors, and the right engagement approach.

4. Deliver Carbon Commitments

Miners must not only be ready to respond to metal demand driven by the energy transition, but also undertake and deliver their own net zero futures. Most major miners have already established ESG baselines and risk profiles, defined metrics and targets, tied ESG aspirations to corporate level strategy and objectives, and begun developing roadmaps to deliver on these commitments.

Still, success requires a deeper level of execution capability. Organizations must have an embedded capacity to drive change management, navigate technology selection, and ensure governance is in place to provide visibility and control. Finally, financing a net-zero future will prove another critical hurdle for some despite issuance of sustainable finance in the metals and mining sector rising from approximately $6 billion in 2019 to more than $20 billion in 2022.

Successful transitions will:

• Prioritize net present value-positive marginal abatement initiatives in the near-term (while long-dated, less economic potential is optimized).
• Build de-carbonization progress and risk into reporting, governance, and investment frameworks.
• Move forward with ‘no regret’ technology decisions; invest in necessary R&D and technical feasibility where it matters.
• Establish on-ramps and incubation guardrails inside of larger corporate environments to successfully JV and partner with smaller, more start-up like technology and solution providers.
• Develop capabilities across the workforce to own and deliver on abatement initiatives, including change management and ESG training.

Our dedicated ESG professionals, together with our mining practice, support clients to design, optimize, and deliver ESG programs.

AlixPartners has a dedicated Mining & Metals practice with significant expertise across the mine-to-market value chain. Our one-firm-firm supports our mining clients across performance improvement and advisory, transaction and restructuring, and risk, in addition to our dedicated services such as digital, cyber, and ESG.