Analysis by KPMG in Canada notes that minerals such as lithium, cobalt and nickel are “critical” to the green and digital transition
The IEA estimates demand for lithium is expected to expand by a factor of 30 by 2030 (Credit: Shutterstock/SN040288)
Rising demand for green metals as the world transitions to clean energy is contributing to renewed optimism in the growth prospects for Canadian miners, says a report.
The analysis by KPMG in Canada notes that minerals such as lithium, cobalt and nickel are “critical” to the green and digital transition underway to achieve the goals of the Paris Agreement, which aims to cap the rise in global temperatures at “well below” 2C by 2100, with 1.5C being the ideal scenario.
The production of minerals needed to deploy wind, solar, geothermal power and energy storage is predicted to increase by nearly 500% by 2050, according to the World Bank.
The International Energy Agency (IEA) estimates demand for lithium used in batteries, which help to power electric vehicles, is expected to expand by a factor of 30 by 2030.
Outlook for Canadian miners “extremely positive” following green metals demand
Heather Cheeseman, partner and Toronto mining leader at KPMG in Canada, said the outlook for the mining industry is “extremely positive”.
“The year-long rally in commodity prices, even with the recent volatility sparked by inflationary concerns, is driven not only by pandemic-induced supply chain issues but also climate-action demand for green metals and the massive spending expected on infrastructure,” she added.
But, Cheeseman warned their growth prospects could be dimmed by many factors, including how companies respond to environmental, social, and governance (ESG) risks, and technological transformation.
The report, titled Risk and Opportunities for Canadian miners, is based on a survey of 225 global mining companies, including 89 headquartered in Canada.
It revealed Canadian miners are far more concerned than their global peers about the “S” in ESG criteria by which investors evaluate sustainable, long-term financial returns.
The key findings include that 42% of Canadian miners ranked community relations and social licence to operate as the top ESG risk (24% globally), only 19% included environmental risk as a top risk (27% globally), and 90% agreed they need a clear, measurable ESG strategy (79% globally).
The pandemic is accelerating the focus on ESG, particularly on how credible, reliable, and accepted mining companies and projects are in the local communities where they operate, according to Cheeseman.
“The days of considering ESG factors as ‘soft’ secondary risks are long gone,” she added. “Investors are demanding miners have clear and measurable strategies in place. ESG now dominate boardroom conversations in every mining company, and mining leaders overwhelmingly agree this is a top priority.”
Nearly two-thirds of Canadian miners believe organic growth is important to expand over next three years
KPMG’s research also shows miners are focused on innovation and technology to help control costs and grow sustainably.
About a third of Canadian and global miners believe innovation and technological transformation will drive future growth and nearly half expect major technology disruption in the next three years, with four out of five viewing it as an opportunity instead of a threat.
But only a third of Canadian miners believe their organisation is actively disrupting the industry through digital innovation, compared to half of the global respondents – a trend the report notes could be an “issue for future competitiveness”.
“There is a distinct need to find ways to better manage costs and mitigate risks whether that’s through consolidation or embracing innovation,” said Cheeseman.
Nearly two-thirds of Canadian miners believe organic growth is important to expand over the next three years, compared to just over half of their global peers, according to the analysis.
It also shows that more than two in five (44%) Canadian miners cited merger and acquisition activity as important for growth versus 22% globally.
“The results may not be surprising given the numerous small- and medium-sized miners in Canada that may not have the ability to scale up or access capital to meet rising demand, embrace innovation or address growing ESG expectations,” said Cheeseman.
“Consolidation may provide the opportunity for many players to address these as well as drive efficiencies and lower costs.”
While access to capital had previously been a top risk, more Canadian miners now claim their ability to access equity financing has improved over the past year, largely due to investor interest in the green economy transition.
The report identified 10 risks for Canadian miners in 2021. The top five included commodity price risk concerns reflect ongoing volatility; global pandemic risk; community relations and social licence to operate strengthening in ESG agenda; permitting risk; and economic downturn/uncertainty.