How can mining secure supply and investment to meet the materials boom?

There is no energy transition without increased production of critical minerals¹. Materials like copper, lithium, nickel, and rare-earth elements are the building blocks of clean energy technologies and infrastructure. They will be needed in vast quantities as the world advances to net zero.

Accordingly, demand for critical minerals is expected to skyrocket to 38 million tonnes in 2050 to achieve the IEA Net Zero Emissions by 2050 (NZE) Scenario. That’s a more than 3.5 times increase on 2023 production levels². The supply-demand gap is even more pronounced for specific minerals, with copper demand projected to triple and demand for lithium increasing 17 times by 2050. 

Great opportunity awaits – but first, a path must be cleared

This growth creates an extraordinary economic opportunity for the mining and finance industries alike. By 2040 (the furthest available valuation projections), the market value of these minerals is expected to more than double, reaching $770 billion in the NZE Scenario. $330 billion of this is attributed to copper, followed by the lithium market valued at $230 billion, then nickel and graphite.

However, obtaining capital to invest in the exploration and new production capacity to reach these market valuations is one of the biggest challenges facing the industry today. The sector is known for long and uncertain project lead times, steep exploration and extraction costs, unpredictable price swings, and sizeable environmental footprints. These risks can all discourage investors, exacerbating the energy transition supply-demand imbalance.

If the mining industry can’t access capital, the energy transition falls at the first hurdle. Miners and their investment partners urgently need to address the financing gap to ensure that supply steps up to meet unprecedented demand.

In this article, we bring together Baringa’s mining and climate finance expertise to show how both sides can overcome barriers to investment and increase the production of critical minerals.

What can miners do to increase their investment attractiveness?

1. Prove themselves in current operations

Maximise the operational efficiency of existing operational assets. As well as improving the financial performance and profit margins of the current portfolio, operating existing assets efficiently provides proof points to investors of fiscal responsibility and the ability to maximise future returns. Technology will be a vital lever for enabling higher efficiency and growth. For example, predictive maintenance solutions can help detect equipment failure sooner, reducing downtime, while advanced analytics support better site selection and more efficient extraction.

Improve regulatory compliance. Addressing existing environmental concerns and ensuring all disclosure obligations are met reduces the risk of unknown future liabilities, and therefore the risk of license to operate being lost or litigation action being taken against asset owners in the future.

2. De-risk development timelines

Be clear on expected permitting processes. Extended permitting processes are a significant detractor for investors, so pro-actively communicate the expected permitting process for the asset, and the levers available to accelerate it. Giving local communities, rights holders and external stakeholders a voice during consultation helps to address concerns early, reducing permitting risk.

Invest in project scoping and planning to reduce construction cost and time over-runs³. Spending time upfront to fully define the project specifications, design and delivery processes (including procurement incentives) can reduce construction costs by up to 25%, significantly improving investment attractiveness and confidence in expected payback periods.

3. Communicate the positive impact of assets

Demonstrate how asset development and design will minimise environmental impacts and maximise the value to the local area. This should go beyond token CSR or environmental initiatives, focusing on actions with benefits beyond the life-of-mine, such as upskilling local communities or investing in low-carbon electricity generation or distribution infrastructure that powers beyond the mine site.

Quantify how products will enable the energy transition, including any substitution benefits across the entire value chain. This could include the amount of renewable energy generated, or emissions avoided that can be attributed to annual asset production.

Avoid green-washing claims that could become liabilities for investors. Communicating the positive impacts of mining activities supports the case for investment, but this must be backed up by rigorous analysis and committed implementation actions.

What should banks do to boost investment in critical materials?

1. Develop transition plans which consider sector emission profiles⁴

Consider the positive impact on the energy transition through the enabling nature of products, despite comparatively high Scope 1 and 2 emissions. Investors and financial institutions should focus on assets which support the exploration and production of the materials most critical to the energy transition.

Support the decarbonisation of mining activities. This includes the promotion of cleaner energy sources, innovative operating practices and increased resource efficiency, with the aim of proactively driving down emissions once assets are within an investment portfolio.

2. Explore collaborative approaches and innovative production-based financing models

Think beyond short-term yields to create long term value, likely in partnership with others. Given challenging macro-economics and the need to weather commodity price cycles, investing via joint ventures or syndicates reduces risk and lowers barriers to project investment.

Consider production-based financing. These could include offtake, forward purchase, royalty or streaming agreements⁵, enabling companies to raise finance on the basis of proven reserves. These agreements give investors a stake in future production and can secure future supply at a discounted price. They also demonstrate confidence in the project to capital markets, helping to attract additional investment if and when needed.

3. Engage with target assets or companies early and effectively

Communicate the financial and non-financial criteria for investment. This enables companies and individual projects can work towards achieving these well ahead of investment decisions. Where appropriate, work with target companies and assets to breach these gaps and support best-in-class ESG practices.

Ensure your teams understand the nuances of the mining and metals industry, as the sector occupies an important but sometimes complex position in the energy transition. Investing in sector specific training will equip them with the knowledge required to identify the projects most likely to be commercially successful and deliver against climate change targets.

A bridge between mining and investment

At Baringa, we’ve helped clients in mining and adjacent high-emissions industrial sectors to boost their operational, capital project, and sustainability performance. Success in these three areas has been crucial for enhancing both commercial performance and investment attractiveness.

We also bring a strong track record of developing climate transition plans and advising on emerging energy technologies transactions. This experience gives us unique insight into what it will take to finance these critical projects in the coming years.

Here are some highlights from our work with clients in mining, financial services, and more:

• Major financial institutions. Worked with multiple firms to develop and execute net-zero strategies. Baringa also helped assess climate risk and trajectories across portfolios and provided sector-specific climate finance training to investment professionals.
• Greenfield mine development. Developed integrated decarbonisation pathways for Scope 1, 2 and 3 emissions. As part of this, we evaluated the most cost- and carbon-efficient power and heating options and created investor presentations highlighting the sustainability credentials of the mine’s operations and product.
• Copper-nickel mine joint venture. Facilitated a fresh eyes review of the permitting strategy, identifying opportunities to reduce risk and providing recommendations for future phases of development.
• National electricity grid operator. Improved the client’s processes and capability to deliver multi-year infrastructure programmes for expanding and improving grid capacity. It’s enabled them to connect new sources of renewable electricity generation to the grid on time and on budget.
• Major chemicals manufacturer. Increased production output by applying best-practice operational excellence, maintenance, and reliability techniques, using data analysis to identify capacity constraints and process bottlenecks.

The energy transition demands a step change in critical minerals supply and financing. Baringa can help you rise to the occasion. Get in touch with Laura Menzies today to find out how.

References

¹ Critical minerals include Arsenic, Boron, Cadmium, Chromium, Copper, Cobalt, Gallium, Battery-grade graphite, Indium, Lead, Lithium, Magnesium, Manganese, Molybdenum, Nickel, Niobium, PGMs, Selenium, Silicon, Silver, Tantalum, Tellurium, Tin, Titanium, Tungsten, Vanadium, Zinc, Zirconium, Rare earth elements

² IEA (2024), Critical Minerals Data Explorer, IEA, Paris

³ National Infrastructure Commission, Cost drivers of major infrastructure projects in the UK, October 2024

⁴ Transition Plan Taskforce, Mining and Metals Sector Guidance, April 2024

⁵ Field Fisher, Financing for mining – Going to ground, 2023