The energy transition is a complex, once-in-a-lifetime shift, with many moving parts. ‘Green’ energy companies battery storage companies, energy efficiency and technology groups will all play a role and are a significant area of investment within the BlackRock Energy & Resources Investment Trust (BERI). However, it is clear that the mining sector will also have a crucial role in enabling decarbonisation.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
The energy transition is dependent on a range of mined commodities. For example, copper, with its higher conductivity, is required for expanded power grids, while battery metals such as lithium or nickel are needed for the electric vehicle (EV) revolution; steel and rare earths are necessary to build wind turbines1, while solar panels require steel, polysilicon, aluminium, zinc and silver.2
The International Energy Agency projects total critical mineral demand (including lithium, cobalt, nickel, copper and rare earth elements) will need to grow by almost seven times by 2030 to limit global warming to 1.5 degrees.3 Bloomberg New Energy Finance (BNEF) believes demand for energy transition metals (aluminium, cobalt, copper, lithium, manganese, nickel, rare earths, silver and steel) will grow more than five times from 2020 to 2050.4
There is no guarantee that any forecasts made will come to pass.
There is likely to be more demand for these mined commodities as global governments race for energy independence. We have seen policy shifts announced around the world, focused heavily on lower carbon technologies, many of which are commodity-intensive. These include the Inflation Reduction Act of 2022 in the US, and the European Green Deal, which aims to make Europe carbon-neutral by 2050.5
At the same time, a nationalistic approach to natural resource mining may affect supply as countries around the world look to protect access to vital natural resources that help their transition to clean energy. The most notable example in 2023 was the shutdown of the Cobre Panama copper mine after Panama’s supreme court deemed the granting of a concession to its operator as unconstitutional.6 Copper is a key commodity for electrification. Not only did this immediately shut off 1% of global copper supply6 but this and other cases like it deter companies from investing in new projects. This continues to dent supply at a time when demand is expanding.
The next step to enhancing emission reductions
To date, the focus of both policymakers and investors has been on reducing emissions in the production of energy. However, removing emissions embedded in the materials that enable decarbonisation is also important in our view. The leaders in these segments are starting to distinguish themselves by decarbonising their own operations, as well as pushing for emission cuts downstream through their products.
Markets are likely to start to reward the efforts made by some of these companies to decarbonise their own activities. ‘Green’ miners could have an advantage over ‘brown’, potentially capturing a higher share of the capital that must ultimately flow to these sectors.
How are miners adopting to greener practises?
Mining companies are already making changes. There are easy wins, such as switching fossil fuels to renewables for the energy used to run the operations, but also more sophisticated measures, such as providing access to storage hubs for carbon capture or green hydrogen pipeline networks. Technology and AI can help with precision targeting of mining project, plus energy optimisation technologies, including waste heat recovery, smart process control and monitoring. Other, innovative methods are emerging. These include techniques such as ‘leaching’, a low carbon method for growing the supply of mined copper.
The mining sector has an important role to play in the energy transition and some companies are also taking steps to improve their carbon footprint. This makes for exciting investment opportunities across the sector.
Sources:
1Grist - Offshore wind turbines need rare earth metals. Will there be enough to go around? - October 2023
2ESE - What Are Solar Panels Made Of? - July 2023
3International Energy Agency - The role of critical minerals in clean energy transitions - October 2023
4Bloomberg NEF - Transition Metals Become $10 Trillion Opportunity - January 18, 2023
5Norton Rose Fulbright - The EU Green Deal Explained - April 2021
6BBC - Cobre Panamá: Panama orders controversial copper mine's closure - November 2023
Risk Warnings
Investors should refer to the prospectus or offering documentation for the funds full list of risks.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Description of Fund Risks
Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.
Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.
Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
Investments in Mining Securities: Investments in mining securities are subject to sector-specific risks which include environmental concerns, government policy, supply concerns and taxation. The variation in returns from mining securities is typically above average compared to other equity securities.
