Metals & Mining Scenarios for the Next Decade: How Miners in Africa Should be Strategising in a ‘VUCA’ World

Experienced leaders of mining companies, and those with knowledge of mining’s history, probably smile wryly at the way ‘VUCA’ has become an earnest catchphrase among the new generation of business executives. They will know that mining – operationally high-risk, exposed to structural change at the whim of governments and with revenues subject to the vagaries of commodity prices – has? always been like this. ‘Volatility, uncertainty, complexity and ambiguity’? Welcome to the world of mining.

Nevertheless, mining companies should be thinking afresh about the decade ahead, especially those either based in Africa or having operations on the continent. The coming together of reshaping metals demand, technological innovation, disruption, climate change, and demographic and geopolitical issues in Africa make the mining industry unique both in terms of its challenges and its potential.

Top of the strategic agenda must be the world’s shift to a low-carbon economy. The recent COP28 summit formalised an international agreement to transition away from fossil fuels and to accelerate renewables.

The mining industry will play a crucial role in this, and mining companies are now both incentivised and burdened. The latter is in the shape of the requirement – the responsibility – to reduce their carbon footprint. Greenhouse emissions from mining processes – exploration, extraction and refining – account for between 4 to 7% of global carbon pollution. Stakeholders and leaders of mining enterprises understand the importance of cutting this figure.

Alternative technologies and power sources such as hydrogen and solar are already in use to some extent. In the copper sector, for example, according to calculations by the International Energy Agency (IEA) and PwC these and other new technologies can potentially reduce the CO2 intensity per metric tonne of refined metal by 87%.

The incentive for the mining industry is that the goal of decarbonising the global economy comes with a huge demand upside. The IEA’s Global Energy Transitions Stocktake report clarifies the need for the A to Z range of mined outputs: from aluminium as an input into wind turbines and energy storage components to zinc for zinc-air batteries to power electric vehicles (EVs) cheaply and more durably. These are two examples among hundreds, with rare earth metals being especially important.? ???

Focusing on the copper sector, the bottom line is that transitioning from fossil fuels means more electrification – on a huge scale – and copper is critical to this. Whether for modernising and expanding existing generation and transmission grids, growing the network of hydro-, solar- or wind- power generation infrastructure, or the conversion to EVs, copper is top of the list of required materials. S&P Global summarises this simply in a recent report: “Unprecedented quantities of copper will be demanded over the next 25 years.”

Feasibly, there may be a less dramatic swing from fossil fuels, and a far smoother demand curve for copper over the next few decades. One important factor will be the rate of adoption of EVs. An indicator of consumer resistance is that, at 2% share, they are as yet a tiny portion of the vehicle segment in the U.S., the world’s 2nd largest car market, and half of Americans say they are unlikely to consider one in the near future. So, pragmatic forecasts of the worldwide EV share of the light-duty vehicle market are 25 to 30% by 2030.

A second factor, the geostrategic angle, is that powerful international blocs control the supply of oil and gas, and will leverage the status quo advantages this gives them for as long as they can.??

However, for copper mining companies, the central operational challenges implied by decarbonisation are the same, regardless of high-road or low-road scenarios for the metal. And they are applicable, too, for Africa’s mining companies specialising in other extractives, whether commodities such as coal and iron ore, critical minerals such as cobalt and lithium, or rare earth elements.

Countercyclical exploration?

Indeed, miners not already extracting these metals may consider it opportune to diversify into cobalt, lithium and nickel. Market prices for these metals have fallen sharply – cobalt is currently at near-record lows – but, in parallel to copper, demand is expected to surge in the next 10-20 years. Total lithium demand, for instance, is forecast to triple, reaching 2.5 million tonnes by 2030, and then almost double again in the following 10 years. ?

On average the industry has a 10-year lead-time from exploration to production, so investments to capitalise on the global energy transition require urgent assessment. ???

Two key strategy issues:

• Decarbonisation is actually an opportunity to save costs and unlock value. If they aren’t already doing this, individual mining companies should assess where they can fastest and most effectively cut their carbon footprint.
• And mining enterprises in Africa should be looking to understand how they can capitalise on the projected demand escalation. Could greenfield projects be fast-tracked? Should capex be ramped up? Growth by means of increasing output, and the supply chain this involves, requires forward planning as part of a long-view strategy. ?

Buffering risks

A vital aspect of this is identifying and mitigating risks. Here, mining companies in Africa need to be watchful of big-picture political developments. When surveyed, CEOs willingly express certain clear concerns, such as climate change impacts, capital to fund exploration, the availability of skilled labour. An undercurrent, rarely mentioned, is the implication of how the world’s superpowers compete on the continent. China, in particular, has invested enormously in resources-for-infrastructure (RFI) agreements in countries from Angola to Zimbabwe. Together with Russia, it contributes to a degree of instability in many of Africa’s mining sectors.??

These may represent extreme examples, and Africa’s diversity means that conditions vary significantly. In Zambia, for example, the government has made important strides in providing policy certainty and a more investor-friendly industry framework. This contrasts with its near neighbour, South Africa, which, at 300 million metric tonnes of mineral output, has a far larger industry but one tinged with the uncertainty of government’s fluctuating policies.? ?

Key strategy issue:

• Mining company leaders should reassess risks associated with access, political instability, regulatory changes, and potential security concerns. Conclusions should be incorporated into an updated risk management and resilience plan.

The mining industry may be at crossroads. By focusing on the fundamentals as well as zooming out to understand the implications of megatrends, strategies can prime mining enterprises for a prosperous decade.?

?Look out for Part-2 of this strategy outlook. In the meantime, if VUCA is stressing you out, or if you’d like to share your thoughts on the mining industry’s challenges in the next decade, contact me at [email protected]

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