In the coming renewable energy boom, Australia is once again the “lucky country”
(The opinions expressed here are those of the author, Clyde Russell, a columnist for Reuters)
Which commodities and countries are best placed to emerge as winners in the post-coronavirus world, especially if the anticipated boost to investment in renewables energies actually happens?
One of the themes emerging for a post-coronavirus world is that investment should flow into renewable energies, both as economic stimulus and as a way of limiting the impact of climate change.
To this end, the World Bank released a report on May 11 stating that global production of minerals such as lithium, cobalt and graphite would have to increase by as much as 500% by 2050.
The report also said an impressive sounding 3 billion tonnes of minerals and metals will be needed to build the wind, solar and geothermal power, as well as energy storage, required to keep the increase in global temperatures to under 2 degrees Celsius (3.6 degress Fahrenheit).
The report said it was more than just the so-called battery minerals like cobalt and lithium that will benefit, with copper, aluminum, chromium and molybdenum among others that will see increased demand.
The World Bank report didn’t go into detail on the issue of where all these minerals are going to be sourced from, but did say that “resource-rich developing countries will be major contributors to the clean energy future by producing a significant part of these strategic minerals and supplying them to the global market.”
While the World Bank may be correct insofar that many developing nations have viable reserves of many of the minerals that will be needed, the issue is nowhere near as simple as getting mining companies to go explore and develop new operations.
The reality is that established mining jurisdictions, such as Australia, Canada, the United States and Chile are likely to see much more investment than developing countries.
First among these countries is Australia, which has a unique opportunity to underscore its reputation as the “lucky country,” a term used in a 1964 book by Donald Horne referring to nation’s endowment of natural resources and isolated location.
Horne meant the phrase as a negative, portraying Australia’s rise to wealth merely as a result of good fortune, criticising the country as “run mainly by second-rate people who share its luck.”
That assessment hasn’t stood the test of time, with Australian mining companies envied for cost-cutting innovation and expertise that has created a world-class industry.
While Australia’s current mineral expertise is concentrated on being the world’s top exporter of iron ore and coking coal, the country also has significant other advantages.
Australia is also the world’s largest producer of bauxite, the base for aluminum, in which it ranks number five in global output, according to the government agency Geosciences Australia.
It also ranks fifth in world copper and cobalt output and has the second-largest reserves of copper, cobalt, bauxite, and is ranked third in reserves of lithium and rare earths.
Having benefited from the rapid industrialisation of China, Australia is probably the best-placed country in the world to tap into the switch to renewable energy in coming decades.
The country ranks highly in the annual Fraser Institute survey of mining companies for investment attractiveness, with Western Australia state ranked the top jurisdiction in the 2019 survey, released in February.
South Australia state, home to BHP’s massive Olympic Dam copper and uranium mine, ranked sixth while the Northern Territory and Queensland state also made the top 20.
It’s worth noting that developed nations dominated the top 20, including the U.S. states of Alaska, Idaho and Arizona and the Canadian provinces of Saskatchewan, Ontario, Quebec and British Columbia.
The only developing country in the Top 20 was the African country of Guinea, and several developing countries with significant mineral reserves, such as the Democratic Republic of Congo, Zambia, Tanzania and Nicaragua ranked in the bottom 10.
Investment money tends to flow to where it feels it will make the biggest return relative to the risks involved, and it’s on this ratio that the developing nations will have their work cut out.
Most of them receive poor scores on investment attractiveness because of endemic corruption, poor mining laws and investor protection and weak infrastructure to support the industry.
While developed nations like Australia and Canada are far from perfect in this regard, they do offer investors considerably more certainty, and this may be a tipping factor in the post-coronavirus world, where certainty of returns may outweigh the potential of big rewards in risky places.
Given their track record, it’s also unlikely that many developing nations will institute the necessary reforms and strengthen their institutions to the point where investment money feels comfortable.
To be sure, Australia can do better, with the current conservative Liberal-National coalition in power at the federal level needing to switch its ill-considered backing of coal mining to those companies interested in the minerals of the future.
But even just business as usual should see the bulk of investment dollars flow to the existing mining jurisdictions in the developed world, which is perhaps less than ideal but also the current reality.