As a major driver of economic activity and employment, the global mining sector is shaped by diverse market factors. This high-level overview explores some of the trends and factors likely to influence mining investors, operators and explorers in 2024.
1. Heightened geopolitical uncertainty
Geopolitical factors have long shaped the mining industry and were heightened in 2023 by ongoing conflicts in Gaza, Sudan and Ukraine, and persistent economic tension between China and the US. According to Nona Sichinava, a Partner with Gerard Daniels, geopolitical uncertainty will continue to impact the mining sector in 2024 as an election ‘super cycle’ unfolds.
“Elections are due to take place in more than 60 countries this year, meaning nearly half the world’s population will be voting to shape their future governments,” Nona explains. “This is especially significant for the mining sector, because any time there is a change in government it can affect the priority given to different aspects of the mining value chain, from exploration through to manufacturing.”
A change in the political leaning either way, in nations that either drive minerals demand or are minerally endowed, is another geopolitical factor influencing mining. “We are in an era of disruptive politics with traditionally understood ideology shifting constantly, often highly influenced by social media in a way we haven’t seen before. That as well as the sheer number of elections due, means mining companies could be dealing with quite different political agendas in 2024 and beyond,” Nona continues. “There will also be a watch-and-wait period following elections where the deployment of capital will be slow, along with growth in this sector.”
2. New partnerships
Partnerships remain a critical enabler for the mining sector, with two particular alliances expected to grow.
Joint ventures
“Joint ventures (JV) are increasingly common in mining, because it's getting more and more difficult for one company to carry all of the risk and to have all the resources required to develop these projects,” says Nona. “As well the benefits of shared capital deployment, JVs also allow projects to tap into the technical, commercial and leadership expertise that both partners bring.”
Family business partnerships
Where mining sector funding has traditionally been sourced through banks and private equity, Nona describes a new and emerging type of financial partnership.
“With several Middle Eastern nations, including Saudi Arabia, now diversifying away from the oil and gas sector, the mining sector is poised for a new source of investment flow. This shift is creating heightened interest from family offices in the region looking to invest in mining projects, particularly in Africa,” says Nona. “However, these organisations often bring limited operational understanding of mining and only time will tell whether the risk of investing in development of assets in Africa and elsewhere will be effectively managed.”
“Given the longer term strategic planning required for critical minerals, building trust and communication will be key to the success of all types of Vs and strategic investment partners,” Nona continues. “This is particularly important for maintaining investor confidence and staying buoyant through challenging conditions, when investors lack a deep market understanding.”
3. Growing cost of capital
Many economies are still recovering from the pandemic. And to restrain the inflation that followed this unique period, the rates on borrowing capital have increased, making funding harder to come by and allowing investors to be more selective in how they deploy capital. Together with skills shortages, economic and geopolitical uncertainty, the growing cost of capital is also increasing operating costs for mining companies and creating leadership challenges for this sector.
Additionally, human capital costs have been rising. “When there are skills shortages, projects become even more expensive to deliver because of the premium that top talent attracts, and the higher the project cost, the smaller the talent pool with the experience to deliver it,” says Nona. “You may find Project Directors that can deliver $200M or $400M projects but finding someone to manage $900M in Capex is entirely different. There are fewer and fewer professionals who can deliver more complex and expensive projects and manage operations effectively.”
4. Slower than anticipated EV adaption
The transition to electric vehicles (EV) has triggered considerable interest in critical minerals and a pivot in commodity strategies for many mining organisations. However, uptake has been slower than expected and many automakers are not yet ready to pay the premium on critical minerals sourced from ESG-compliant companies and countries.
Changing commodity strategies
“Slow EV uptake is partly responsible for low critical mineral prices and many businesses must now decide whether to continue with critical minerals, or to diversify – a decision made more challenging if capital has been secured based on a critical minerals focused commodity strategy,” says Nona.
Critical mineral brands
Another interesting challenge is emerging around branding. “One of the biggest shifts in recent years has been the rebranding of mining organisations to align with the green energy transition,” says Nona. “But if demand for critical minerals remains slow, how will it affect these business models, and their ability to attract capital based on sustainable energy brands?”
Trade partnerships
“With the prospect of strong demand for EVs, many mining companies have bypassed traditional agreements with metals and commodity traders, in favour of working directly with car manufacturers. In doing so, these companies no longer have agreements in place to sell elsewhere while EV adoption remains slow,” says Nona. “As the cost of operating and securing capital grows, many companies can no longer afford to build new trade agreements, as profit margins are already too low.”
5. Uranium – the new nickel?
As nickel and lithium prices fall, but the need for the alternative sources of energy remains, some investors have turned their attention towards uranium. “There has definitely been uptick in prices and growing demand from Asian countries, but just how sustainable uranium growth will be is yet to be seen,” says Nona. “The war in Ukraine has certainly put energy security in the spotlight, and growing demand for nuclear energy is a direct response to the realisation that somewhere between traditional oil and gas and renewable sources of energy that cannot yet satisfy demand, we have access to a sustainable fuel.”
Unlike nickel and cobalt, this commodity won’t be integrated into the local supply chain. But uranium companies will see an injection of capital and locally the benefits will be realised through new mining licenses and employment opportunities.
Keen to discuss how these and other trends will shape the leadership and performance of your mining organisation? Connect with Nona or reach out to Gerard Daniels today.
