Traditional Mining Giants Embracing New Energy, the Next Global Trend?

SHANGHAI, Aug 5 (SMM) - Chen Jinghe, Chairman of China’s mining giant Zijin Mining, recently claimed that the company would extend its business deployment into the new energy sector, including lithium ore. The share prices of the company soared over 7% on Monday immediately following his comments. However, a clarification announcement was later released that "the company has not yet a specific timetable and specific project arrangements". On Tuesday, Zijin Mining's share price saw a pullback of nearly 3 percentage points.

Nonetheless, the clarification did not deny its intention to enter the lithium mining industry. In fact, in an environment when energy conservation and emission reduction guides industry development, and traditional minerals are marching toward fully-explored demand, many of the world's traditional mining giants have begun to consider transforming into new energy-related minerals such as lithium, nickel and cobalt.

Last Tuesday, Rio Tinto, the world's largest iron ore miner, said it would invest US$2.4 billion in the Jadar lithium borate project in Serbia to produce battery-grade lithium carbonate. In addition to lithium, the project will also produce borate, which can be used to produce solar panels and wind turbines.

According to Bloomberg NEF data, demand for lithium ore will surge from around 400,000 mt last year to around 2 million mt by 2030, amid the intensified trend towards electrification of cars. Furthermore, a market undersupply is expected to emerge as early as 2026, which will drive up lithium prices. While at the same time, demand growth momentum for traditional minerals is waning. In the case of iron ore, Bloomberg NEF expects China's iron ore consumption to reach developed country levels within the next five years, by which time the country's demand growth for steel will slow gradually.

At a time when traditional minerals are on the decline and new energy minerals on the rise, there is another challenge for traditional mining giants on the road of transformation. That is, compared to traditional mining metals such as copper, iron and gold, the market size of new energy minerals such as lithium is much too small. Currently, crude oil alone accounts for more than half of the value of all mineral resources, and the proportion would rise to 2/3 when combined with natural gas, and 80% after adding coal. On the other hand, gold, copper, iron and aluminium each account for around 4% of the value of global mineral resources, while all the other remaining niche minerals only add up to 4% or 5% when counted as a whole.

Unlike some smaller lithium miners, the current global mining giants are still largely dependent on traditional minerals for their performance, which will make them to face a "difficult to turn around" situation in the transition process.

And according to Zijin Mining’s financial report, its revenue in 2020 was 171.5 billion yuan, with profits mainly from gold, copper, zinc (lead), iron and other traditional minerals, accounting for 20.83%, 52%, 8.43%, 18.74% of the company's gross profit respectively. Even if the company’s intention to deploy in the lithium mining industry is true, the impact on the company's actual performance may still be limited.