I’ve covered the mining industry for more than a decade and during that time have had many opportunities to listen to presentations and speeches by Ivanhoe Mines’ founder Robert Friedland. I also interviewed him at length for an article about his career when The Northern Miner gave him a Lifetime Achievement award in May 2017.
But I think his remarks last week at the CRU World Copper Conference were among his most enlightening. Videoed from his home in Singapore, Friedland spoke about the green energy transition and how important copper will be for the new world economy.
Whether you are a Friedland fan or not, you can’t disagree with his conclusions that, as the world transitions from hydrocarbons (oil and gas) and moves toward electrification and greener energy sources, metals like copper will be more important than ever before. In fact he described copper in the medium term as a “national security issue” as countries around the world will have to scramble to lock-in supply. “We know that the change is coming,” he warned, “but it takes a long time to change the entire supply chain. It takes a long time to really electrify the world economy but it’s going to happen. It’s an enormous undertaking, nothing easy about it. And it will really enhance the position of a lot of the world’s miners as people realize that mining is a basic industry, because it’s basic, and the whole transformation will rely on the miners.” He calls miners heroes.
He also noted that the scale of the coming disruption is not well understood by the general public or even by most governments. “They think they can pass a law … and demand something and then it shall happen, but it’s not that simple with the supply chain.”
Friedland also said that China is “light years” ahead of the United States “in the thoughtful, intelligent design of their national grid;” called the American grid, now well over 100 years old, “a joke by comparison,” and estimated that it will take “tens of trillions of dollars” to upgrade it from “a mishmash of pieces that are all mismatched” and into one that is designed to accommodate alternative energy. “Designing a new electrical grid for America alone will take astronomic amounts of the right metals,” he said, “and it will have to be done.”
Ultimately, he argued, everybody wants clean air and clean water and “it’s readily apparent that there’s going to be a shortage of certain critical metals.” In addition to copper, he includes nickel, aluminium, lithium, manganese and scandium as well as some other specialty metals in that category. (By his estimates “we’re going to basically need to triple global primary nickel production and there are a lot of fantasies out there about where this nickel is going to come from.”)
“When you turn on a light-switch, somewhere a generator has to kick in to generate power and send it to you,” he explained. “It’s not stored in a grid. There’s no storage of electrical energy in the grid to speak of, so the whole concept of storing electric energy in the grid is a massive concept. Grid-scale batteries. It’s not just the electric car. That’s trivial. It’s the way we generate power, it’s the way we transmit power, it’s the way we store power, the final mile.”
Another speaker at CRU’s virtual World Copper Conference on April 12-13, was Goldman Sachs metals strategist Nicholas Snowdon, who said the mining sector is at the start of a supercycle. “We estimate nearly US$16 trillion would have to go into green-focused infrastructure to achieve decarbonization targets, compared to just US$10 trillion in China during the last supercycle,” he said. Snowdon also said that in terms of copper, there will be “a record long-term supply gap by the end of the decade that has to be solved by investment in new mine supply.”
The Northern Miner obtained a copy of Goldman Sachs’ report Copper is the New Oil, which like Friedland’s warnings, is a wake-up call for those who don’t see the tidal wave of disruption barreling down upon us. “Crucially, the copper market as it currently stands is not prepared for this demand environment,” Snowdon and his colleagues wrote in their April 13 research note, estimating that by 2030, copper demand from the green transition “will grow nearly 600% to 5.4Mt [million tonnes] in our base case and 900% to 8.7Mt in the case of hyper adoption of green technologies.”
Goldman Sachs argues that a combination of “surging” demand and “sticky” supply “foreshadows large open-ended deficits from mid-decade,” and estimates “a long-term supply gap of 8.2Mt by 2030, twice the size of the gap that triggered the bull market in copper in the early 2000s.” The investment bank forecasts copper prices will reach US$15,000 per tonne by 2025, up from current prices of about US$9,000 per tonne.