Mining industry needs investment or metal shortages are inevitable

The time is right for the mining industry to invest in new projects. The fundamentals are clear: we forecast supply gaps across a number of key commodities by 2028.

Investors are understandably concerned that the mining industry will repeat the sins of the past. Meanwhile, macro-economic uncertainty is putting the brakes on project development, and the industry must contend with a widening range of above-ground risks.

But our view is that strong fundamentals mean that investors willing to step up will be rewarded.

Where are the most critical supply gaps?

China is a driving force in global commodity markets. Despite its best efforts, the country is geologically short on several important metals: copper, nickel, zinc, iron ore and aluminium.

What will it take for new projects to get the green light?

While the opportunities are clear, the reluctance to invest is understandable.

Shareholders that had their fingers burnt in the last downturn are hesitant to allocate capital to large, costly projects. Miners have struggled to compete for investment with other asset classes and trade jitters have hit the market, undermining a commodity price recovery.

Developing mining projects isn’t going to get any easier

Regions with the most promising geological reserves are often the most exposed to a host of geopolitical, technical, environmental and operational risks. Even jurisdictions with traditionally low risk are no longer viewed as safe bets for investment.

The Brazilian tailings dam failures are just one example of an unexpected environmental risk that can have a far-reaching impact. The uncertainty over the scale and duration of production cuts in the wake of the accident rapidly changed the entire psyche of the iron ore market.

Watch for the margin upside

Since 2015, industry margins have been steadily improving to levels that are on a par with the peak of the last cycle. And we expect margins to get even better: we forecast there’s a US$200 billion potential upside on the cards from new, uncommitted project development.

Greenfield projects can have long lead times, which only adds to the urgency for mining companies to position themselves now to develop new projects, before the supply gap hits.