Preparing for impact

The global mining industry faced a challenge in 2023 that was at once unprecedented and familiar. The financial performance of the world’s Top 40 mining companies was squeezed by falling commodity prices and rising costs. Revenues fell more than 7%, despite increases in the production of key commodities, and profits shrunk, too; 2024 promises a continuation of these trends, marking the first time since 2016 that industry revenues will fall for a second consecutive year. And a mix of cyclical and structural issues compels leading miners to invest for growth and transformation even as revenues and profit margins come under pressure.

Mining occupies a unique role among global industries. The world’s top mining companies are helping feed the world while lighting the path to a low-carbon future and providing materials for infrastructure development and consumer needs. These structural trends underpin the demand that miners will have to meet in a world where the pace of change and disruption is accelerating. As regulatory, economic and societal pressures increase, mining companies are busily reinventing their business models so they can create value in new ways while working more effectively as important players in burgeoning ecosystems.

In this, PwC’s 21st Mine report, we focus on how the industry is planning for impact—retooling and reimagining itself to be a key contributor to growth. That means throwing into relief the vital role mining plays in an adjacent domain: how the world feeds itself. It means delving into the potential and challenges of the complementary industry of urban mining (that is, recycling). And it means harnessing technology—including the revolutionary implications of AI—to advance productivity, sustainability and safety.

Amid the changing landscape, mergers and acquisitions (M&A) remain a crucial strategy for miners that want to create impact. Although the number of deals fell in 2023, their value increased, and so did the focus on critical minerals. But transactions today—and tomorrow—are not simply about gaining scale. They’re about gaining the capabilities and assets that enable companies to collaborate with counterparts in broader industrial ecosystems. Mining companies are increasingly forming alliances beyond traditional boundaries as they seek to acquire vital technical skills and to collaborate with governments in order to create enabling environments.

2023 financial snapshot

2024 forecast

In recent years, the industry has faced pressure to invest in sufficient mining capacity and production to meet the current and expected demand growth for metals supporting the energy transition. But markets aren’t always completely efficient. In 2023, the prices of lithium, copper, nickel and cobalt fell sharply, as portions of the lumpy supply response came on stream while demand growth was temporarily stunted. At the same time, the price of uranium rose—with demand driven by growth in the nuclear industry after a decade of virtually no investment in supply. The spot price of uranium soared from below US$50/lb in 2022 to more than US$100/lb in early 2024. Although commodity prices remain well above pre-covid price levels, inflation adjustments show that only coal and gold significantly exceed 2019 levels in real terms. The drop in prices for coal, lithium, copper and platinum group metals (PGMs) resulted in six companies falling out of the Top 40, while the rally in gold and uranium prices propelled six replacements into it.

Beyond the energy transition—which can proceed in fits and starts—strong structural trends continue to buttress powerful long-term demand for commodities. Urbanisation and ongoing infrastructure development needs in India and other parts of Asia and the developing world will continue to absorb the output of miners of iron ore, copper and other commodities. Consumer-driven demand is likely to follow as per capita income levels rise.

One key arena for structural growth can be seen in food production—in which mining plays an important but often overlooked role.

How the world feeds itself is one of the fundamental challenges society faces. According to the United Nations, of the world’s 8 billion people, at least 700 million are estimated to have insufficient access to food. And according to the World Economic Forum, 16 countries have very high hunger levels. To ensure a well-fed future, agricultural production needs to grow more than 55% in the next two decades.

Mining plays a critical role in global food security and in reducing the impact of agricultural production on the environment, due to its direct link in supplying the raw materials necessary for a wide range of inputs and consumables required in agriculture. Improved crop yields support a reduction in deforestation—currently responsible for 20% of total global greenhouse gas emissions. Of the six core uses in which minerals and metals improve food security, fertiliser is the most important:

Commercial fertilisers are produced from three main ingredients: nitrogen, phosphorus and potassium. Whereas nitrogen is generally obtained from the oil and gas value chain, potassium and phosphorus are mined from phosphate rock and brine. These synthetic fertilisers have been pivotal to the successful decades-long effort to enhance crop growth, yield and quality. But to keep feeding a growing global population, crop yields on already utilised land need to improve further. More than 40% of soils are deficient in phosphate. It’s no surprise, then, that phosphorus is classified as a critical mineral for China and the European Union, and potassium is a critical mineral for China and Canada.

To grow the agricultural products that feed the 1.9 billion additional people who will live on the planet by 2050, global annual production of phosphorus needs to increase by 55 million tonnes per year (25%) by 2050.

Recycling impact

Covid, restrictive trade policies, increased energy prices, and the Russian invasion of Ukraine have caused fertiliser prices to spike and supply to decline over the past several years. (According to the International Food Policy Research Institute, Russia is responsible for 17% of phosphate exports and 20% of potash exports.) Given the disruptions, there is a greater need to source these minerals from elsewhere. At the same time, reasonably abundant new uses of phosphorus—for example, in lithium-iron-phosphate (LFP) batteries, which account for almost one-third of new electric vehicle (EV) supply—could increase competing demand for the available resources.

Phosphorus can be recovered from sewage sludge, animal manure and bonemeal. Technologies such as struvite precipitation can extract phosphorus from wastewater treatment processes. And potassium can be recovered from various organic wastes, including crop residues and certain industrial by-products. But scaling up these alternative sources to meet global agricultural demand presents significant challenges.

Alternative methods can provide only a modest supplement to the supply of phosphorus and potassium. But in other areas, the recycling of minerals at scale is already common, and it’s a key adjunct to traditional mining. Urban mining, also known as recycling or secondary production, has evolved into a sophisticated, multibillion-dollar industry. In certain instances, recycled metals may command a ‘green premium,’ as they appeal to sustainability-minded consumers and industrial users who prioritise environmentally responsible production methods.

In theory, using more recycled materials could reduce the demand for mined materials. But given the rising populations and increasing industrial usage, demand is not a zero-sum game. Urban mining presents significant opportunities for traditional mining companies as they reinvent their business models and find new methods of value creation in the broader ecosystem (see chart, below). As regulatory requirements tighten, investing in circular economies will be key in achieving success.

Urban mining can be more resource-efficient and cost-effective than primary mining. It reduces the environmental impact associated with traditional mining, mitigating issues such as land degradation, rock waste, water pollution and greenhouse gas emissions. And it shortens supply chains and reduces the reliance on imports. However, urban mining also faces considerable challenges. In many areas, the economics of recycling don’t make sense. The recycling process can generate hazardous waste by-products. And the supply of source material can be erratic.

These issues underscore the pressing need for technological advancements to further refine and optimise urban mining processes. Innovations such as improvements in hydro- and pyrometallurgical processes and new technologies such as artificial intelligence hold promise in enhancing the efficiency of recovering materials from complex scrap sources.

AI and mining: A mutually reinforcing relationship

AI systems depend on minerals and metals in several critical ways. Semiconductor chips are made from silicon, and they also contain such metals as copper, gold, tin, nickel, palladium and silver. Storage devices rely on metals such as platinum, palladium, and gold for their magnetic and conductive properties. Data centre facilities use vast amounts of metal in their construction.

The demand for AI is contributing to an increased need for these metals. At the same time, integrating AI into urban mining will allow the industry to achieve higher efficiency, better material recovery rates, reduced costs and a lower environmental impact. Current AI applications include:

Depending on the source material, the metal recycling sector can be considered emerging, developing or mature in its market development. Although technological advancements, increased investments and an expanding regulatory framework that supports sustainable practices are major drivers of progress, the economic value obtained from recycling with higher commodity prices provides an important incentive.

The mature metal recycling ecosystem includes copper and PGMs. Copper has been recycled for centuries, because high-grade copper can easily be remelted; about 30% of the copper supply today is generated from recycled material. PGMs are renowned for their exceptional catalytic qualities and are extensively utilised across a diverse number of industrial applications, including in the automotive sector. Given the relative scarcity of PGMs and the escalating demand for them from various industry sectors, the recycling of these metals is both economically advantageous and environmentally beneficial. Until around 2000, less than 5% of PGM production was recycled. Today, according to Johnson Matthey, the proportion stands at 26%, with palladium recycling clocking in at an even higher 31%.

Recycling of critical metals, such as lithium and rare earth elements, is at an emerging state of maturity. Lithium’s primary use is in the manufacture of rechargeable lithium-ion batteries, which are essential to the operation of a wide range of electronic devices, including EVs. We expect to see a significant increase in lithium recycling within the next ten to 12 years, in line with the average useful life of vehicles.

Regulatory requirements are a significant driver of the projected growth in metals recycling rates, particularly for lithium. The European Union’s Regulation (EU) 2023/1542 stipulates that active materials should contain certain minimum shares of materials that have ‘been recovered from battery manufacturing waste or post-consumer waste’ by 2031 and 2036, respectively (see chart, below).

Fulfilling these goals will require a significant increase in recycling and sustained high annual compound growth rates. In an optimistic scenario, predicated on the assumption that global recycling efforts will align with the standards set forth by the European Union regulations and that all participating entities will achieve full compliance, recycling will account for nearly 30% of total lithium supply 50 years from now. In the more conservative scenario, taking into account practical challenges and limitations, we assume that global efforts will achieve approximately 50% of the recycling targets specified by the EU regulations—in which case nearly 20% of lithium will be recycled 50 years from now (see chart, below).

Lithium expansion

Lithium producers are underrepresented in the Top 40, because they are often classified as chemical companies as a result of the focus on processing in the value chain. Given lithium’s critical role in the energy transition, we aggregated the publicly available financial statements from ten leading lithium miners. The steady production growth did not always translate into revenue growth, owing to volatile prices. Lithium investments are generally less capital intensive and have shorter repayment periods. The expected growth in lithium demand incentivises significant growth in investment.

Urban mining is one of several key pillars in promoting productivity for the industry. But miners are caught between the pincers of two powerful trends. As noted, commodity prices have been falling. At the same time, in the last five years, mining production costs have increased by nearly 30%, making it urgent for companies to invest in cost-saving technology (see chart, below). In today’s increasingly complex mining landscape, expanding commitments to sustainability, rising production costs, declining ore grades, more dispersed reserves and a shortage of technology-savvy talent are all contributing to the imperative for the Top 40 mining companies to focus on productivity.

Over the past 20 years, through cycles of growth and retrenchment, the mining industry has been on a journey to improve productivity (see timeline, above). Looking ahead, miners have identified clear opportunities to enhance productivity while mitigating risks and maximising the positive impact in their business by leveraging technology, fostering innovation and adopting new ways of working. The World Economic Forum reports forecasts from technology solutions providers and business intelligence suppliers that the total internet of things (IOT) market and potential incremental value of technological advances in mining will be worth billions in US dollars by 2030. Progress can be seen in a range of activities:

Technology risks

Reliance on productivity-enhancing technology can also bring risks, which means miners have to be vigilant about warding off potential negative impacts. Some areas to watch include the following:

M&A has remained a pivotal strategy for mining companies aiming to sustain their competitive advantage, expedite transformation and secure essential resources for future growth. And because the industry has garnered significant attention for its role in supplying the growing need for agricultural products, infrastructure and materials for the energy transition, outside investors are taking a greater interest. These factors are bringing more capital into the industry and setting the stage for high-impact deals. In 2023, the total number of deals among the Top 40 fell about 15% from 2022, while the total value rose more than 3% to over US$64 billion. Not surprisingly, the percentage of deals that involved critical minerals rose to 40% in 2023.

Recent deals have been driven by four principal motivations:

Consolidation

Consolidation has continued to be a dominant M&A trend as companies reconfigure their asset portfolios and refine their future business direction. This approach often involves divesting non-core assets and reallocating capital towards strategic growth opportunities.

In November 2023, for example, in the largest deal in the history of the gold sector, Newmont acquired Newcrest for US$14.5 billion. Newmont, whose annual production was anticipated to remain flat over the next decade, expanded its portfolio by adding five operating mines and two advanced-stage projects, while also enhancing its copper exposure. Following this acquisition, Newmont announced plans to divest eight non-core assets.

Critical minerals

A forecasted supply deficit for a variety of critical minerals has catalysed a competitive race to secure resources. The considerable price volatility that has accompanied the rapid expansion presents opportunities for investors with a high risk tolerance, attracting new players to the investment landscape—and placing a premium on the most stable of these minerals for others.

In 2023, copper and lithium dominated critical mineral deals, representing over 70% by volume—up marginally from the year before. But copper accounted for more than 80% of the total value of critical mineral transactions.

In early 2024, Chinese miner MMG acquired Cuprous Capital, the parent company of the Khoemacau Copper Mine in Botswana, for US$3.6 billion. The transaction aligns with MMG’s strategy of building a portfolio of high-quality mines that can supply the minerals most important to a decarbonised world.

Sustainability

Sustainability considerations have been a pivotal element in transaction decisions. In their quest to decarbonise, mining companies are investing in renewable energy projects. Such projects bolster their sustainability profiles and help them gain greater control over one of their most significant operational costs.

Rio Tinto recently finalised the US$700 million acquisition of a 50% stake in the Giampaolo Group’s Matalco recycled aluminium business, with an aim of meeting increasing demand for low-carbon aluminium, a key material in the energy transition.

In March 2024, Vale moved to acquire the 45% of Aliança Energia shares that it didn’t already own, for approximately US$540 million. The deal brings hydroelectric and wind generation assets into Vale’s portfolio, strategically aligning the company’s investments with its environmental, social and governance (ESG) objectives.

Partnerships

The mining sector has long recognised the value of partnerships and joint ventures. Historically, these collaborative efforts have been instrumental in helping companies comply with local regulations, enhancing cooperation, pooling expertise and distributing risks associated with mineral extraction. Mining companies are increasingly seeking alliances beyond traditional sector boundaries, as their view of the ecosystem broadens. These strategic moves are driven by the need to access capital; integrate new skills in highly specialised areas, such as technology and sustainability; and work more closely with government (see table, below).

Mine 2024 writing team

The writing of Mine 2024 was led by Andries Rossouw (PwC South Africa). Core members of the writing team were Gifty Appiah (PwC Ghana), Galih Baskoro (PwC Indonesia), Ulrike Finckh (PwC South Africa), Lindsey Levine (PwC US), Danelle Lundie (PwC South Africa), Julie Rosa (PwC South Africa), Andrés Sanín (PwC Chile), Arne Schmidt (PwC South Africa), Lambertus Schrap (PwC South Africa), Diego Soliz (PwC Chile), Naomi Thomas (PwC Canada) and Matt Williams (PwC UK).