Two major themes will dominate 2021 in the mining sector.
The first will be the effects of the stimulus packages being put together by the world’s major governments.
The second will be the ongoing adjustments to the social licences which mining companies are granted by the various jurisdictions and communities amongst which they operated.
The first is an opportunity, the second is a risk. Combined, they make for a highly nuanced and tricky operating environment, since, unfortunately for the mining sector’s leaders, there is very little direct relation between the two.
Thus, at the end of 2020, Rio Tinto’s share price was riding a close to a 12-year high, despite having endured one of the worst corporate public relations disaster of the year when it dynamited – apparently accidentally – a sacred aboriginal site in Western Australia.
This kind of dichotomy can’t continue for long. The company is riding high financially because Chinese stimulus money is creating demand for new infrastructure inside China, which in turn is creating demand for steel, in turn manufactured using the iron ore that Rio Tinto produces.
But, in a world of “woke” politics and cancel culture, where information and reputation travel together and instantaneously across fibre optic cables, the likelihood of a hue and cry against what will be regarded as “excessive” profits in a time of crisis represents a real risk.
Yes, the mining sector provides the everyday materials, the metals and minerals, that consumers need to carry on with their everyday lives. But there is a disconnect between the providers of these materials and their ultimate consumers, in a way that there isn’t with say, supermarkets, where to a large degree customers are still buying raw materials.
To put it another way, the value chain has become so complex that most consumers have lost sight of where the things they own really come from. A tailings dam collapse in Brazil, an act of sacrilege against Australian aborigines, riots in the Tanzania Goldfields, catastrophic labour relations in Indonesia, pollution in the Copper Belt, and smog over Beijing – all redound to the detriment of the mining sector in the minds of today’s computer-driven consumer, without any connect being drawn to these disasters and the electronic devices on which they transmit their outraged opinions.
The mining sector knows it has to address this issue, if it is to survive as an independent sector with autonomous decision-making capabilities. After all, the mining industry has been nationalized in some countries before, notably in the UK and Zambia, and in some countries, like Chile and China, quasi-nationalisation remains.
There seems little doubt that outraged electorates, at least in the Western world, would be quite capable of sequestering mining company assets – perhaps all of them – if they fail to meet modern environmental expectations. Such a move could make the windfall tax that the Blair government imposed on the Utilities sector look like peanuts.
That’s why Rio Tinto’s (LON:RIO) new chief executive, Jakob Stausholm, spoke immediately about the company’s role in “producing the materials essential for human progress” on his appointment in mid-December.
Stausholm is aware not only that his predecessor was effectively sacked for presiding over the PR disaster at Juukan Gorge, but also that if his company and others like it don’t get their acts together fast, it won’t just be directors who will be dispossessed of bonuses, but shareholders who will be dispossessed of assets.
Greater forces at work
So, while it may seem that those in the mining sector with exposure to iron ore and copper will be able to make hay while the stimulus sun shines for much of next year, there are greater forces also at work.
Meanwhile, dovetailing a little more neatly with the demand buoyancy created by the stimulus money will be the ongoing drive of economies and consumers to go green. Mining as an industry has a pretty poor reputation in regard to its environmental operating policies, but it can at least claim, and with justification that its products are absolutely key to the greening of the global economy.
In particular, a huge amount of copper wiring is used in electric vehicles. And the batteries that power these vehicles also use nickel, cobalt, lithium and vanadium, amongst other materials. Miners know how to dig up these metals, and how to provide them economically.
If they can just bring the sector together and create some sort of viable and universally accepted marque that their products have been “responsibly sourced” then the pressures will abate. Sadly, it may take a few more crises, disasters, or at the very least a few sequestrations pour encourager les autres, before the message really gets through.