The Indispensable Industry: Mining’s Role in the Energy Transition and the Americas
Minerals That Are Key to Modern Life
The modern economy hinges on mining. From the inner workings of computers and chips to the batteries inside cars, to industrial power generation and distribution, metals and minerals extracted from the earth directly touch the lives of countless individuals. As the United States and international community look to spur a transition to clean energy and mitigate the effects of climate change, demand for these resources will skyrocket. A myriad of estimates all point to the need for a dramatic uptick in mining in the near to mid-term. The World Bank projects the need for a 500 percent increase in graphite, cobalt, and lithium production by 2050. In 2022, one estimate claimed that approximately 700 million metric tons of copper would be needed over the next 22 years to reach sustainable economic growth targets—roughly the equivalent to what has been mined over the past 5,000 years of human history. Still other projections find that more than 300 new mines extracting critical minerals will be needed by the year 2030 to prevent a crippling supply shortage.
These estimates are rooted in a sanguine assessment of the requirements of achieving ambitious environmental and climate goals. The landmark study from S&P Global on the future of copper cited above bases its projections on the Paris Climate Agreement and the goal of net zero emissions by 2050. These analyses underscore a key insight—that the transition to clean energy is inextricably linked to a renaissance in mining, and more broadly, a renewed focus on the entire mineral supply chain. Indeed, virtually every technology seen as critical to the green revolution, from electric vehicles (EVs) to solar and wind power, demand far greater inputs of minerals and metals than traditional carbon-intensive methods. In the United States, the average American is already estimated to consume around three million pounds of minerals, metals, and fuels over their lifetime, a number which will in all likelihood increase as the energy transition continues to accelerate.
Another common thread visible in recent studies of the mining industry is that the world remains largely unprepared to meet the dramatic uptick in demand for minerals. There is little sign that the supposed 300 new mines needed to meet clean energy needs for cobalt, graphite, lithium, copper, and vanadium will be anywhere close to operational by 2030. Indeed, only approximately 25 bona fide greenfield mineral discoveries are made each year, with only a fraction of these attracting enough interest and financing to become a new mine. Increasing mineral supply is further complicated by the long time horizons required to move from identification of a mineral deposit to extraction, as well as the significant negative externalities mines impose on nearby communities.
Latin America today presents both of these common threads in stark relief. While the region possesses vast mineral resources that will be crucial in any energy transition future, high levels of political contestation and uncertainty present an open question as to whether mining will prove a source of prosperity or political instability and disruption in the region.
In the cases of Chile and Peru, two of the world’s copper powerhouses, recent production has grown slower than anticipated, following an overall global trend of flagging progress. In Chile, copper production actually declined in 2022 compared to 2021. So far this year, the Chilean government has denied permits for a proposed $2.5 billion iron and copper mine on the basis that the project failed to meet important environmental standards. Peru has expanded its production, however ongoing social conflicts have led to the blockade of several mines putting at risk nearly 2 percent of global copper supply. This trend is likely to intensify over the near term, as protests continue across Peru in the wake of Pedro Castillo’s departure, with their locus in the southernmost mining regions. Meanwhile grassroots movements, especially involving indigenous communities throughout the region, have vigorously opposed the construction of new mines without proper consultation.
To sustainably meet increased demand for minerals, the United States, regional partners, and mining companies should align incentives and reconcile the tension between the need to expand production with the environmental and social considerations of affected communities. It is therefore imperative to increase mining production, both at existing mines and in new mines, while ensuring that mining is socially licensed and generates inclusive economic gains for countries and communities.
The Mining Landscape
Mining is a sector marked by a staggering array of different technologies, outputs, and regulatory regimes. However, almost universally, the industry can be categorized as one marked by up-front investments of time, labor, and capital intensity. On average, a new mine takes between 10–15 years from the identification of a mineral deposit to first production, accompanied by hundreds of millions, if not billions, in financing. Aside from the time-consuming nature of mining development, other economic and geopolitical facts can mire efforts. Increasing supply chain regionalization, high production and exploration costs, limited investments, lack of access to capital, and licensing are all significant roadblocks.
Following identification of a potential mine, the biggest hurdle is securing financing. Depending on the mineral and geological peculiarities of the deposit, the average cost of opening a mine can range from $500 million to $1 billion—and sometimes even higher. Furthermore, some minerals such as lithium require a more specialized extraction process that mandates higher costs to achieve the desired economies of scale. During this period, high levels of capital and labor are required, yet no minerals can be extracted. Furthermore, progress in construction may not be linear, as everything from political turbulence to environmental complications means there is ample opportunity for a mine’s development to go belly-up over its decade-plus gestational period. This has led one analysis to compare the development of a new mine to the “valley of death” encountered by many tech startups, during which there is high interest from investors, but no tangible product to begin generating revenue. The result means that mines midway through their development are at risk of being “orphaned” and losing the requisite institutional investments necessary to become fully operational. Chile for instance is heading into 2023 with a backlog of 53 copper mining investments which have yet to be approved—however, about 35 percent of these projects are designated as having a low probability of materializing, according to the Chilean copper commission Cochilco.
Even when the mine begins extracting material, it only begins to recoup the initial investment after the fifth year of operation. Thus, the financing requirements for a mine can easily stretch over the course of two decades, necessitating a long-term, strategic approach from investors driven by caution and engagement only with projects that appear to demonstrate the largest degree of confidence. Should a new mine run into unforeseen obstacles or appear likely to underperform, there may also be strong incentives to leave the project to languish in the valleys of death.
The final link in the chain for mine development lies in regulatory environments and government licensing. Government policy and overall macroeconomic trends can shape the willingness of investors to support a mining project in a particular country. Meanwhile licensing standards can and often do incorporate elements of social responsibility in the form of environmental impact studies and requirements to consult with nearby communities. Judicial systems as well are vital for the resolution of any disputes that arise over the course of a mine’s development and operation and ensuring compliance with environmental and social regulations.
More than the Money
While mining financing is complex and conservative in its outlook, obtaining buy-in from nearby communities—deemed the “social license” to mine a particular deposit—can often prove the greatest challenge. According to the Observatory of Mining Conflicts in Latin America, some 301 mining projects across the region are currently involved in disputes with local communities. The sources of contestation are varied, with key factors often involving water rights, environmental degradation, and the treatment of indigenous communities and lands. Water rights are implicated in many conflicts, as extraction often requires large quantities of water to sift through waste material to extract the desired minerals, while drainage carries the risk of chemical contaminants entering the local water supply. Traditional methods of lithium extraction have also been the target of fierce criticism and legal challenges for their reliance on large quantities of water to evaporate in order to collect the mineral, although emerging direct lithium extraction technologies may prove game changers. Other environmental impacts can include the destruction of natural habitats and local biodiversity, as well as the leakage of harmful chemicals.
Although Latin American countries have made strides toward the realization of indigenous rights, these communities often cite a lack of meaningful engagement from mining companies, violating the standards of free, prior, and informed consent which many countries have enshrined by law as required for the development of extractive industries on or near indigenous land. Failure to obtain the social license to mine has come with disastrous human and environmental consequences. For instance, the 2019 Brumadinho dam disaster in Brazil, which claimed 270 lives and wrought vast environmental devastation, underscored the danger of insufficient rigor in the storage and containment of mining waste (a frequent problem with tailings dams used to store the byproducts of mining), a problem that continues to plague mining operations in Brazil.
For their part, mining companies have recognized the increasing importance of community engagement that goes far beyond ticking boxes. Some have made major investments in the regions where they operate, with one copper mine in Arequipa, Peru, investing half a billion dollars in the construction of a wastewater treatment plant to service the city and nearby region. The need to work with local communities, particularly indigenous communities in regions such as Latin America, is likewise being acknowledged by governments. Industry standards are also emerging to emphasize a focus on early-stage engagement with local communities to ensure buy-in, with continued efforts to update and seek input from the people affected by mining developments.
To expand the focus on social responsibility for mining companies, consumers should demand more sustainably and responsibly produced minerals and metals. Without a broad demand from the market, there may still be incentives for companies to skirt environmental and social regulations to cut costs, while improving compliance across the board may merely raise the cost of mineral inputs. As witnessed in the Kimberly Process, socially conscious purchases of diamonds took a decade or more to become the market norm and industry standard.
If properly executed, the global energy transformation can be both a boon to societies across the Western Hemisphere, and an opportunity for the United States to cement an even stronger bond with its allies in the region. As time is of the essence, the following areas represent vital starting points for policymakers examining questions of mining, climate risks, and the Western Hemisphere.
- Improve Public Relations
Mining remains one of the most poorly regarded industries. Increasing public awareness of the importance of mining and minerals for achieving environmental and development goals will therefore be critical in order to amass support for increased mining activity. Furthermore, heightened public awareness can also be a boon to organically push for companies to adhere to elevated standards for environmental and social impact, creating demand not only for minerals and metals, but responsibly mined minerals and metals. This can include efforts to raise awareness and promote already recognized industry standards for responsible mining, such as the Copper Mark, a set of standards for the responsible extraction of copper adhered to by more than thirty mining sites worldwide.
Continued efforts to cultivate the social license to mine represent one of the most effective ways mining companies can demonstrate their commitments to mine responsibly, and should seek out examples of best practices for engaging local communities throughout the hemisphere.
- Expand Capacity for Existing Mines
Given the valleys of death and regulatory spiderwebs new mining projects often navigate, policymakers should consider how existing mines can be scaled up to meet demand and ameliorate the need to open new mining projects. While increased productivity cannot substitute for all new mining capacity, it should be seriously considered as a complement to the lengthy process of standing up mines from whole cloth. Especially in the near term, any mining projects approved today will, on average, only become operational between 2033 and 2038, meaning getting more production out of extant mines will be critical to addressing projected supply shortages of critical minerals and metals in the latter half of the current decade. Increasing extant production will also capitalize on the already well-developed mining sectors and proven deposits which can be found throughout the Americas.
- Leverage U.S. Trade and Investment Tools
U.S. trade policy can play a key role in determining the international flows of investments and output for the mining sector. The United States already shares deep economic linkages with major mineral partners in the region, whether through free trade and trade promotion agreements, in the case of countries like Chile and Peru, or via Trade and Investment Framework Agreements (TIFA) with countries like Argentina and Brazil. These structures serve to augment trade and investment generally, however, they could be refocused and tailored to increase bilateral engagement on mining under the auspices of the Americas Partnership for Economic Prosperity (APEP). With interest in mining surging, greater cooperation between the United States and its allies in the region would go a long way to create more secure conditions for mining investment and strengthen supply chains for key minerals.
- Adapt to Geopolitics and Invest in Supply Chain Resilience
Any consideration of mining should not only focus on the point of extraction, but all links in the mineral supply chain. While not a majority producer in all minerals and metals, China has pluralities in the global supply and production of key minerals such as graphite, lead, and aluminum. Moreover, China comfortably dominates the global production of rare earth elements needed for semiconductors and chips, nearly universally used in smartphones, wind turbines, and electric vehicles. To be as dependent as the United States is on China’s supply of rare earth elements is a clear security threat. Indeed, China has not shied away from weaponizing its control over the sector against the United States, such as when it restricted Raytheon and Lockheed Martin from accessing Chinese rare earth minerals. The Minerals Security Partnership (MSP) represents a useful starting point. Announced in June 2022, the MSP seeks to promote investments for securing critical mineral supply chains from extraction, to processing and export between the United States and its allies. At the moment, however, the MSP does not count any Latin American countries among its membership, a gap which should be rectified to bring in key U.S. partners in the region such as Argentina, Brazil, and Chile. Disentangling and resecuring U.S. critical mineral supply chains will not be easy, but nevertheless represents one of the most pressing areas for improving intra-hemispheric cooperation.
There remains time for companies and policymakers to adopt responsible and forward-looking plans to increase mining outputs in a way that is a boon to development and environmental goals. Latin America, in partnership with the United States, can be at the forefront of this mining renaissance, but the work ahead will be substantial—and there is not a moment to lose.
Ryan C. Berg is director of the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Henry Ziemer is a program coordinator and research assistant with the CSIS Americas Program.