Allianz: Addressing Mining Concerns for new Opportunities

Mining operations are changing dramatically, with a growing demand for critical minerals and sustainable operations.

With this high pressure comes a risk of failure to scale responsibly and an inability to meet demand.

Allianz explores how the mining industry is increasingly depending on a digital transition in order to rebuild its strategy and responsibly meet expectations.

Increasing demand

The energy industry is being rebuilt to implement electrified end-use, renewables, storage and expanded grids, requiring a new demand for mining. Similarly, with the growth of AI use, there are higher demands for data centres, specialised network equipment and high-performance computing. 

These shifts require physical materials, relying on large volumes of metals and minerals. This also requires the processing and refining of these materials to make them usable. As a result, global mineral extraction has increased significantly in the 21st century. 

According to the IEA, lithium demand is expected to increase by fivefold by 2040, graphite and nickel will double, cobalt and rare earth elements will increase by approximately 60% and copper will see a 30% increase. It is not enough to just open new mines, instead, there is a need to increase processing capacity, transport infrastructure and a skilled workforce.

The growing demand for AI alone requires immense increases in data centre infrastructure, with the IEA showing the demand for global data center electricity will rise from approximately 415TWh in 2024 to about 945TWh in 2030. This requires significant levels of metals and minerals, which are also relied upon in the growing EV industry.

Due to the ongoing renewables demand and increasing reliance on critical minerals, mining companies are facing greater demand than ever before. The rapid scale-up of these industries relying on the mining industry increases the risk of bottlenecks, project delays and price volatility.

"The green and digital transition won’t fail for lack of ambition – but it could stall for lack of materials," explains Ludovic Subran, Group Chief Investment Officer at Allianz.

"Our latest report, Mining for the future: Addressing liabilities and unlocking sustainable transition opportunities, looks at mining as both a critical enabler and a potential bottleneck."

Regional dependence

Supply is struggling to respond to demand, as new projects take years to finance and permit, but also face increasing environmental and social regulations. The pace in which this industry can grow does not match the height of demand, resulting in both the prolonged fossil-fuel dependence and the overconsumption in pre-existing mines.

Mineral depletion is rising globally, but it is highly concentrated in specific geographies. In resource-rich countries, such as the Democratic Republic of Congo, Zambia and Mali, extraction dominates their economies but depletion levels are high. 

Extraction of high-dependence materials is shouldered by a group of high-resource but lower-income nations, putting these countries at risk of becoming a resource trap.

If materials cannot be mined responsibly, these short-term economic gains could result in long-term sustainability and structural vulnerability.

Moreover, these countries are facing high domestic environmental costs, such as land degradation, air pollution and acidification. Rwanda demonstrates a high ratio of environmental damage to economic gain, driven by informal tantalum mining and low local value retention. 

Though mining is a significant industry, contributing to 2-4% of global GDP and supporting millions of livelihoods around the world, it also has a major impact on the planet. It accounts for 4-7% of global greenhouse gas emissions and is a significant driver of forest loss due to deforestation. 

Gold mining accounts for 41.7& of total mining-driven deforestation, followed by coal mining at 26.3%. Though the shift towards renewable energy has contributed to a reduction of coal-related deforestation, it has also shifted the problem to regions extracting minerals for renewable energy supply chains. 

All supply chain, procurement and logistics leaders should attend:

• Procurement & Supply Chain LIVE: The Net Zero Summit - QEII Centre, London, March 4-5
• Procurement & Supply Chain LIVE: The US Summit - Navy Pier, Chicago, April 21-22

Co-located with Procurement & Sustainability LIVE, these events bring together COOs, CSOs, and senior decision-makers at a moment when supply chains and commercial performance are increasingly interconnected.

Mining diversification

Building supply resilience across the transition requires a a through understanding of how political and sustainability risks coincide with geological endowment. 

The Geological Service for Europe (GSEU) has developed a map of hard-rock deposits for the EU's 2023 critical raw materials list. It demonstrates that potential critical raw material supply is diverse across Europe, demonstrating opportunities to diversify extraction, production and sourcing.

The EU has an expanding network of strategic raw materials partnerships, which is aiming to diversify supply and implement sustainable mining principles across the value chain. However, diversification needs to be undertaken with care as to prevent the reliance on other vulnerable regions or unsustainable operations.

Undertaking mining operations with poor sustainability performance is a liability. Businesses need to be aware of tailings stewardship, community impact, land rehabilitation, water treatment and post-closure monitoring. Though these can be expensive, they are vital to protecting the surrounding environment and safeguarding the local communities. 

As these are now expectations, businesses can plan for this before the project begins, meaning costs can be integrated into the plan more efficiently. Through engaging communities, stakeholders and workers, mining projects can be built with sustainability, responsibility and longevity embedded. This will help mines meet demand faster, safer and more sustainably.