The Devil is in the Details—Reality of the Mining Business

October 11th, 2021

Arisa Nokuo and Rena Katsumata


Through the interview with Mr. Toda, who is engaging in building a risk management system at Taiyo Nippon Sanso Co., Ltd., about the relationship between BCP and CSR, we could learn some interesting case studies as below.


The Risk of Mine Operation

Palette: Even though the African continent is famous for copper or gold, why does the JX Nippon Mining & Metals have no base in Africa? We suspected that conflict minerals were the cause.


Toda: It was primarily because of the coups. Although JX once owned a mine in Republic of Zaire, current Democratic Republic of the Congo, long ago, it was forced to withdraw. Since it became very difficult to develop and operate a mining site in Japan, the business model of buying the mining right in overseas and receiving copper or gold as a dividend by investing has been prevailed for decades. However, about 10 years ago, resource majors that are gigantic companies that globally expand exploration, mine development, and ore production businesses across multiple mineral resources occurred. They made it difficult for Japanese mining companies to buy these natural resources because their oligopoly of resource interests led to price increases.


To cope with this situation, JX has developed and started the operation of the Caserones Copper Mine in Chile since 10 years ago. However, the operation was difficult because quarries are located in places higher than the altitude of Mt. Fuji (3, 776 m, or, about 12,390 feet). Therefore, it is a situation that is accounted for hundreds of billions of losses.


Palette: Why should mining quarries be built in the high places?


Toda: That's because most of the mines have been already dug up globally. There are very few cases where a mine is developed by a company and the mainstream business for regular mining companies is to invest in the mine sites created by the major resource companies of the United States or Australia. This is because owning and operating a mining site involve responsibility of local communities, too, for example, the owner have to obtain permission for development from the neighbors and to keep a good communications with local people and government in various ways.


The Relationship between Metal and EV

Toda: There is a concern that demand of copper will increase significantly as cars are replaced with EVs. It is because the amount of using copper for EVs is actually three to four times higher than that of gasoline-powered vehicles. Therefore, IDTechEX, the research commissioned by the International Copper Association, found that by 2030 more than 250,000 tonnes per annum of copper will be used within the windings of electric traction motors of on-road electric vehicles (See Figure 1).


Figure 1. Copper demand in electric traction motors for on-road electric vehicles (tpa)

Source: IDTechEX, Copper demand in electric traction motors 2020-2030


In addition, IDTechEX showed the growth in demand for copper caused the trajectory of the global car market. It showed that battery electric and plug-in hybrid cars would account for roughly 19 percent of the total market by 2030. Then, skyrockets to 72 percent by 2040 amid a declining out market that peaks in 2031 (See Figure 2).


Figure 2. Plug-in electric cars extract value from a declining car market (car, thousands)

Source: IDTechEX, Copper demand in electric traction motors 2020-2030


Then, there is a problem that as the demand for metal increases, the cost of electricity for making them would also go very high. In other words, while the replacement of gasoline-powered vehicles with EV apparently seems ecological, there is a concern that a large amount of metal is actually used. This leads to another problem that mining companies have to keep operating the mine sites at mountainous areas If it were not for managing the site property even after the closing, harmful water might continue to flow. Therefore, one you open the mining site, you must take care of it for semi-permanently (See Figure 3).


Figure 3. Vicious Circle Associated with EV Manufacturing


From the Interviewers

From the above, despite that EVs have represented the image of sustainability, actual use of metals is very large. To secure fair amount of metals, it is very costly to operate a mining site. As a famous proverb shows, the devil is in the details. Ordinary people usually do not know such details. The abilities of consumers are needed in the future not just to be influenced by visible, easy way of sustainability but to make sure of what are the truly environmentally-friendly things or how much costs and risks lurk in the parts of a business cycle that are not publicly known.


Reference

https://www.nmm.jx-group.co.jp/english/company/industry/resource/

https://copperalliance.org/wp-content/uploads/2020/03/COR-04-Copper-motors2403.pdf


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