Despite Large Profits in Mining Companies, Investment Slumps... Setbacks in Transition to Eco-Friendly Energy

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Despite the strong metal prices, the transition to a green energy economy is facing setbacks as mining companies are not making investments, the Wall Street Journal (WSJ) reported on the 19th. Due to the sluggish investment by mining companies, shortages in raw materials such as copper and zinc persist, causing disruptions in the production of solar panels, wind turbines, and electric vehicle batteries.

According to estimates by Bank of America (BOA), the annual investment required from mining companies for the transition from fossil fuels to green energy amounts to $160 billion. Over the past decade, the average annual investment by mining companies was around $100 billion. If BOA’s estimates are accurate, mining companies need to increase their investment by about 60% to address climate change.

However, the investment scale is expected to decrease instead. BOA projected that the investment by the world’s top 10 mining companies, including Rio Tinto, BHP Group, and Glencore, will amount to only $40 billion this year and next year.

At the peak of mining investments in 2012, these top 10 mining companies invested $80 billion. On an annual average basis, the investment by the top 10 mining companies this year and next will be only 25% of the 2012 level.

The WSJ reported that, like oil companies, mining companies are under pressure from shareholders to increase dividends or share buybacks rather than investment spending.

Major copper producer Freeport-McMoRan recently announced plans to reduce investments next year. Freeport has begun implementing its previously announced plans to expand share buybacks and dividends.

Global inflation has caused energy and equipment costs to soar, financing costs have risen, and governments of countries owning mines are demanding greater profit sharing from mining companies, all of which contribute to mining companies’ reluctance to invest.

Environmental pollution issues are also hindering mining companies’ investments. Earlier this year, Serbia canceled Rio Tinto’s $2 billion lithium investment project permit due to environmental pollution controversies.

Thanks to the strong raw material prices, mining companies’ current profit levels are the highest in 10 years. However, Richard Adkerson, CEO of Freeport-McMoRan, said during a recent earnings conference call, "Only factors limiting raw material supply are accumulating."

The low investment spending by mining companies is a factor behind the rising prices of raw materials such as copper and iron ore. Both copper and iron ore have risen more than 40% over the past two years. The increase in raw material prices has led to higher prices for solar panels, wind turbines, and electric vehicle batteries. Some argue that automakers should pressure mining companies to secure sufficient battery production capacity.

Michael Widmer, head of metals research at BOA, said, "If the current market situation does not change, we will face a crisis."

This content was produced with the assistance of AI translation services.