The evaluation and planning of new mining projects is being complicated by increased volatility in commodity prices. Much of this volatility is linked to fast-moving research and development in battery technology – where there is considerable scope for improvement. This scope creates uncertainty about which minerals are likely to play the largest role in the journey towards decarbonisation.
To make the appropriate investment decisions, mining companies and project champions have always needed to predict adequate demand and price levels. A recent comment by a platinum executive at the recently held virtual African Mining Indaba, for example, firmly linked the hydrogen economy to a bright future for platinum group metals (PGMs). However, despite increased clarity on the likely overall trend, the challenge is to have some confidence in price and demand notwithstanding the rapidly changing environment and the potential for substitution.
Clearly, it would be preferable to have high levels of certainty in demand trends before proceeding with new developments and expansions. In practice – and especially in today’s market – this leads to the price spiking as demand grows and supply lags. The lead times to bring on new mineral production range typically from five to 10 years; emerging technology options are driving demand trends over much shorter timelines.
If a price spike is excessive, it creates a strong incentive to find substitutes and can change whether a solution remains economically viable. Those producers already in the game can temporarily make outsize profits, but sooner or later the price declines as a result of either additional supply or, often, substitution reducing demand. If both occur – more supply and a substitute – then the price remains low for extended periods while demand builds or supply drops through natural attrition as mines close.
Read the full article in Miningmx
