Former Shell and Rio Tinto leaders discuss responsible business strategies
Environmental, social and governance are key issues in the mining, oil and gas industries, so how important is responsible business strategy in the current climate? Former Shell and Rio Tinto leaders recently discussed the approach to responsible business strategies in a LinkedIn chat. Here, Mining Global sums up the key messages.
A long-term approach
Tom Albanese, former CEO of Rio Tinto and current Chief Executive of Vedanta Resources, believes the industry needs to stop focussing on the short term. "Projects that would have taken 3-5 years to develop in the 1980s are now taking 8-12 years and they need to be developed in this type of cycle." He says.
This need for a more long term approach is a result of increased budgetary pressures placed on companies to complete projects, a by-product of "the incredible expansion of the Chinese economy punctuated by an extraordinary recession".
A larger focus on projects taking longer is born out of a demand induced recovery in what Albanese believes is an “equally extraordinary” response from the world’s central banks.
But of course there are other key factors which affect the time scale of projects. Namely, the finances and infrastructure of local economies.
"There are some very large projects where the budget can start at $5 billion but then you put it in a remote community where those communities don't have electricity. They don't have the amenities that you would normally expect when working on a larger project. These communities simply don't have the infrastructure." Says Albenese.
The former chairman also discussed the impact of these projects on the local rural communities. Extensive extractive programmes can produce a significant change in the country's economy, sometimes contributing up to 30percent of its Gross domestic product (GDP). When a project of this magnitude receives what can be anything up to a 75percent budget cut, mining companies must adopt a long-term approach.
Sir Mark Moody-Stewart, current CEO of Vedanta Resources emphasises this need for a long-term approach, also warning of the dangers of recruiting employees, investing money in training and then being forced to let them go in more difficult financial situations.
When companies make employees redundant in this difficult financial climate, they lose out on workers with valuable skill sets. Moody-Stewart believes that one way to look at this situation is "to seize it as an opportunity".
"Try to make sure that the sustainability and social aspect of the work are spread into everybody's job,” He says.
“when people are made redundant you are going to lose specialists, so we better make everybody into something of a specialist."
Acknowledging the difficulties of approaching the industry with this outlook, resulting in a more constrained workload as they have a lot of work to do in other areas, Moody-Stewart adds "If you want to be robust over cycles, you better embed it everywhere."
Use minimal expats
Both men agree that in some areas expats must be used at the start-up as local talent is not available.
"As we develop these programmes, they can't be staffed by expat specialists. There has got to be a few, but staffed by local residents and people from these countries" says Albanese. He points out that major projects can handle the strain of resource reductions when a project moves into that phase.
When a project winds down or reduces its capacity, expat workers are the first to be pulled out, but as Albanese points out, "the local residents have developed those skills so if they are given a sufficient level of resources then they can continue at least in some capacity."
Learn from China
Over the last few years, China has fast become a dominant force in the global resources industry and has seen a huge boom in the economy as a result. Sir Mark Moody-Stewart believes that despite centuries of mining resource experience, businesses in more developed countries have a lot to learn from China.
"We shouldn't think it's all about us explaining to them how to do it,” he says.
“China has more knowledge of lifting people out of poverty than anyone else in the world and they achieve this through infrastructure and connecting villages to markets. We have a lot to learn from our Chinese colleagues.”
Lithium producers bullish as EV revolution ramps demand
Rising demand for lithium is stoking prices for the electric vehicle battery metal, fueling long-delayed expansions that still may not produce adequate supplies that automakers need to meet aggressive production plans.
Growing industry optimism from higher lithium prices is a change from last year when funding for mines and processing plants dried up during the pandemic.
Albemarle Corp, Livent Corp and other producers are scrambling to make more lithium, but some analysts worry the recent price jump will not spur a big enough expansion to meet a planned wave of new EV models by mid-decade.
Since January, General Motors Co, Ford Motor Co LG Energy Solution and SK Innovation Co, along with other automakers and battery parts manufacturers, have said they will spend billions of dollars on EV plants.
U.S. President Joe Biden has proposed spending $174bn to boost EV sales and infrastructure. The European Union has similar plans, part of a rush to catch up with global EV leader China.
Those moves have helped an index of lithium prices jump 59 percent since April 2020, according to data from Benchmark Mineral Intelligence, a commodity pricing provider.
The rising demand “reflects what feels like a real and fundamental turning point in our industry,” said Paul Graves, chief executive of Livent Corp, which supplies Tesla Inc. On Monday, it said it would more than double its annual lithium production to 115,000 tonnes.
Graves warned, though, that “it will be a challenge for the lithium industry to produce sufficient qualified material in the near and medium term.”
Albemarle, the world’s largest lithium producer, aims to double its production capacity to 175,000 tonnes by the end of the year when two construction projects are complete. Albemarle's Q1 profit beat expectations thanks to rising lithium prices. Chile’s SQM, the No. 2 producer, said its goal to expand production of lithium carbonate by 71 percent to 120,000 tonnes should be complete by December.
Australia’s Orocobre is paying $1.4 billion for smaller rival Galaxy Resources, a strategy designed to boost scale and help it grow faster in regions closer to customers.
“The next few years are going to be critical in terms of whether there’s enough available lithium supply, and that’s why you’re starting to see commodity prices start to ramp,” said Chris Berry, an independent lithium industry consultant.
The price gains helped Albemarle and other major producers, including China’s Ganfeng Lithium Co and SQM, post big gains in first-quarter profit and boost forecasts for the year.
Even China’s Tianqi Lithium Corp, saddled with debt due to years of low lithium prices, signaled that recovering demand should help it swing to a profit this year.
Forecasts call for demand for the white metals to surge from about 320,000 tonnes annually last year to more than 1 million tonnes annually by 2025, when many automakers plan to launch new EV fleets, according to Benchmark.
Still, demand is expected to outstrip supply in 2025 by more than 200,000 tonnes, so lithium prices may need to rise to encourage producers to build more mines. That could boost the prices consumers pay for EVs. “Companies across the lithium-ion supply chain are in the best position they’ve been in for the last 5 years,” said Pedro Palandrani of the Global X Lithium & Battery Technology ETF , which has doubled in value in the past year.