Mining's going through a renaissance - and this global theme could be its biggest opportunity

People often make the mistake of thinking that mining and the green energy transition are not only mutually exclusive but polar opposites. The truth is there’s an uneasy – but highly necessary – truce between them.

After all, to build infrastructure for green energy, you need frameworks and technology. You need specific metals that assist with energy storage and transmission. There’s a whole pipeline of activity that needs to occur for us to get to net zero.

In the interim too, energy demand doesn’t pause. It grows with the global population. So we still need the older, less green forms of energy, be it coal or gas to cover the transition period.

As Blair Hannon, Head of Investment Strategy at Global X ETFs Australia, puts it, the green transition is a massive investment opportunity long term. You can still find returns from it short-term too. After all, some of the names involved are long-established and profitable with existing client bases for their metals and activities. The green transition simply ups the ante on the demand for their products.

In short, metals and mining are experiencing their golden age, or renaissance, rather than a rapidly approaching end.

The key stats on the green energy transition

“This is an everyone problem with an everyone solution,” says Hannon.

• Renewables are set to account for over 90% of global electricity expansion in the next five years, overtaking coal to be the largest source of energy by 2025. (Source: IEA)
• US$14 trillion is needed in grid spending by 2050 to support the transition to renewables. (Source: Bloomberg New Energy Finance)
• 29% of Australia’s total energy supply is renewable, including solar, wind and hydro. (Source: Department of Climate Change, Energy, the Environment and Water.)

This is all a long way of saying the trend isn’t going away. 

There’s a groundswell of public support – think the climate protests a few years ago or even the environmental tilt that has started to be seen in voting across the globe. Government and corporate support are growing.

The energy challenges in Europe as a result of the Russian invasion of Ukraine have accelerated the transition. Countries want to be able to independently generate their electricity as a result of seeing what problems an over-reliance can cause. Australia may be less aware of this concern given our ability to power ourselves. But if nothing else, rising energy costs are starting to make us think twice.

While renewables like solar and wind are often front of mind when we think about green energy, nuclear and ‘green’ hydrogen are also becoming increasingly viable options for our international counterparts. Hannon notes that France is investing in small modular reactors, while Japan recently announced it would restart seven reactors by summer 2023.

Regardless of the ‘where’ or ‘what’ of green energy, one thing is certain - it all needs to be built. That’s where the green metals come in.

The growing world of green metals

You may have heard the terms ‘green metals’, ‘transition metals’ or ‘disruptive metals’.

“They’re not secret metals that you’ve never heard of before. These are well known. The likes of copper, lithium, cobalt, zinc and aluminium. These are the metals that will help us build the renewable future,” says Hannon.

The investment case for lithium has become well-known. It’s a market darling for a reason after all. But copper is less prominent – and Hannon thinks it deserves just as much popularity.

China is currently responsible for around 50% of the demand for copper so its fortunes to date have been heavily tied to China’s reopening and the global economic growth mentality around infrastructure and home building. Either way, it has a solid base demand and accompanying revenue stream already. The long-term demand for copper in terms of demand for renewables infrastructure is extraordinary.

“For example, you need around 1.5 tonnes of copper to build a traditional coal-fired power plant or a gas power plant. By comparison, for solar, you need just under 3 tonnes of copper to generate the same amount of electricity. There is a carbon footprint to build, but none once it’s up and running,” says Hannon.

He also points to two major deals on the copper front at the moment. That is, if you don’t believe him on the future benefits of copper, then take your cues from the likes of BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO). BHP’s planned takeover of Oz Minerals (ASX: OZL) comes down to the desire to shore up copper capacity for its revenue mix, while Rio Tinto acquired Turquoise Hill Resources which expands its ownership share of the Mongolian-based You Tolgoi gold and copper mine.

Beyond the miners – the big names to know

Australians are generally well exposed to our own industry names like BHP or Pilbara Minerals (ASX: PLS), but for some green metals like copper, you need to look globally for pure-play miners.

Names like Albemarle (NYSE: ALB) for lithium, Zhejiang Huayou Cobalt (Shanghai: 603799) for cobalt or First Quantum Minerals (Toronto: FM) for copper may come to mind when you think of green metals. After all, these are the companies mining and producing these essential metals.

However, Hannon believes investors are often missing the broader supply chain and struggle with access to global companies such as unique Chinese-based companies.

“You ideally want to have a broad spectrum across the whole suite for green metals. For example in the copper space, there are recyclers, miners, and explorers. You also aim to be truly global rather than just use Australian-based companies so you can capture different parts of the market,” he says.

For example, recycling companies like Gem (SHE: 002340) reuses batteries, electronics and cars. Or manufacturers like Innuovo Technology (SHE: 000795) which uses rare earth to make magnets. There’s also GanFeng Lithium Co (SHE: 002460) which extends across the chain as a producer and manufacturer of lithium products, batteries and other metals.

The ins and outs of portfolio allocation

Where green metals investments sit depends on your approach.

Those investors taking an individual stock approach should consider them part of their equities allocation. Where it differs is when you look at broad-based index approaches such as the Global X ETFs Green Metals Miners ETF (ASX: GMTL).

“ETFs exposed to the renewables and green transition space give investors access to those long-term structural shifts and give access to truly global players in this space,” says Hannon.

He adds that these investments are generally categorised as thematic so would sit in the satellite portion of a core-satellite portfolio as a long-term tilt. He commonly sees allocations sitting between 5-10% of a portfolio.

He also cautions investing in the green transition is not the ESG play many assume.

“ESG indices predominantly use negative screens, so you don’t get as much exposure to the mining companies, especially those with any fossil fuel exposure. In a year like this one, broad-based indices like the S&P/ASX200, have outperformed ESG-based indices on Australian shares due to the returns we've seen across the miners. That isn’t necessarily what these renewable thematic ETFs strive for. It is a belief in the investment case and thesis behind the shift to renewables and changes in the energy structure through independencies. This does include mining companies too. They will continue to act as a good support network for your portfolio for a long time,” Hannon says.

The case for right here, right now

The green transition is often criticised for being a slow-burn activity. Why should you get in now rather than wait a few more years? It comes down to a few things.

1. The supply chain, particularly for green metals, has an existing revenue base. Renewables offer future earnings growth. You can effectively enjoy the benefits now – and later.
2. Investing in short-term v long-term doesn’t need to be mutually exclusive. Typically you build your portfolio for the long term as well. You can have coal and renewables at the same time according to Hannon. After all, you invest to build wealth.
3. Renewables are a technology. The adoption of new tech goes through an ‘S’ curve. That is – gradual build when technology is first built, rapid growth when understanding and engineering improvements and then it starts to plateau when technology reaches its prime. Hannon believes we’re about to see rapid growth.

“Through the S curve, you see adoption kick along then rapidly pick up in the mid-part of growth. In the early majority stage, there’s a massive kick in utilisation of the technology. We’re really at the cusp of that increase in utilisation. It goes back to the Net Zero by 2050 mentality that we’re starting to accelerate towards,” says Hannon.

The end and the beginning

A few years back, the common view may have been the time of mining was coming to a close. But perhaps it’s fairer to say, materials and resources are ending one phase and starting a new – and equally profitable – one. 

It’s a renaissance for an ancient industry and one that Global X ETFs are very committed to, with ETFs covering green metals, clean forms of energy and the newly released carbon emissions ETF.

Investors don’t need to shy away from the green transition – nor do they need to shy away from old companies. After all, even the old dogs are rapidly shoring up their new tricks (Just ask BHP).

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