Miners invest heavily into AI, ft Theo Yameogo on EY’s risk and opportunities report

Key Concepts

• Gold Correction: A significant drop in gold prices, potentially indicating a market shift.
• Rare Earth Minerals: Essential elements for advanced technologies, with China holding significant processing dominance.
• Critical Minerals: A broader category of minerals vital for national security and technological advancement, subject to geopolitical influence.
• Supply Chain Diversification: Efforts by countries to reduce reliance on single sources for critical materials.
• Trade War: Economic conflict between nations, often involving tariffs and export restrictions.
• Operational Complexity: The increasing difficulty and intricacy of mining operations.
• Digital Innovation & AI: The adoption of advanced technologies to improve efficiency and address challenges in mining.
• ESG (Environmental, Social, and Governance): Factors considered in sustainable business practices, with a nuanced shift in priority.
• Geopolitics: The influence of political factors on international relations and resource control.
• District Strategy: A collaborative approach among mining companies in a region to reduce costs and improve efficiency.

Gold and Rare Earths Market Dynamics

The transcript opens with a significant correction in gold prices, reaching $3,919.60 per ounce on CNBC Comex futures for December. This correction is noted as potentially around 10%, falling short of the technical definition of a bear market (20%). This downturn is linked to optimism surrounding a potential trade framework agreement between China and the United States.

Simultaneously, rare earth miners are also experiencing a correction, as reported by Reuters. This decline is attributed to the prospect of a US-China truce pausing tariffs and export curbs. The optimism stems from recent diplomatic meetings, though no agreements are yet ratified.

President Trump's Asia trip, focused on signing critical minerals deals, is highlighted. A notable deal with Japan, as reported by the Washington Post, is seen as potential leverage for upcoming negotiations with China. The transcript emphasizes China's near-monopoly in rare earth processing, with 99.8% of heavy rare earths processed there. This dominance has been built over three decades, making it challenging for the United States to quickly replicate. The US strategy of taking equity stakes in mining companies is described as mirroring the Chinese model of state-run capitalism.

US-China Trade Relations and Critical Minerals

The core of the discussion revolves around the geopolitical implications of critical minerals, particularly in the context of US-China trade relations. China's leverage through its dominance in rare earth minerals is evident, with announcements of expanded export restrictions.

The US is actively seeking to diversify supply chains and reduce dependency on China. This is demonstrated through a flurry of critical mineral partnerships secured with countries in the Indo-Pacific region, including Australia and Malaysia.

Japan-US Critical Minerals Deal

President Trump signed a framework agreement with Japan's new Prime Minister, Shinzo Abe, to cooperate on critical minerals. This deal aims to limit US dependency on China for materials essential in electronics and defense. The meeting was described as warm, with Abe heralding a "new golden age" in bilateral relations. The agreement was signed just before Trump's meeting with Chinese leader Xi Jinping, intended to stabilize their economic relationship amidst a trade war.

Southeast Asia Deals

The US also signed trade and critical minerals deals with four Southeast Asian partners: Malaysia, Cambodia, and Thailand. These agreements aim to address trade imbalances and diversify supply chains. Notably, Malaysia agreed not to ban or impose quotas on critical mineral or rare earth element exports to the US. However, the transcript questions the extent of this pledge, given China's existing involvement in rare earth processing in Malaysia and its protection of its technology.

European Union's Response to Critical Mineral Dependency

The European Union is also taking steps to address its reliance on China for critical raw materials. European Commission President Ursula von der Leyen announced a new plan to break this dependency, warning of the "acceleration and escalation" of how interdependencies are leveraged and weaponized. The EU plans to launch a consultation on stockpiling critical minerals before year-end and establish a "critical raw material center" for monitoring, joint purchasing, and stockpiling.

The transcript notes Europe's struggle to catch up in the race to stockpile critical minerals, with industry leaders urging faster action. The EU faces competition from the US, which has already initiated a significant stockpiling effort. The limited mining and refining capacity in Europe is identified as a hurdle in securing essential minerals for defense and green technologies.

EU-China Dialogue on Rare Earths

High-level Chinese officials are scheduled to visit Brussels to discuss Beijing's rare earth export curbs. European Council President Antonio Costa expressed concern over China's recent measures and hopes to address these issues. The transcript suggests China's unhurried approach to these discussions may increase its negotiating leverage.

China's Strategic Control of Critical Minerals

A New York Times article details China's step-by-step strategy to seize control of critical minerals, dating back to October 2024. This strategy involved:

• October 1st: Opening shot with detailed documentation requirements.
• December 3rd: Restrictions on four non-rare earth minerals.
• April 4th: Export controls on some rare earth metals and magnets.
• October 9th:
  • Stopping the transfer of rare earth technical secrets (ongoing for months).
  • Halting the export of rare earth processing equipment (also ongoing).
  • Blocking exports of five more rare earths.
  • Restricting battery manufacturing equipment.
  • Prohibiting the export of diamond saws and similar gear used in semiconductor and solar wafer manufacturing.
  • Controlling the trade of rare earth magnets made outside China, requiring permission if even 0.1% of their value originates from China.
• October 14th: Halting exports to Europe of Nexperia computer chips.

The transcript labels this as a "story of 2025," highlighting its significant impact.

Nexperia Chip Sales Resumption

In an interesting development, Nexperia's China unit has resumed supplying semiconductors to local distributors, according to Reuters. This resumption is confined to domestic trade, with all sales now settled in Chinese Yuan, a shift from previous transactions in foreign currencies like the US dollar. This is seen as a response to the Netherlands' seizure of Nexperia.

Other Mining Sector Developments

• Argentina Mining: Javier Milei's landslide victory in Argentina's midterm elections is seen as a relief for miners in the country.
• AI Energy Demand & Nuclear Renaissance: Google and NextEra are reviving a major Iowa nuclear facility due to surging energy demand from AI. This points to a resurgence in nuclear power.
• Zinc Market Squeeze: The London Metal Exchange (LME) zinc contract is experiencing a "wild ride" due to depleted exchange stocks, with only enough metal to cover one day's global consumption. This is attributed to falling LME inventory not reflecting a true market surplus, with metal being exported to various global destinations. Western smelters are reducing operations or closing, while China's refined zinc production is surging. This has led to the tightest market conditions in zinc since the late 1980s.
• Aluminum Surplus Fears: Chinese firms are driving aluminum expansion in Indonesia, potentially pushing the global market into a surplus and lowering prices. This mirrors the situation seen in the nickel market.
• Rio Tinto's Australian Smelter: Rio Tinto warns that Australia's largest aluminum smelter, Tomago, may shut down due to struggles in sourcing power at commercially viable rates beyond 2028. High energy prices, a legacy of coal-powered infrastructure, are jeopardizing its future.
• Perpetua Resources Investment: JP Morgan and Agnico Eagle are investing $255 million in Perpetua Resources, a US-focused gold and antimony miner, to develop its flagship project in Idaho. This investment is part of a US national security initiative to rebuild domestic critical mineral supply.
• Trump Reverses Copper Smelter Rules: President Trump reversed a Biden-era air pollution rule for copper smelters, granting a two-year exemption to reduce regulatory burdens and promote domestic mineral security.
• CMOC Congo Copper Mine Expansion: China's CMOC Group will invest $1.08 billion to expand its KFM copper mine in the Democratic Republic of Congo, adding significant output.
• Barrick's Mali Mine Restart: Operations have restarted at Barrick Gold's mine in Mali under state management after a nine-month suspension.
• Newmont and Barrick Nevada Assets: Newmont is reportedly studying a potential deal to gain control of Barrick Gold's Nevada gold assets. Analysts speculate about Barrick potentially breaking up the company or merging with Newmont.

EY Report: Top 10 Business Risks and Opportunities for Mining and Metals in 2026

Teao Yamayogo, EY America's Metals and Mining Lead, discusses EY's report on the top 10 business risks and opportunities for the mining sector.

Key Changes in Priorities:

• Decreased Priority:

  • Changing business models
  • Sustainability (now at number nine)
  • Job policy
  • These are not less important but are seen as areas where the sector has found ways to manage them better.

• Stable Ranking:

  • Reserves and resources (number four)
  • License to operate (super critical, involving government, communities, and consumers)

• Increased Priority:

  • Rising cost and productivity (number two)
  • Digital innovation (including AI)

• New Entrants/Significant Jumps:

  • Workforce (back at number six)
  • Operational complexity (new entrant, number one)

Operational Complexity (Number One Risk)

This new top risk is a summary of various challenges, including:

• Bottlenecks: Labor availability (31%), processing plant capacity (30%), transportation logistics (28%), and reserve grade variability (27%).
• Declining Ore Grades: Copper grades have dropped by 40% globally, requiring more effort and resources to produce the same output.
• Increased Costs: Mining and processing costs rise due to the need to extract and process more material.
• Reliability Issues: Problems with plant and equipment reliability contribute to production misses.

The transcript suggests that mining is becoming a more difficult business, despite increased societal demand for minerals.

Rising Costs and Productivity (Number Two Risk)

Costs are rising due to:

• Energy Costs: Significantly up for commodities like lithium.
• Labor Costs: Stabilized but still up compared to the previous year.
• Corporate Income Tax and Royalty Rates: Averaging 40.6% in 2024, up 7.7% from 2023.
• Community and Social Programs: Increased investment by ICM members.

Productivity is a key measure, with a focus on input-output ratios. Solutions include reducing exposure to global energy markets through renewables and using automation and AI to improve labor productivity.

Ore Grade Decline

The overall trend of declining ore grades is a significant factor. For copper, the 40% drop means more material must be mined and processed, increasing mining and processing costs, including energy and labor.

District Strategy

A collaborative approach where mining companies team up on assets to reduce costs is gaining traction, particularly in Latin America. This involves sharing infrastructure and optimizing ore grade processing.

ESG and License to Operate

• License to Operate: Remains critical, emphasizing symbiosis with communities and governments.
• Sustainability: Has dropped in priority (to number nine) as companies adopt ISSB rules and regulations. However, greenwashing remains an issue, and investment in nature-positive projects continues. Water usage remains a critical concern.

Digital Innovation and AI

• Significant Investment: 21% of major mining companies plan to invest more than 20% of their additional budget in AI in the next 12 months.
• Applications: AI is being used to reduce operational complexity, address skill gaps, and improve productivity.
• Data Discipline: A need for disciplined execution, standardized processes, and data management is crucial for effective AI implementation.
• Hard Science Innovation: AI is also being applied in areas like exploration and extending equipment life (e.g., increasing truck life from 80,000 to 270,000 miles).

Other Key Report Findings:

• Capital: Remains in the top three, with a focus on raising money and allocating capital for M&A and ESG initiatives.
• Geopolitics: Moved to number seven, indicating the sector is coping better, with governments directly investing in mining companies and critical minerals becoming a topic of global trade.
• Business Model: Increased ambition for vertical integration, directly or through joint ventures, to solidify and lock in contractual arrangements given the anticipated shortfall in metal and mineral production.

Metal Prices

• Precious Metals: Gold and silver experienced significant drops. Platinum and palladium also saw declines.
• Industrial Metals: Copper, iron ore, aluminum, lead, nickel, tin, cobalt, and lithium showed increases. Cobalt was a notable standout, rising over 10%. Aluminum also showed a breakout.
• Uranium: Experienced a decrease.
• Zinc: Traded higher, reflecting the market squeeze discussed earlier.

Conclusion

The transcript highlights a dynamic and complex global mining landscape. Geopolitical tensions, particularly between the US and China, are driving a strategic focus on critical minerals and supply chain diversification. While gold prices have corrected, industrial metals are showing strength, with zinc experiencing a significant squeeze. The mining industry faces increasing operational complexity, rising costs, and the imperative to adopt digital innovation, including AI. Despite a perceived shift in the immediate urgency of sustainability, ESG factors and license to operate remain crucial. The EY report underscores these challenges and opportunities, emphasizing the need for strategic adaptation and collaboration within the sector.