SYDNEY, March 7 (Xinhua) -- Global supplies of copper are far from secured with mining companies facing a myriad of environmental, social and governance challenges, a study has shown.
In the coming age of renewables, copper will play a crucial role as a key component in batteries and alternative energy generation.
By 2050 global demand for copper is projected to increase 300 percent on current levels, and as soon as 2021 analysts predict a 600 kilotonne market deficit.
To meet that demand, mining companies will dig deeper and wider than ever before, for what will primarily be a lower grade product.
After examining 308 of the world's undeveloped copper orebodies, the team from Australia's University of Queensland (UQ) concluded that 75 percent of them "face environmental, social or governance challenges that could impede future development," study co-author Professor Rick Valenta said.
"The rise of renewable energy and electric vehicles means copper is a critical metal for society," Valenta said.
"If you look at the world's existing mining capacity, and estimate discovery rates and recycling, there is going to be a shortfall."
In the past the mining industry has responded to supply challenges by capitalizing on higher prices, creating economies of scale and through technological innovation.
However, the UQ study suggests that the challenges involved with tapping the world's copper orebodies go beyond that which can be solved by a simple rise in metal price.
The team developed three main categories of risk management integral to successful mining operations - environmental, social and governance risks, or ESG.
In the past these factors have been seen as relevant but peripheral -- the UQ team argues that they are now make-or-break.
Environmental risk refers primarily to the use and consumption of natural resources and "the degradation or contamination of those resources," the report said.
Due to the necessarily larger scale of modern copper mines, which will consume more water and energy and generate more waste, environmental concerns are at the forefront of risk considerations.
Additionally, the presence of harmful elements in copper orebodies, such as arsenic, poses a serious concern for contamination of the surrounding environment.
The second category, social risk, refers to the relationship between mine operators, local inhabitants, and host societies.
"Copper mines of the future are more likely to be located in remote and ecologically sensitive areas, on the lands of indigenous or tribal peoples, and in jurisdictions characterized by corruption and poverty," the report said.
"These and other social risks are being recognized by the investment community as impairing asset value, and in extreme cases, preventing projects from proceeding to development."
Finally, the corporate governance of operations is crucial and a significant focus of investors -- corporations guidelines and codes of conduct, for example, define operations behaviors relating to transparency, bribery and corruption.
The study cites three main examples of copper mining projects which were abandoned due to ESG concerns in the late 2000s, even when copper prices were at record highs.
"The mining industry has been very successful in technological advances and increasing production volume while lowering costs, but this is not going to make those mines accessible," Valenta said.
"The investor community is increasingly aware of environmental, social and governance risks, but there is still a way to go if we are to harness these important copper reserves."
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