A US$700-million investment barely burns a hole in Rio Tinto Ltd.’s pocket. The sum is less than five per cent of its 2022 annual income of roughly US$16 billion and isn’t supposed to dominate headlines from a financial perspective.
But the mining giant’s chief executive Jakob Stausholm will tell you that Rio’s recent purchase of a 50-per-cent stake in Brampton, Ont.-based Matalco Inc., a recycler of aluminum, is key to his company’s future and helped fill a gaping hole in its business.
“We have everything — the lowest carbon-contained primary aluminum in the world — but we were kind of missing something (without) a recycled product,” he said. “Now we have it. Recycling will continue to increase and that means that there will be more growth in secondary aluminum than primary aluminum. We want to be part of the growth as well.”
Demand for metals such as aluminum, lithium and copper is expected to increase in the near future as the world gradually transitions away from energy that depends upon fossil fuels such as coal and oil. For example, aluminum is used to make solar energy devices, while lithium is a key material in the batteries that power electric vehicles.
Companies have moved to produce more of these metals in recent years, so their dependence on recycled minerals in the 2020s has so far been minimal, according to the International Energy Agency (IEA). However, the Paris-based organization expects recycled metals to make larger contributions to the total supply from 2030 onward and to be “much more significant” by 2040.
Rio expects the demand for recycled aluminum in the United States to increase by more than 70 per cent from 2022 to 2032, buoyed by the transportation, construction and packaging sectors.
Aside from the business aspect, using recycled metal helps the company reduce its overall carbon footprint. Aluminum has many uses in the green shift, but it is still a significant source of carbon dioxide, and producing secondary aluminum is more energy efficient. But the material loses some of its quality when recycled. Stausholm believes the way forward is a combination of both.
“There are some customers who don’t necessarily need the performance from the primary aluminum and therefore want to entirely use recyclable,” he said. “The way I see it is that it will strengthen our ties with existing customers and open up new customers.”
The Australian miner said managing a recycling business is not within Rio’s “core competence,” so its partnership with Matalco has been designed in a way that both companies can benefit. Matalco will continue to operate the joint-venture’s seven recycling facilities, while Rio, considered to be the western world’s largest aluminum seller, will use its wide customer base to market the products.
Rio’s investment and the expected rise in demand for recycled minerals in the coming years may make it seem obvious that more miners will enter the recycling sector soon. After all, how difficult can it be for miners, which produce minerals for a living, to also recycle them?
But the risks involved in running a mining operation and a recycling business are very different, according to Kunal Sinha, Glencore PLC’s head of recycling.
“As a mining company, you actually know how much copper or nickel is in the ground. You have done your tests, so you have a high degree of confidence in how much metal is in the ground,” he said. “In the recycling business, you don’t own the resource. You are tapping into the urban mine or this massive ecosystem of waste collection. You are not sure what you are getting.”
Urban mining is the extraction of metals and other materials from electronic waste, such as broken laptops or cellphones. The process involves managing financial and logistical risks that often can’t be measured.
Glencore has been in the recycling business for decades. Some of the metals it recovered in 2022 include 32,000 tonnes of copper, 107,000 ounces of gold, 1.35 million ounces of silver, 6,200 tonnes of nickel and 1,500 tonnes of cobalt. The output is similar to what a small miner might annually produce.
Its recycling division contributed about US$200 million to US$250 million annually to the Swiss giant’s earnings during the past three years, which is less than one per cent of its total earnings before interest, taxes, depreciation, and amortization. Some analysts expect this figure to rise to about US$1 billion by the end of the decade as battery waste increases.
But despite all its experience, even Glencore depends on partners to close its recycling loop, just as Rio will do.
Sinha said the recycling industry can be broadly divided into four steps. Step one is collecting the scrap. Next, the recyclers separate the key components from the scrap. The separated components are then broken down to their element level through various metallurgical processes. And, finally, that element is used to make a product.
“Glencore is most prominently present in step three, the metallurgical transformation, that’s our bread and butter,” he said.
For the other steps, the miner usually depends upon its partners. For example, Glencore doesn’t focus on collecting scrap, relying on suppliers instead.
It’s a model that works well for a big miner such as Glencore, Sinha said.
“When somebody is giving you scrap, they feel comfortable about the credit they are getting from a company like Glencore,” he said. “That feature is hard to get if you are not part of Glencore.”
At the same time, Glencore doesn’t have a dedicated smelter or facility for recycling electronic scrap. It uses the same facility for its electronic scrap that it uses for its mining feeds. This helps reduce costs, Sinha said.
“We like this model because it dovetails very well,” he said. “But it’s equally possible for somebody not at all in mining, but wants to do recycling, to do it. If they don’t have the scale, they have to be more innovative on how they compete on costs.”
While Rio and Glencore are involved in the recycling sector to differing extents, Barrick Gold Corp., the world’s second-largest producer of gold and a key copper producer, doesn’t intend to enter that industry any time soon.
Barrick chief executive Mark Bristow is currently keener on building its “copper runway” by developing new projects because he feels the price for the commodity is still soft and that the market doesn’t recognize the metal’s shortage.
He said there’s still some uncertainty regarding the different metals that might be used to power cars in the future. As an example, he said that despite all the demand for lithium batteries, they still overheat.
“Right now, everything is a bit promotional,” he said. “The energy generation and storage technology need to change a lot.”
Sinha, though, said the lithium-ion battery recycling industry is in the midst of the “decade of manufacturing scrap,” and a large portion of this scrap is going to come from the battery plants that several countries, including Canada, have announced.
These factories will take some time to stabilize as they start up, so there will be plenty of scrap that settles at the lower level.
“The next seven to 10 years is sort of the game for manufacturing scrap from gigafactories,” Sinha said. “And the 2030s is the decade for scrap from end-of-life electric-vehicle batteries.”
Source: Financial Post