The ‘circular economy' - one which continually uses and re-uses many of the same resources to minimise environmental impact - is attracting more and more attention as companies begin to see real economic benefits from effective recovery. Our own research estimates there is a US$4.5 trillion opportunity from eliminating waste through the circular economy.
The impact of the circular economy on the mining industry is direct and potentially disruptive. As customers recycle more and buy less, reduction in demand for original materials is virtually inevitable. We believe, however, that mining can be a winner in the circular economy—but only if mining companies seize the innovation initiative from downstream players.
The first step is to separate hype from reality. Let's use gold as an example. At today's prices, the gold in one mobile phone is worth about $1. So that means that 41 mobile phones can yield as much gold as one tonne of gold ore.
That sounds promising, but then we realise that annual gold production was just over 3,000 tonnes in 2017, meaning that getting the equivalent volume from ‘urban mining' would require extraction from 95 billion discarded phones. Clearly, that is not feasible, considering there are only about five billion mobile phones in circulation.
The recycling challenge
Reality is more complex, and more challenging. The global recycling market for metals is growing and maturing, with ferrous scrap the most recycled material worldwide. In fact, according to the Bureau of International Recycling, 40% of steel production is made from scrap, and the size of the metals recycling market is projected to grow from $277 billion in 2015 to $406 billion by 2020. That's an estimated compound annual growth rate of 8%, and the picture is similar for aluminium and copper. For precious metals, the rates are even higher.
Mining companies, however, are not always well positioned to monetise the flow of recycled metals. And, as circularity increases, primary commodity demand will decrease, especially as waste and material losses are eliminated over time.
We have seen manufacturers, retailers and providers of consumer goods and services take the lead in new recycling initiatives in recent years. Car-sharing schemes and lighting-as-a-service are both examples of leadership in the circular economy. But, to date, we have not seen many examples of circular innovation in the mining and metals sectors. The industry has focused on operational efficiency - recycling water or monetising waste streams such as slag or used tyres - while leaving unanswered the bigger question of how to drive value from changing market demand.
The risk to mining, metals companies
New circular business models are disrupting historical links between ownership and sales growth. In the automotive sector, for example, ride-sharing means that, by 2035, there may be 25% fewer passenger vehicles in use than historical models would suggest. In shipbuilding, some companies reuse 95% of their materials and parts, thanks to tracking with a resource ‘passport'. If all this innovation continues to happen downstream, mining and metals companies risk losing revenues and market share.
At a macroeconomic level, many economies are moving to a post-industrial model, migrating from infrastructure and manufacturing toward services and catering to consumer spending. Some emerging economies may bypass the resource-intensive stage of industrialisation altogether.
While demand is slowing in some sectors, the transition to a low-carbon economy is creating increased demand for base and precious metals (including cobalt, lithium and rare earth elements), silver, nickel, lead and zinc. Metals and mining companies need to work out where best to focus in a shifting marketplace and how best to take advantage of both the circular economy and clean technology trends.
Leaders are emerging
Some of the more visionary mining and metals companies are beginning to anticipate and act on the move to the circular economy. One North American company, for example, has set out to increase the recycled content in its products from 33% to 80% by 2020. It has partnered with an automotive OEM to recover and recycle its aluminium scrap, reducing the cost of both aluminium and waste disposal. Another European company is extending product life cycles by leasing sheet piles for short-term projects, partnering to develop and scale technology for carbon capture and utilisation.
A South America-based firm, meanwhile, is seeking to price copper based on the carbon footprint and social impact of production, de-commoditising the material while responding to customer and societal demands for lower-impact products. Similarly, the London Metal Exchange plans to introduce new standards for transparency into ethical and environmental principles for metal production.
Other companies are teaming up with the end users of their products.
In taking these steps, mining and metals companies are moving in step with consumer demand. Our own research indicates that, while consumers remain primarily focused on quality and price, 83% believe it's important or extremely important for companies to design products that are meant to be reused or recycled. Nearly three-quarters (72%) of respondents said they were currently buying more environmentally friendly products than they were five years ago, and 81% said they expected to buy more over the next five years.
A time for rapid action
We believe that to succeed in the circular economy, mining and metals companies must reposition themselves quickly. The first step is to look at their portfolios to assess where the risks of decreased demand or substitution loom largest, to determine which materials can be recovered most effectively, and to identify where new circular business models downstream present threats or opportunities.
After this analysis is completed, mining and metals companies need to innovate their business models to accelerate their transition to the circular economy.
There are three key initial steps to take:
- Develop circular operations. Pick up the pace of initiatives across mining and metals operations, including partnering with suppliers to extend the life of capital equipment such as trucks, conveyors and machinery through real-time monitoring, analytics and predictive maintenance. At the same time, promote remanufacturing and end-of-life recycling of materials such as tyres. Another option is to share ownership of heavy-duty equipment with low utilisation rates, whether among sites or with other companies in the geographic area.
- Innovate new circular products and services. Engage with downstream users of materials to co-develop innovative circular products and services, which might include leasing materials (using advanced track-and-trace systems) or supporting certification of customer products to enable reuse and ease of remanufacturing. The coffee maker Nespresso, for example, has announced that its coffee pods will be made with the world's first certified responsible aluminium, produced by Rio Tinto. Improving processes for scrap recovery, reprocessing and reuse can cut production and materials costs while creating potential new sources of revenue.
- Collaborate with customers and build a circular partners' ecosystem. Look for ways to collaborate proactively up and down the supply chain by working to create regulatory regimes favouring improved circularity or establishing cross-industry partnerships to design ways to extend product life and retain ownership. It is also important to develop cross-industry standards to validate the integrity of products and/or materials for end-of-life take-back and repurposing.
In the circular economy, mining and metals companies face risks, but also an abundance of opportunities in areas ranging from recovery and recycling to product life extension to product-as-service. Winners will understand how supply and demand is evolving for each material, how to source materials and energy, how to create partnerships inside and outside the industry, and how to optimise operations.
This means building closed-loop systems, locking in downstream ecosystems and creating sustainable value. The stakes are high, but the companies that get this right will be in a position to grow along with the circular economy, while minimising the environmental and societal impact of their businesses.
*Rachael Bartels is senior managing director and global lead for Chemicals and Natural Resources, Accenture, and Harry Morrison is managing director, Accenture Strategy