Scope Ratings says the catch is that the environmental, social and governance (ESG) challenges that the industry faces remain little changed. The development of mines, processing plants, ports, and transportation infrastructure in sensitive areas can destroy natural landscapes and habitats, disrupt sensitive ecosystems, and divert scarce water resources to the detriment of local communities while creating significant amounts of pollution. Metals are often extracted from crushed ore using toxic chemicals.

“The challenge for governments, regulators and investors is that the sector plays a critical role in the energy transition by producing the very metals and minerals that society needs to make the transition a reality,” says Tommy Träsk, analyst at Scope. The International Energy Agency has just warned that soaring metal prices might delay the energy transition by making vital commodities unaffordable without heavy investment in safe and secure new mines to increase supplies.

The sustainability of the mining sector has and can continue to improve, says Träsk. New technologies, digitalisation and mine mechanisation are bringing productivity and efficiency gains to the mining process, including a reduction in the consumption of power, water and chemicals, as well as safety improvements.

“This all feeds through to credit quality: low costs, large size and diversity from constant reassessment of a company’s asset portfolio help ensure that capital is invested in the right projects at the right time,” he says.

Minimising the environmental footprint of a mine or processing plant is also important since many buyers of metals measure their indirect environmental footprint – the so-called “scope 3” category – and may be unwilling to procure products that are produced in an environmentally harmful way. Pressure is also growing for investors and financiers to shun companies with questionable environmental credentials.

For now, the energy transition is transforming the sector, visible in accelerating plans to phase out coal as fuel in the electricity industry. Poland, one of the dwindling group of European economies still heavily reliant on coal, has just agreed to eliminate use of the fuel by 2049. Mining company Anglo American PLC has decided to demerge its South African coal-mining assets to separate its main activities from what could turn out be stranded assets in the future, following in the footsteps of Rio Tinto which exited its remaining coal assets in 2018

“At the same time, investment in renewable energy and batteries is stoking demand for aluminium, cobalt, copper, graphite, lithium and nickel - presenting potentially rich new income streams for the sector,” says Träsk.

“Size and diversity are advantageous here, as the largest miners have generally succeeded in shifting portfolios and capitalising on growing demand for different metals and minerals depending on changes in industrial demand,” he says.

Take Anglo American’s investment focus on copper, which we believe could contribute 40-50% of the group’s earnings in 2023 compared with less than 20% in 2020, or the AUD 4bn merger announced by Australian mining companies Orocobre Ltd. and Galaxy Resources to create one of the world’s largest lithium producers. Conversely, many smaller companies focused on single commodities, typical in the coal industry, have had to scale down or close operations.