The Economic Impact of Mining: From Local Communities to Global Markets

By Owais AliReviewed by Laura ThomsonMay 2 2024

Mining has fueled economic growth by supplying essential raw materials. This article highlights its diverse impact, from local environments and communities to global economies and supply chains.

Image Credit: Magnifical Productions/Shutterstock.com

The Foundation of Local Economies

Direct employment opportunities

Mining operations often serve as the economic backbone of many local communities, particularly in remote or underdeveloped regions. The influx of mining activities generates stable incomes and creates business opportunities, enhancing local prosperity.

A prime example is the Suhanko palladium mine in Finland, which is projected to employ 400 people. However, through local procurement and wages circulating in the regional economy, the mine is estimated to support over 1000 additional jobs in the next few years, showcasing a substantial multiplier effect for remote resource-dependent communities.¹

Similarly, the restart of the iron mine in Kolari, Finland, is anticipated to create 500 jobs during construction and 300 jobs during production, and contribute €1.5 billion in tax revenue to the region.²

Infrastructure development and boosting local businesses

Mining also drives infrastructure development, which benefits other industries and improves living standards. Constructing roads, ports, airports, and schools around mining sites better integrates isolated settlements into economic and social systems.

Kalgoorlie-Boulder in Western Australia has transformed from a sparsely populated area into a thriving city, largely due to the discovery of rich gold deposits in the late 19^th  century. The mining industry has driven the region's growth, creating jobs, stimulating supporting industries, and funding vital infrastructure such as hospitals, schools, and transportation networks.³

Environmental and Social Considerations

Alongside economic advantages, mining activities inevitably impact host regions' natural environment and social dynamics.

Mining activities like mineral processing, transportation, and waste disposal affect surrounding ecosystems through land degradation, habitat loss, and water and air pollution. Communities near these sites may experience health issues due to exposure to contaminants or noise and vibration disturbances.

Involuntary resettlement can occur when mining operations encroach on populated areas, leading to the displacement of communities. This often results in conflicts and social tensions if the affected communities are not adequately consulted, compensated, or provided with alternative means of sustenance. For example, Environmental Justice Atlas reports that 592 out of 2,922 global environmental conflicts were related to mineral ores and building extraction.⁴

However, sustainable and community-focused mining models have emerged aiming to balance these trade-offs.

For instance, The Fort McKay First Nation in Alberta actively participates in decision-making processes regarding mining activities on their traditional lands through a co-management agreement with local mining companies. This ensures that cultural and environmental concerns are addressed while providing economic opportunities and compensation for the community.⁵

Global Economic Impact

Mining is pivotal to the global economy, providing the essential raw materials for technology, construction, medicine, and other industries.

The global demand for these resources has been steadily increasing, driven by the rise of emerging economies and the transition to a low-carbon future. The increase in the adoption of green energy technologies, such as solar panels and wind turbines, is expected to drive significant demand for minerals and metals like aluminum, copper, lithium, and rare earth elements.

Significance of mining exports for developing countries

The mining sector's contribution to global trade is also significant, particularly for resource-rich developing countries. Many of these nations depend heavily on mineral exports, accounting for 10-20% of their GDP and 50% of total exports.⁶

For example, in sub-Saharan Africa's top 15 mineral-rich countries, mining contributes 8% of government revenue, with copper and other battery metal revenues hitting USD 20 billion in 2020.⁷

McKinsey projects that by 2030, Africa could generate additional annual revenue of 200 million to 2 billion USD and 3.8 million jobs by fostering a competitive, low-carbon manufacturing sector.⁸

Global mineral trade dynamics

However, the global mining supply chain is not solely reliant on resource-rich countries. Despite Africa holding a significant share of production and natural reserves of raw minerals, including over 50% of manganese and cobalt and more than 20% of aluminum and copper, the continent's minerals are primarily exported raw and refined abroad. China dominates this process, controlling 85% of global processing capacity and 60% of worldwide production for critical minerals.⁷

Volatility of commodity prices and its global impact

The global integration that mining enables comes with vulnerabilities. Volatility in commodity prices threatens stability in export-dependent producer countries and can have extensive global economic consequences.

For example, critical mineral prices have experienced substantial spikes and increased volatility in recent years, with lithium, cobalt, and nickel prices soaring by 738%, 156%, and 94%, respectively, between January 2021 and March 2022.⁹

These fluctuations raise concerns about their impact on the ongoing energy transition, highlighted by the 2021 reversal of long-term cost reduction trends, with wind turbine and solar panel prices increasing by 9% and 16%, respectively.¹⁰

Future Trends and Technologies

A shifting commodity portfolio

The mining industry is diversifying its commodity portfolio, with coal producers among the top 40 mining companies decreasing from almost half in 2012 to just a quarter by 2022.

This shift is driven by climate change concerns and a rising demand for minerals crucial to clean energy applications, including lithium, cobalt, and other rare earth elements in solar panels, wind turbines, and electric vehicles.¹¹

Electrification of mines

The leading technological trend in mining is the electrification of operations, with manufacturers and companies developing hybrid or fully electric versions of trucks and machinery. This transition offers reduced maintenance requirements, lower emissions, and decreased noise levels compared to internal combustion engines.

Goldcorp's Borden mine in Canada exemplifies this shift with its fully electrified underground operation, expecting a 70% reduction in greenhouse gas emissions and annual savings of CAD 9 million in operational costs.¹²

The transition toward renewable energy

The mining industry's increased adoption of renewable energy is a notable development aimed at reducing its carbon footprint. Hybrid diesel-renewable energy systems and standalone renewable power solutions are being deployed at both on-grid and off-grid mining sites, reducing the reliance on fossil fuels and the associated environmental impact.

Copper mining, a major industry in Chile, demands significant energy. Yet, the country faces high electricity rates, reaching USD 100 per megawatt hour, due to its reliance on imported fuel for the power sector. However, recognizing the region's abundant renewable resources, the Chilean government auctioned 1200 GWh of contracts to wind and solar projects, out-competing coal plants based on price and significantly reducing their reliance on fossil fuels.¹¹

Integration of automation

Integrating automation and robotics in mining operations, such as autonomous trucks and drilling systems, has enhanced productivity and safety while reducing fuel usage and maintenance costs. For example, Rio Tinto's integration of IoT-driven predictive maintenance on its fleet of 900 autonomous mining haul trucks has significantly reduced unplanned downtime, saving $2 million daily.¹³

Conclusion

The mining industry has a profound and multifaceted impact on the global economy. It is the foundation for many local communities while producing a wide range of essential goods and technologies that drive global economic growth. However, it faces the challenge of balancing economic benefits with environmental and social considerations.

As the world transitions toward sustainability, the industry must adopt innovative technologies and practices to minimize environmental impact while maximizing economic contributions.

Through collaborative efforts among mining companies, governments, local communities, and stakeholders, the industry can continue to drive economic growth while prioritizing environmental stewardship and social responsibility.

References and Further Reading

1. Mikko Pöykkö and Juha Kutuniva. (2024). Preparing for Suhanko Arctic Platinum mine. https://en.ranuankaivos.fi/
2. Brunet, N. D., & Longboat, S. (2023). Local Communities and the Mining Industry: Economic Potential and Social and Environmental Responsibilities (p. 207). Taylor & Francis. https://doi.org/10.1080/03623319.2024.2316220
3. Gold Industry Group. (2022). Kalgoorlie Boulder - where the streets actually were paved with gold. https://www.goldindustrygroup.com.au/news/2022/9/28/kalgoorlie-boulder-where-the-streets-actually-were-paved-with-gold
4. Antoci, A., Russu, P., & Ticci, E. (2019). Mining and local economies: Dilemma between environmental protection and job opportunities. Sustainability, 11(22), 6244. https://doi.org/10.3390/su11226244
5. Fort McMurray. (2024). Fort McKay – Past, Present, and Future. https://www.fortmckay.com/our-story/
6. Ericsson, M., & Löf, O. (2017). Mining's contribution to low-and middle-income economies. Extractive Industries, 51. https://doi.org/10.1093/oso/9780198817369.003.0003
7. Zero Carbon Analytics. (2024). Developing Africa's mineral resources: What needs to happen. https://zerocarbon-analytics.org/archives/netzero/developing-africas-mineral-resources-what-needs-to-happen
8. Kartik Jayaram, Adam Kendall, and Ken Somers, and Lyes Bouchene. (2021). Africa's green manufacturing crossroads: Choices for a low-carbon industrial future. https://www.mckinsey.com/~/media/mckinsey/business
9. Considine, J., Galkin, P., Hatipoglu, E., & Aldayel, A. (2023). The effects of a shock to critical minerals prices on the world oil price and inflation. Energy Economics, 127, 106934. https://doi.org/10.1016/j.eneco.2023.106934
10. Tae-Yoon Kim. (2022). Critical minerals threaten a decades-long trend of cost declines for clean energy technologies. https://www.iea.org/commentaries/critical-minerals-threaten-a-decades-long-trend-of-cost-declines-for-clean-energy-technologies
11. PWC. (2023).The era of reinvention. [Online] PWC. Available at: https://www.pwc.com/gx/en/issues/tla/content/PwC-Mine-Report-2023.pdf.
12. OECD. (2019). Mining and Green Growth in the EECCA region. https://www.oecd-ilibrary.org/sites/b9ed6f5e-en/index.html?itemId=/content/component/b9ed6f5e-en
13. Emilia Bratu. (2018). How IoT is reshaping the future of heavy industry – the Rolls Royce and Rio Tinto approach. https://qualitance.com/blog/iot-heavy-industry-rolls-royce-rio-tinto/
14. Starke, L. (2016). Breaking new ground: mining, minerals and sustainable development. Routledge. https://doi.org/10.4324/9781315541501
15. Jovanović, V., Stanković, S., & Krstić, V. (2023). Environmental, Social and Economic Sustainability in Mining Companies as a Result of the Interaction between Knowledge Management and Green Innovation—The SEM Approach. Sustainability, 15(16), 12122. https://doi.org/10.3390/su151612122
16. Katy Buffinton. (2021). Minerals in Modern Technology. https://artsandculture.google.com/story/minerals-in-modern-technology/NwJyXJ5v2kQnLg
17. Arezki, R., & Matsumoto, A. (2017). Metal Prices Signal Global Economic Shifts. In Shifting Commodity Markets in a Globalized World. International Monetary Fund. https://www.elibrary.imf.org/display/book/9781484310328/ch005.xml

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