Rapid global urbanization will lead to an unprecedented demand for natural resources. According to Prime Numbers, a report by the McKinsey Global Institute, over the next two decades, the world will see a burst of urban expansion at a speed and on a scale never before witnessed in human history. Nearly a billion people will move from the country to the city. Trillions of dollars will be spent on roads, trains, power plants, water systems and social services. While Beijing’s approach is systematic—the government has invested ahead, allocated land, plotted out transportation networks, and freed its cities to raise capital, New Delhi, as one would expect, hasn’t done enough to prepare. If current trends hold, between now and 2030, the McKinsey Global Institute estimates China will need to add the equivalent of one New York City every two years. India, on the other hand, needs to start building one Chicago each year.

Those statistics are staggering and it explains why the global race for resources is heating up. While this incredible level of demand is healthy from a price perspective, it presents some unimaginable challenges from the supply side. Already, the world has seen the impact of civil uprisings in the Middle East on oil prices. This rapidly changing dynamic has not escaped the attention of mining industry leaders. Speaking last month during the keynote session of the annual Society of Mining Engineers conference in Denver, Russell Ball, executive vice president and CFO, Newmont Mining Corp., said, because they have been under-valued for so long, the world has taken natural resources for granted. Fortunately, the mining business is not currently capital constrained, but it does need access to land, people, energy and water to meet those needs, Ball explained.

From a major gold mining company’s perspective, Ball said that energy represents 25% of Newmont’s operating costs on average and labor represents 45%. While Ball admitted he is “hugely bullish” about the future, he sees copper and coal moving into a significant deficit situation. By 2025, China will use more copper in a year than the entire world produces today. Offering a chart that plotted oil consumption as a function of GDP per capita as a society develops, he asked, “How will the world supply all of the resources to feed, to clothe, to heat and to transport all of these people?” The supply-demand fundamentals for natural resources in 2025 will look a lot worse than it does today.

As a financial executive, Ball also shared some insight. “We allocate capital globally,” Ball said. “Capital will go to the places where the risk adjusted return is best and risk can take many forms.” Ball submitted the mining industry will meet the challenge, and it will succeed by local engagement, leadership and transparency. Resource-rich, mining-friendly countries will reap the rewards. To be successful, to access land and to hire workers, mining companies have to win the loyalties of the local communities. Mining companies will see higher prices for minerals, but will they be able to justify mining costs?

Steve Fiscor, Editor-in-Chief, E&MJ