The global energy sector is witnessing a shift towards renewable energy, while electric vehicles are gaining ground over the internal combustion engine. The optimism surrounding these industries can be seen in the market value of Tesla, an electric-car maker worth more than the world’s five largest automakers combined.
However, emerging technologies are dependent on certain minerals – lithium, rare earths, cobalt and nickel. The batteries used by electric vehicles as well as cell phones, tablets and laptops require lithium and cobalt in large quantities. Electric motors and wind turbines require powerful magnets made from rare earth minerals.
Some of the critical mineral supply chains are dominated by a single country – for instance, the Democratic Republic of Congo is the world’s primary supplier of cobalt and rare earths, while China dominates in gallium and polysilicon production. Overdependence on a single country for any critical mineral is a worldwide concern. The Quad Working Group on Critical Minerals was formed to study these supply chains, identify vulnerabilities and steps that can be taken to resolve them.
The Working Group considered two groups of minerals that are important for new industries:
1. Minerals used in batteries: Lithium, Cobalt, Nickel
2. Minerals used in magnets: Rare Earth Elements (specifically NdFeB magnets)
The Working Group has focused on Cobalt, an element used in batteries, because it reflects most of the issues of supply chain vulnerability and their mitigation.
Key Findings
1. Concentration of Supply Chains: Nearly two-third of global cobalt production and more than half of reserves are in the Democratic Republic of Congo (Table 1). Cobalt must be smelted for use, and 40% of worldwide smelting capacity is in China (Table 2). New smelters are currently being built in Canada and Chile.
2. Small Size of Industry: While cobalt is critical for the battery industry, global cobalt production is small, just 121,000 tonnes in 2019, with an industry size of an estimated $6-7 billion. This is trivial compared with industries that produce metals such as steel and copper, which are worth hundreds of billions of dollars. Some of the companies involved in cobalt production and investment such as First Cobalt, Canada Silver Cobalt and Nickel28 have market values of less than $100 million. Small market size means global mining majors are less interested, and state support is more important.
3. Availability: Cobalt is usually found in combination with other minerals like copper and nickel and occasionally silver. It is produced as a by-product. However, not all copper and nickel mines have cobalt as a by-product. In volume and revenue, cobalt is a relatively minor product for the copper/nickel companies.
4. High Capital Expenditures: Based on publicly available figures from two projects (Capstone/Chile, Horizonte/Brazil), adding cobalt separation to copper mines increases the costs significantly. This suggests that the capital expenditure (capex) required to separate cobalt from copper is high relative to its output, resulting in longer payback periods. As a result, companies try to tie up revenue by selling rights to the cobalt stream to other investors (Vale/Voisey’s Bay Mine, Canada). New projects to refine/smelt cobalt are currently coming up in Canada and Chile as secondary production from copper mines.
5. Futuristic Supply Source – Deep Sea: Cobalt is also found in small concentrations in polymetallic nodules in the seabed at depths of 4,500- 6,000 meters in the Clarion-Clipperton Zone in the Pacific Ocean and the Central Indian Ocean Basin. However, production of this metal is not technically or financially feasible. At best, this is a resource for the future.
6.Recycling Possible: Cobalt can be recycled. However, given the expected growth in demand (projected demand in 2030 is more than thrice that of 2020), most of the supply will have to come from new production.
7. Lithium: Based on the data studied by the Working Group, lithium is less susceptible to shocks and disruptions in the supply chain than other metals and minerals.
Recommendations
1. More Information: A regular and credible source of information is needed for minerals required for clean energy and electric vehicles. The Oil Market Report, a monthly publication on developments in the oil market, published by the International Energy Agency since the 1973 oil shocks, could serve as a model. The IEA also issues occasional reports addressing changes in energy markets brought about by technology, new discoveries and other developments. Such information is not currently available for the new energy minerals. This gap must be addressed, perhaps via a dedicated IEA-like body.
2. Deeper Financial Markets: Mining projects have a long lead time (4-5 years in some cases) and the life of the mine may be 20-25 years. In the oil, gold and silver industries, producers can sell contracts in the futures market, and thus lock in future revenues; silver contracts can be traded up to December 2025, for instance, while oil contracts are available beyond 2030. Having such deep financial markets in these commodities like cobalt will be helpful.
3. More investment firms like Nickel28: These are necessary to provide liquidity to mining companies for which low-volume minerals like cobalt will be a minor by-product. Large companies will not find such investments profitable, so Quad governments need to provide incentives to attract speculators. The US and Australia already are working on this to encourage rare-earth mining.
4. Invest in a cleaner supply chain for critical minerals: Governments and industry must address the seeming contradiction between producing clean energy from dirty metals. The mining industry has raised severe environmental concerns, allegations of labour rights violations, and complaints about poor mining practices. While lax processes hastened growth, these issues must be addressed so that the supply chain can be made more sustainable and resilient. Quad countries can work together on a cleaner extraction and processing policy not only in their own nations, but also in countries from where they extract such critical minerals, leading to long term sustainable growth.
5. Monitoring takeovers: Some governments (U.S., Canada and Australia) have introduced restrictions on acquisitions by state-owned enterprises in the past. The global cobalt supply chain also needs to be given similar protection.
6. Increased R&D in deep-sea mining: This is already being done by different governments and may provide a base that can later attract private firms. But the risks must be kept in mind. The seabed is a largely untapped resource, with much of it still to be studied. The Quad countries can come together to create deep sea mining standards that take into account the environmental impacts of such actions while taking advantage of the riches of the seabed.
7. Recycling and Replacement: This already is being done for cobalt, but will have to be introduced for the other minerals as well. As demand stabilizes, it will gain in importance. The Quad countries can pool their research capabilities to improve battery technologies and manufacturing in a manner that reduce the use of and dependency on cobalt and nickel.
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This article was first published in Quad Economy and Technology Task Force Report.
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