Mining companies will need an expanded set of stakeholder skills to navigate the new challenges posed by battery metals, rare earth elements and other technology minerals.
For a new generation of mining companies, and many established players, technology minerals – the commodities needed for a high-tech, low-emission economy – hold the key to the future. The predicted growth in demand for commodities such as lithium, cobalt, graphite and rare earth elements (REEs) is well documented, as are the environmental and social impacts that their production can cause. But the skills that companies have traditionally deployed to build and protect their license to operate may not equip them to navigate the new landscape. Among these capabilities, the winners of the new markets will have to:
Play a role in the new Great Game
Access to natural resources has always been a politically charged issue, not least for oil companies. But in many markets, mining firms have become accustomed to winning concessions based on their commercial offer and technical capabilities, and to selling their products on the open market. The emergence of a new generation of strategically important minerals as a battleground in great power politics – notably REEs and lithium – may pull miners into a much more political arena.
Rare earths – mainly produced in China and critical for a wide range of electronics and military applications – have been the subject of geostrategic wrangling since China disrupted the world market with an export ban in 2010. They attracted renewed attention in May 2019 when President Xi pointedly visited a rare-earths magnet producer as the country’s trade dispute with the US ramped up. Although REEs are in fact relatively abundant globally, there are major hurdles to bringing production and processing on line outside China, and REEs feature prominently in the recently published US ‘Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals’. China meanwhile has been investing around the world in lithium and now controls nearly half of global production.
For Western mining companies, success in this context will require a much greater capacity and willingness to apply a geo-strategic lens to their work. Their commercial strategy needs to be informed by a thorough understanding of the political dynamics between their home (or other potentially supportive) governments, rival powers and host countries. And they need the strong diplomatic relationships that can deliver essential political support against state-backed rivals from other countries. As an example, Germany’s ACI Systems was selected by Bolivia in December 2018 as its strategic partner to develop lithium resources – over rivals from China, Russia and Canada. Lobbying by the German government, which is seeking to reduce European carmakers’ supply dependence on Asia, was reportedly crucial in Bolivia’s decision.
Untangle the knot of supply-chain traceability
Since the Kimberley Process was established in 2000 to address the trade in conflict diamonds, a growing range of initiatives – from the Dodd-Frank legislation in the US and the OECD’s comprehensive Due Diligence Guidance, to commodity-specific voluntary standards – have sought ways to assure customers that the minerals they are purchasing have been produced responsibly.
But reliably establishing a chain of custody from mined commodity to finished product has proven extremely difficult. Each stage of the process poses challenges: agreeing on a definition of ‘responsible’ mining; certifying specific mining operations; tracing a particular shipment from mine gate through a complex chain of processing and marketing. This is compounded by the proliferation and fragmentation of initiatives, which adds to the burden on companies and hampers consumer confidence.
The importance to companies of getting this right will continue to grow as technology brings potential conflict minerals to the heart of individual consumers’ daily lives. Smartphones, laptops and electric cars, for example, are major end-point users of cobalt (mainly found in the Democratic Republic of Congo) and lithium (for which Zimbabwe is a major potential source). Producers of these goods are directly exposed to customers’ ethical choices, and unless they can credibly demonstrate responsible sourcing, they face the risk of boycotts or other negative campaigns. The Fairtrade movement and campaigns against Nike and others in the garment industry hold powerful lessons.
Mining companies involved in these commodities cannot create the solution alone, but can protect their prospects by playing a central role. Senior recognition of the risks is an important first step, both in driving progress across the industry and in ensuring individual companies commit the funds and efforts needed to meet the standards and secure certification or assurance. Companies will need to refine their partnerships and ability to collaborate, with their peers, with producers of other commodities, up and down supply chains with small-scale producers, refiners and customers, and with governments and other stakeholders outside the industry. A willingness to innovate will also be key – blockchain technology is opening new possibilities for traceability, for example, with companies such as De Beers leading early adoption in the diamond sector.
Apply water-tight environmental standards
Assessing and mitigating environmental impacts is clearly not a new challenge for the mining industry. But stakeholders may put an even higher premium on clean production for commodities intended to fuel the ‘green transition’, and the new markets offer the industry an opportunity for a cleaner new chapter. Several technology minerals are associated with distinctive acute impacts, especially related to water, which will be exacerbated by climate change.
Lithium is the most prominent of these. A large majority of current lithium reserves are contained in brine lake deposits, mostly found in remote Andean deserts. Producing lithium from brine is highly water intensive and is adding to existing water stress in these arid regions. REE production can also entail major environmental impacts, with ores containing toxic and radioactive elements and a history of contamination from processing facilities especially in China, but also the USA.
As with more traditional commodities, part of the solution is technical and operational. Hardrock lithium reserves, for example, are attracting increasing attention in part because they require less water to exploit compared to brines. The Mountain Pass REE mine in California has redesigned its wastewater and tailings management to avoid a repeat of past spills. Equally important is transparent engagement with affected communities and stakeholders. The Australian-owned LAMP Kuantan REE plant in Malaysia, for example, attracted intense environmental activism partly due to unaddressed local concerns and misperceptions.