BATTERY METALS MINERAL RESOURCE AND VALUE CHAIN POTENTIAL IN SOUTHERN AFRICA

Author – Luke Peters, manager, Valuations – Deloitte UK | Co-author – Neil McKenna, director, Deloitte Technical Mining Advisory

Battery-associated materials, namely bauxite (a precursor to aluminium), cobalt, copper, graphite, lithium, nickel, platinum group metals (PGMs), rare-earth elements (REEs) and vanadium are among the materials pivotal to the global shift to a low-carbon economy .

The global shift to a low-carbon economy has gathered pace in recent years. A variety of metals are pivotal to a clean energy future, including those essential in renewable energy-generation technologies. This also includes battery-associated materials, namely bauxite (a precursor to aluminium), cobalt, copper, graphite, lithium, nickel, platinum group metals (PGMs), rare-earth elements (REEs), and vanadium.

Batteries have undeniably become the principal method to decarbonise the transport sector, through their application in electric vehicles (EVs). According to the IEA’s Global EV Outlook 2022, battery demand is expected to grow by about 30% per year, from 2023 to 2030. This is largely due to a long-term increase in EV sales and policies in favour of reducing the use of internal combustion engine (ICE) vehicles. EV sales are expected to be driven by a reduction in prices and raw material costs (Lithium and Cobalt CBS February 2023, S&P Global).

While geopolitical instability may drive down production, and while inflation may place pressure on the fabrication supply chain in the near term, raw material supply, battery production capacity and demand for EVs is expected to continue to grow. In addition, diverse battery chemistries are being used with increasing success, which is continuously changing supply-demand dynamics for some battery metals, with the potential to redirect focus on the development of projects in this space. With a greater appetite for near-term market risk, and more operational flexibility, junior miners play a vital role in the establishment and expansion of the battery metals supply chain in Africa. This is not hard to imagine, given that most of the key battery metals projects within Africa are being developed or operated by juniors.

Africa holds considerable resources and is already a significant producer of key battery metals, including a primary source of cobalt from the Democratic Republic of the Congo (DRC), manganese from South Africa, and lithium from Zimbabwe. With known world-class deposits, and growing global demand for these commodities, resource-rich parts of Africa are well-positioned to capitalise on bringing this new and established supply to the market through discovery, resource development and expansion plans. Furthermore, there is opportunity for the development of downstream industrial sectors, which would likely have a more sustainable long-term outcome for producing nations. Southern Africa is particularly well-placed to position to supply these metals for a growing market.

M&A of African resources highlights growing demand for battery metals

According to research by S&P Global, since 2019, 25 mineral projects have been acquired throughout the continent, each at varying stages of development, highlighting the recent interest in the battery metals supply chain. Unsurprisingly, lithium – a well-established battery metal – has been at the forefront of these transactions, followed by graphite and REEs. Despite this sentiment, a clear decline in the amount of capital raised and the number of projects financed by juniors in this space was observed globally over the 2021-2022 period. This was a market reaction to unfavourable macroeconomic conditions such as rising interest rates and persistently high inflation. Lower levels of capital may have also resulted in fewer acquisitions, delayed capital projects or project development.

All but two of the lithium transactions occurred in southern Africa. Zimbabwe is the largest lithium producer on the continent, owing to the Bikita lithium mine. Many of the prospective lithium areas are located near well-developed infrastructure and urban centres, making them more attractive to investors. These factors were certainly considered during a recent global wave of transactions, led by Chinese companies aimed at securing additional supply. These included:

• The advanced-stage Arcadia project which was sold to Zhejiang Huayou Cobalt Co. by ASX-listed Prospect Resources, for a total consideration of USD422-million , and
• Sinomine Resource Group acquiring a 74% stake in Bikita for USD180-million (S&P Global, accessed 2023).

Namibia is widely considered to be an emerging lithium jurisdiction, with investors over the last two years targeting earlier-stage projects. Explorers and developers have additionally been relatively successful at re-visiting legacy tin-tantalum deposits with a renewed lithium focus – an approach being successfully followed globally. Junior tin miner Andrada Mining (formerly AfriTin) has also confirmed the presence of lithium mineralisation at their flagship asset, Uis tin mine, reporting drill intercepts of 1.6% Li2O over 59m in their latest technical report (Andrada Mining – Regulatory News, https://polaris.brighterir.com/public/andrada_mining/news/rns/story/xoo1nmx, accessed 18 April 2023).

Other battery metals projects have also seen an uptick in M&A activity. This includes graphite projects mostly in Mozambique and REE projects in Malawi, South Africa and Tanzania. There has also been renewed interest in other REE projects in Namibia and South Africa, demonstrated by funding from the Japan Oil, Gas and Metals National Corporation (JOGMEC) to jointly explore, develop, exploit, refine and/or distribute mineral products from Lofdal in Namibia (Namibia Critical Metals Inc., https://www.namibiacriticalmetals.com/projects/lofdal-heavy-rare-earths-project, accessed 2023). Similarly, in South Africa, Steenkampskraal received significant investment from Monoceros Mineral Resources in 2022, to fund mining activities and an initial public offering (IPO) on the Johannesburg Stock Exchange (Global Mining Review, Monoceros Mineral Resources invests in Steenkampskraal Rare Earths | Global Mining Review, accessed 18 April 2023).

Mechanisms to develop value chains

As per Deloitte’s 2023 Tracking the Trends, mining companies play a critical role in supplying the minerals and metals needed to develop a modern and de-carbonised world. As a result, supply chain security is becoming more of an imperative, presenting an opportunity for a globally connected business. In the supply of battery metals, mining companies have demonstrated vertically integrated business models engaging in joint ventures (JVs) to establish supply for mid-market beneficiation and fabrication.

Producers can consider developing capabilities in downstream activities, whether through partnerships or vertical integration, to provide additional value and more sustainable growth that is less susceptible to commodity price fluctuations. One example is that of integrated vanadium producer, Bushveld Minerals, with activities in vanadium ore extraction and processing in South Africa, as well as developing and promoting the role of vanadium in the growing global energy storage market through application in vanadium redox flow batteries. Another example is that of the Manganese Metal Company in South Africa. The company has the processing plant capacity to provide electrolytic manganese from the country’s well-known and extensive resources, which include battery-grade manganese from projects being developed in the region. This facility has enabled the export of high-grade products as well as application in numerous localised downstream manufacturing processes. Furthermore, the facility is described as the world’s only non-China based producer of high-grade electrolytic manganese metal and the world’s largest refinery of 99.9% (selenium-free) electrolytic manganese (Manganese Metal Co., https://www.mmc.co.za/, accessed 2023).

A key consideration when assessing the ability for juniors to succeed in this space is the incentives framework offered by the countries in which these companies operate. Countries may commit to building up their downstream industrial sectors through several mechanisms, which would result in expanding the extractives sector and developing a labour force that has expertise in activities such as mineral beneficiation, refining, and even battery manufacturing.

One such mechanism is trade and industrial policy. Zimbabwe recently implemented a trade ban on raw lithium exports in response to the wave of foreign direct investment (FDI) into lithium projects. This mechanism is primarily aimed at stimulating downstream activities within the value chain, such as local beneficiation, and even battery manufacturing. An export ban like this typically has more success if the imposing country has the capacity to develop the downstream sector. Zimbabwe appears to be positioning itself in this regard, having signed several multi-billion-dollar deals with foreign investors to develop mining operations and battery metals processing facilities, which will include lithium, nickel and platinum. A comparable initiative in recent times is the Indonesian ban on nickel laterite ore exports, with the aim of developing the domestic nickel value chain.

In addition to trade and industrial policy, broader economic approaches that governments can take to develop these value chains and promote battery metals value chain industrialisation include (1) providing alternative economic incentives to producers to beneficiate themselves locally, such as favourable royalty rates for refined or treated metals; (2) attracting local companies to install processing and other downstream capabilities through subsidies/tax relief; (3) encouraging lenders, like development banks, to provide capital aimed at the expansion of industrial parks and implementation of special economic zones; and (4) allowing foreign companies to establish downstream facilities (as seen in the example above). Trade policies and other government incentives can be short-term initiatives, aimed at boosting a developing market.

Considerations for successful implementation

Like many parts of Africa, southern Africa generally has more capability in upstream production compared to downstream activities. In addition, mineral deposits are geographically concentrated in some countries, with intermittent and limited local infrastructure to support mining activities and transportation. Infrastructure bottlenecks such as logistics and transportation, as well as power and water challenges remain prevalent. Although transport continues to receive the largest financing commitment, according to the Infrastructure Consortium for Africa (ICA), many parts of sub-Saharan Africa have been underinvesting in infrastructure as a share of GDP.

Southern Africa would undoubtedly benefit from developing battery metals value chains and retaining more of the revenues that these industries generate. However, it is not always viable to confine all parts of a value chain to one country or one part of a country, due to insufficient scale to attract major investment. Cross-border collaboration can lead to regional integration of value chains, which is a practical way of attracting downstream investment. For example, to achieve shared benefits of regional collaboration in battery manufacturing, different countries in a region could provide the key mineral inputs into the country that manufactures the battery.

As per Deloitte’s ‘Africa’s role in a clean energy future’ article, this however, requires improved regional trade and industrial policy coordination, among other things. It is also essential to identify and address challenges that obstruct regional value chain creation including hurdles to intra-regional trade, such as transport costs, tariff and non-tariff barriers, as well as the trade-offs associated with specialisation. The African Continental Free Trade Area (AfCFTA) agreement and development communities, such as the Southern African Development Community (SADC), will play an important role in promoting the building of regional value chains and markets, as well as reducing transaction costs, attracting investment, while supporting economic diversification and industrialisation.

Conclusion

Junior miners, among others, have already shown that they are well-positioned to benefit from exploring for and developing battery metals projects in southern Africa. These companies, and the countries in which they operate, can fill an important gap in the market, by creating additional supply, through resource extraction, and value-adding products by establishing downstream capabilities. For Southern African countries to become globally competitive players and to take full advantage of the opportunity to increase downstream production capacity, and capture more of the full value-chain in the battery metals space, companies will need to be incentivised through targeted industrial policy making and favourable trade agreements. 