Investment in African minerals – timing and collaboration critical for global decarbonisation

By Willis Thomas, head of CRU+ and Simona Nenickova, research analyst

Africa holds the key to resolving some of the imminent global upstream materials deficits resulting from key decarbonisation trends. However, without greater investment in raw material markets, bottlenecks may remain unresolved and decarbonisation trends will inevitably slow or in extreme cases even halt. Collaboration will be key.

 

Africa, a continent which has long seen mineral exploration and production, holds the key to resolving some of the imminent global upstream materials deficits resulting from key decarbonisation trends, with some of the best untapped mineral deposits the world can hope to develop. However, without greater investment in raw material markets, bottlenecks may remain unresolved for African mining. If these bottlenecks persist or worsen, decarbonisation trends will inevitably slow or in extreme cases even halt. Concerted effort between the holders of key resources, governments, regulators, and the downstream beneficiaries across the world is needed to prevent this.

Africa’s potential for critical decarbonisation metals production Today, Africa plays an important part in the production of metals that facilitate global decarbonisation, including significant production positions in cobalt and to a lesser degree, copper and vanadium. However, there is a lot of mineral potential in Africa which remains untapped. For instance, lithium reserves reported in the most recent USGS Mineral Commodity Survey are just 1.2% of the global total, and 5% of global resources. If all of these resources were in production, they would be the equivalent of approximately 50% of global lithium supply in 2027. However, there are substantial deposits of spodumene in Africa with a number of developing mining projects in the CRU project pipeline database, with many early stage, and some which have completed feasibility studies on the road to construction. While the future African share of production may remain small, there are projects that are large, e.g., the Manono-Kitolo mine project has greater reserves than the largest existing spodumene mine.

It is not just lithium that can be exploited from untapped reserves, but also more cobalt, copper, nickel, vanadium, phosphate rock, iron ore and bauxite for aluminium – the collective of which needs to rise by 186% from 2020 to 2040. However, it is the need for battery metals like lithium, cobalt, vanadium, phosphate rock and nickel, which will increase massively (rising by over 1 200%) in the period to 2040, that truly drive this increase.

Those demand drivers in these markets will change as the importance of existing applications (in steelmaking, fertilisers and many others) is diminished by the quick ramp up in demand for uses related to the energy transition, especially for battery metals.

Africa can play a major role in minerals production for the elements listed above, with the African project pipeline accounting for between at least 3% and up to 35% of 2027 production possible across this range, excluding cobalt where Africa already accounts for around two-thirds of global mined output.

Macro goals are bottlenecked by micro needs

Local ESG challenges often do not align with long term climate goals. The world will need accelerated, geopolitically resilient supply of key minerals extracted in an environmentally and socially responsible manner. People near potential mine sites need protection from the environmental damages of mining and processing, while also benefiting from the economic advantages of mining. Mining project investors need reliably profitable businesses that provide future returns, whilst ensuring environmental and social responsibility.

The diverging needs of local committees, the global community, and mining investors will lead to mismatches in the decarbonisation supply response problem including:

• Technology uncertainty for both production methods and for downstream uses.
• Timing mismatches of supply and demand, where supply can come too early, reducing pricing in the market due to oversupply, or supply can come too late and destroy demand due to high prices.
• How and when to apply traditional due diligence processes and where these may need to be adapted to new or unique circumstances.
• Local and global needs diverging so severely that reaching to achieve one negatively affects the other. Local needs will often trump global goals, due to the acute investment the local community has in the project against the more diffuse desire for decarbonisation.
• Power availability and power prioritisation, where limited power production is met by ever increasing needs from power hungry mining or mineral processing and a rapidly growing population in Africa.

º Metals such as aluminium and silicon, sometimes both known as solid electricity due to their significant consumption of electricity in basic metal production, sit at the top of the chat for power needs. With both being critical to decarbonisation, prioritisation of power between industry and home electricity and heating will be a paramount issue for policy makers and regulators.

• The risk appetite mismatch between emerging mining project developers and the potential financiers who will fund the project. Funding projects in highly developed mining countries, like those in North America, Europe and Australia appears to be less risky than those in the myriad of jurisdictions in Africa.

Bottlenecks specific to Africa

Specifically, mining development in Africa faces challenges which are not seen, or not seen to the same degree, in more developed mining jurisdictions (and apply unevenly across the continent). These include:

1. Lack of rail and transport infrastructure including a mostly limited navigable river system
2. Intra-Africa trade barriers form long queues at land ports where trucks wait – in some instances, days for border crossing, to tariffs and taxes which limit trade and travel on the continent
3. High costs of capital due to increased risk
4. Security at the mine site
5. Lack of past development in some areas, leading to lack of settled mining regulations 6. Long development timeline for permitted mining, leading to increases in illegal mining in some cases.

These local challenges must be abated to allow for greater mineral production. Some of these are issues which are much larger than mining, but some are specific to the sector and targeted action can help to make true progress to allow for a greater opening of the mineral wealth from Africa.

Why is this so important?

Playing catch-up on decarbonisation due to a slow start means greater risks down the line. If there is little consensus at the beginning of the decarbonisation drive, as we see today, then there will be a waiting game played which will be in part blamed on the fear of technical obsolescence. If there is little consensus on the pace of change, we will see an avalanche of intent resulting in a dribble of successful precedents. Eventually, there will be some consensus on outcome and the fact that it is possible, but the development curve is getting steeper, if this consensus is not reached early.

Specific short-term solutions are needed to achieve long term macro goals

1.Quantify the problems

a) Choosing where to intervene relies on understanding the micro issues most responsible for preventing the supply response. Data needs to be understood in the specific context of the key bottlenecks, so that solutions are most efficiently deployed.

2. Pick the fight

a)Eliminating risk is impossible in a rapidly evolving market. Breaking down the elements of risk in as specific a way as possible can make certain areas of risk more palatable to stakeholders. Finding micro solutions for micro problems will be key to solving macro goals.

3. Targeted solutions

a) Once the data and risk are focused and adequately understood, targeted commitment is needed from all stakeholders:

1. Streamline processes like financial due diligence and permitting wherever possible.
2. Build bridges between local and global stakeholders with off-sets – for instance, assume capital risk in exchange for social responsibility guarantees.
3. Selectively assume and share the risks that cannot be avoided to resolve key bottlenecks.

If stakeholders at the global, local, and company levels intend on reaching their individual goals, then cooperation on these points of quantifying problems, picking the right fights, and proposing targeted solutions, means the trend of decarbonisation will be better facilitated.

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