THE 'ACHILLES HEEL' FOR ELECTRIC MINING
In the race to decarbonise the transport sector, no innovation has captured the imagination quite like the electric vehicle. The great thing about electric vehicles is that they run on batteries, not internal combustion engines, so they produce no tailpipe emissions. However, the most commonly used battery type in electric vehicles is lithium-ion, and this battery needs a metal called cobalt to run; each new electric vehicle requires around 10kg of cobalt.
The social and environmental issues surrounding cobalt mining will be familiar to many. Indeed, such are the problems in cobalt supply chains, that the metal has been described in the not too distant past as the “Achilles heel for electric car makers”.
WIDESPREAD HUMAN RIGHTS ABUSES
The country which contributes over 60% of global production, the Democratic Republic of the Congo (DRC), is notorious for human rights abuses, internal conflicts, and environmental degradation. Moreover, a considerable percentage of the DRC’s cobalt comes from artisanal, small-scale mining operations (also known as ASM), where diffuse and decentralised production makes full supply chain visibility exceptionally difficult, and where around two million workers operate ASM mining frequently involves children as young as 7 toiling for 12 hours a day in all weathers, with no protective equipment, using primitive hand-tools to extract cobalt-containing rock. One of the many health issues for such children is exposure to the cobalt dust, which the World Health Organization states causes long-term respiratory problems, such as pneumoconiosis (lung fibrosis).
The weak political institutions in the DRC further open the industry up to myriad abuses. Despite the continued presence of UN peacekeeping troops, an estimated 120 armed groups may be active in the DRC as of 2018, often thought to be supported by regional governments in the east of the country. These armed groups skim profits from the mining operations whilst continuing to impoverish and threaten the miners themselves.
NOT QUICK FIX FOR THE INDUSTRY
It’s not something to which the global automotive companies, or global trading institutions, are blind. In an address at the London Metal Exchange Week back in October 2018, Trafigura’s CEO Jeremy Weir pointed to the commodity trading house’s partnership with Washington-based NGO, Pact, on a pilot project to allow ASM mining under strictly monitored conditions on one of its suppliers’ operations in the southeast of the DRC.
UK-based independent consultants Kumi are working alongside Pact, Trafigura, and the mining operation’s owner (Chemaf), in an attempt to ensure effective management controls for health, safety, environment and community engagement. Initial results appear promising, albeit on a pilot-project scale. Unfortunately, despite these developments, this isn’t a quick fix. To scale up this kind of ASM mining is a time-consuming task and one which, in the most politically volatile and conflict-ridden regions of the DRC, may yet be beyond reach.
VIABLE ALTERNATIVES STRUGGLE TO MEET DEMAND
In the meantime, other mining companies are choosing to shun ASM-derived, DRC-origin cobalt. Glencore, for instance prefers to source its cobalt from large, open-pit mining operations when in the DRC. The larger mining and metals trading companies are also looking at alternative sources for their cobalt, with significant deposits in the less risky jurisdictions of Australia, Cuba, and Zambia, among others.
Such is the expected growth in use of electric vehicles over the next decade, however, that avoiding DRC-origin cobalt in its entirety doesn’t seem to be a viable option. Moreover, as bad as conditions are, there are the communities in the DRC which rely on ASM cobalt mining as their only source of income.
Contrastingly, some car manufacturers are trying to bypass cobalt altogether, or at least significantly reduce their requirements for the metal. Tradition lithium-ion batteries were known as “111” in terms of their chemistry – that is, one part nickel for one part cobalt and one part manganese; now, “523” batteries are more common (5 parts nickel, 2 parts cobalt, and 3 parts manganese). But many car makers are increasingly looking at a more nickel-heavy battery chemistry, “811” (8 parts nickel, 1 part cobalt, 1 part manganese). This would significantly reduce the demand for cobalt per battery; however, as more electric vehicles hit the roads, the absolute level of cobalt demand would still grow markedly out to 2030 and beyond, even with mass adoption of 811 batteries.
California-based Tesla is working closely with its EV battery partner Panasonic to create a cobalt-free battery, simply because the risks in the cobalt supply chain are so stark and seemingly intractable. Indeed, conventional lithium-ion batteries are facing competition from so-called ‘next generation’ battery technology. Lithium-manganese spinel and lithium nickel cobalt aluminium oxide batteries use far less cobalt than their lithium-ion cousins, and other advances in chemistry are hinting at a zero-cobalt future for batteries – lithium-iron phosphate and solid-state lithium batteries being two of the most promising.
COLLABORATION KEY FOR RESPONSIBLE AND SUSTAINABLE INVESTORS
In the end, we are left with difficult choices to make: use less cobalt, no cobalt, or ensure that it is only responsibly-produced. Trafigura’s work with Kumi, Chemaf, and Pact shows that responsible ASM cobalt can be achieved in the DRC. It’s a slow and arduous process to get there, even on a small scale, but it shows it can be done.
As responsible and sustainable investors, the social and environmental costs of cobalt mining – particularly in the DRC – are firmly on our radar. Although EdenTree does not directly invest in any automotive manufacturers, cobalt is a feature of the wider electronics industry, to which we have more exposure. With this in mind, we have recently commenced a cobalt-focused collaborative engagement stream with the UN Principles for Responsible Investment (PRI). Through to 2021, we will be working alongside fellow investors to encourage investee companies to improve disclosure and conditions within their cobalt supply chains.