Africa Down Under - September 2023 - What's so critical?

I don’t think the band Foreigner had critical minerals in mind when they wrote their rock anthem “Urgent”, but I am going to say in addition to the title, these few lines definitely apply to production of critical minerals:

“You play tricks on my mind

You're everywhere but you're so hard to find

You're not warm or sentimental

You're so extreme, you can be so temperamental”

This past week, along with my other Dentons mining colleagues John Mollard (Melbourne) and David Perks (Perth), I attended the Africa Down Under conference in Perth, Australia. Originally it was started as a forum for Australian-African business and government relations and to raise awareness of Australia’s interests in African mining and energy. This year, that has changed and the discussions were much more global in nature. As an example of that more global interest, the Canadian Australian Chamber of Commerce hosted a critical minerals panel in Perth during the conference to discuss the Canadian level of interest. In addition to myself, other speakers included Export Development Canada, EMM Consulting and BHP.

Here are a few of the themes observed and discussions had that we think are worth noting from Africa Down Under and the surrounding discussions this year:

1.???? By far, the number one topic of discussion was urgency. Whether or not the critical minerals are going to be sourced from Africa, Australia, Canada or anywhere in the world, they need to be sourced faster. The word “sourced” is obviously a complex one and in most cases means the whole timeline from exploration to production. Timelines are getting longer, not shorter, so we need to reverse that trend. One example of how to do this was Australia’s previous approach to implementing a mining approval process that allowed an explorer to get development approvals for a block of claims in advance, thereby allowing it to advance multiple projects at one time. Similarly, having government bodies simultaneously review their respective components should speed things up.

2.???? While a relatively new phrase, the concept of "decarbonization" is not new, it just the current label we are putting on the concepts of climate change/ESG, discussions that have been underway for decades. We should think of this as a continued process, not a new one.

3.???? The critical minerals discussion has now emphasized that much of the mining business is really an extension of the energy business. If that’s what it takes marketing wise to get things done, then go with it.

4.???? Some jurisdictions, like Canada and Australia, have advanced capital markets with mechanisms that can accelerate development of mining projects. For example, the Canadian capital markets have a leg up on mining investment encouragement with its flow-through share concept. We should compare notes to see what can be adopted from other jurisdictions as well.

5.???? When it comes to public relations, mining companies have historically been their own worst enemy. Many mining companies have been doing a better job on ESG issues for years than they give themselves credit for.

6.???? The pandemic made us all rethink supply chain cost, stability and security. Now when we need something that is important to our economy, we realize it may be much more expensive to get from the other side of the world, it may do a lot more environmental damage getting it, you may be lucky to get it from the same supplier and you may not want to use something supplied by a country that is no longer any ally.

7.???? Most countries are recovering from significant debt brought on by the pandemic. Resource nationalism, the easy and quick way to pay for it, is becoming more common around the world and is taking many forms, but the green energy transition is inspiring a wave of resource nationalism across Africa. For example, recently:

a.???? Namibia banned the export of unprocessed lithium ore,

b.???? Zimbabwe banned the export of unprocessed lithium ore, and

c.???? Ghana approved a green-minerals policy to help manage the exploitation and production of lithium.

This same trend is happening in other jurisdictions, albeit on a smaller scale and happening in other commodities. For example, the New South Wales government in Australia has announced increased coal royalties beginning in July 2024.

8.???? Not all critical minerals are created equal. As each jurisdiction considers what is critical based on its own needs, the lists at the heart of incentives varies from country to country. For example, not all countries include aluminum and copper in their lists. This makes it difficult sometimes to match up where resources are with an increased priority to access them.

9.???? Aluminum is now seen as taking on an important role in the energy transition. After steel, it is the second most used metal in modern society thanks to its strength-to-weight ratio. It is expected that the use of aluminum to reduce weight will increase EV performance significantly. However, aluminum production is very energy intensive and is dominated by supply from Russia.

10.? With respect to electric vehicles, China continues to dominate the conversation. It appears that China still wants to become the dominant player in the EV industry and, in similar ways to the solar industry, it will do this by simply out-pricing global competitors and take a huge market share, even in the US market. The key reason for this is simply the ability to offer products at very low prices which are still of a Western quality. After years of positioning, China has built a globally dominant position in lithium processing in order to be able to make the transition to EVs.

11.? A few times the observation was made that what is behind the electrification of the world is not climate change, but economics. Quite simply, it is cheaper to distribute power in the world using electricity rather than other forms of energy. ?

12.? ?On the security front in Africa, there is good news and bad news. First, there does seem to be a lot of fear mongering in the media. Africa is made up of a number of countries, some of which are safe and stable places to do business. Second, there are however some countries which are very volatile and unsafe. Without naming names, in some cases:

a.???? the instability is due to current leadership jostling to protect themselves in case of a power change and to avoid corruption probes that may delve into their previous dealings,

b.???? action is being taken by current governments as a pre-emptive step to demonstrate that external sanctions are not necessary in their case, and

c.???? Russia purports to be a significant provider of armed security in many markets but in reality is not,

13.? The governments of most African countries are pro-mining on both left and right sides and elections usually do not significantly change policies towards mining. Most governments are pro-investor before and after an election, unlike in Latin America where some governments are very anti-mining. Historically a government change towards democratic systems can go either way.

14.? In countries that have seen increased violence and security issues, the risk is to people and equipment, not the actual assets themselves, which remain in the ground. The issues are around getting people safely in and out of a project without being attacked. Most of the time, the attacks are unsophisticated and involve old fashioned tactics.

15.? Political risk insurance is still available in most countries, it is just now more expensive almost across the board.

16.? China has financed and developed 60-80% (depending on how you calculate it) of the mining production flow out of Africa. In many cases, it did so by investing in places and at a time when others did not want to invest there, so China has entrenched relationships and supply commitments. The Western world now wants access to many critical minerals that the continent can provide, but will have to figure out a way to loosen China’s grip on the continent. This is seen as a major challenge to rerouting the supply of certain critical minerals. It isn’t just a question of paying market prices, it is in some cases a case of offtake agreements already taking up supply.

17.? While U.S. policy makers are keen on the development of the African continent, U.S. companies have for the most part remained cautious. That gap is currently being filled by Canadian and Australian companies which don’t share the same apprehensions.

18.? When it comes to election influence, in most cases the real threat comes from cyber influences, not physical disruption or corruption payments.

19.? Gold is a facilitator of wealth transfer on an equal footing. A country that can produce it is assured they will get the same market price for it as anyone else. And in some cases, gold production is expected to pay the costs of the energy transition.

20.? Deep sea mining is on the radar for a few countries, but was not as big a topic as you might have expected.

21.? Critical minerals mining and the energy transition are not just about the actual minerals, they are also about the infrastructure that will be required to support it. For example, it is expected that $700M will be invested in upgrading the Pilbara’s Port Hedland to support the raw battery minerals out of the region.

22.? The importance of the circular economy (the use of recycling of minerals to build new components) is increasingly prominent in conversations. Questions along the lines of how many years will it take before recovery and recycling technologies ensure that all of these minerals are recovered quickly, thereby reducing the need for new additions to the supply chain.