Green Energy

As demand for batteries drives a surge in the price of cobalt, the Democratic Republic of Congo is gearing up to overhaul its mining regulations to harvest more profit from the coveted metal.

The global boom for smartphones and electric cars has pushed up the price of cobalt, a key ingredient in top-range batteries, to $75,000 (more than R919,000) a ton — an increase of 127 percent in one year.

The DRC is the world’s leading producer of cobalt, but authorities believe the existing mining code favours foreign investors at the expense of the economy.

The country is also the top African producer of copper, currently trading on the London Metal Exchange at more than $7,000 a tonne for the first time in three and a half years.

Congo’s production of copper has rocketed from 27,000 tons in 2002 to more than a million tons today, according to the preamble to the new mining code.

The code should “make the mines a true motor of the development of the country”, according to Minister of Mines Martin Kabwelulu, who has overseen the industry since February 2007.

From the Katanga provinces in the southeast to North and South Kivu on the eastern border via the central Kasai region, the subsoil is rich in gold, diamonds and coltan, another mineral used for electronic products and often cited as an illegal source of finance for conflict.

After many twists and turns, the government in December presented parliament with its revised version of the 15-year-old mining code.

“The former code of 2002 was meant to be attractive for investors because then we were in a state of war,” Henri Muhiya of the influential Roman Catholic episcopate told AFP, referring to the Second Congo War of 1998-2003.

“We’ve realised that the investors indeed came, but the profits weren’t shared out in a fair way between them and the country,” added Muhiya, the secretary of the natural resources commission of the episcopal conference, which has amended the text before parliament.

“We’re going to try to find a balance,” he said.

Economic patriotism

The new code, passed by the National Assembly and now in the hands of the Senate, provides for “a broadening of the base and the raising of mining royalties”, according to Muhiya.

It sets out taxes of up to five percent on “strategic metals” — most likely including cobalt — and six percent on precious stones.

Kinshasa is introducing a form of economic patriotism by raising the stake of the state in the capital of mining companies and outsourcing tasks related to the industry “only to firms in which the majority of the capital is owned by Congolese nationals”.

DRC authorities also want to ensure the repatriation of at least 40 percent of the revenue of minerals that are sold for export.

Multinational firms have fired back, charging that the new mining code would “significantly weaken the confidence of investors”, in a joint letter to the speakers of both houses of parliament.

The protest was signed by the Congolese subsidiaries of giants in the sector, China Molybdenum, Rangold, the Swiss firm Glencore and MMG, an Australian-Chinese venture.

“Our partners have for 15 years — these words aren’t too strong — cheated and stolen from us. That has to stop,” the chief executive officer of the powerful Gecamines state mining firm, Albert Yuma, stormed in November.

‘Regime cash machine’

The DRC should control its mineral resources like “our Arab brothers have benefitted from the control of oil”, said Yuma, leader of the national business community and close to President Joseph Kabila.

Kabila’s second and last elected five-year mandate ended on 20 December 2016, but has been extended in a church-brokered deal at the cost of severe repression.

The vast money in mining has to be seen in the context of DRC’s chronic reputation for corruption and the deep poverty that afflicts most of its 80 million citizens.

Reliable figures for turnover and employment in the mining industry are elusive in a country where much economic activity is unregistered and even the size of the population is unknown, given the absence of a recent census.

In July, the British NGO Global Witness described the mining sector as the regime’s “cash machine” and its revenues were being wasted by a “toxic combination of corruption and mismanagement”.

In November, US NGO the Carter Center estimated that $750-million generated by mining production between 2011 and 2014 could not be traced in any “reliable fashion” in Gecamines’s accounts, an assertion that the company angrily rejects.

Documents released in November in the “Paradise Papers” leak said that Swiss firm Glencore acquired a Congolese mine for a pittance in 2007 through controversial Israeli billionaire Dan Gertler.

In 2013, the NGO Africa Progress Panel analysed five mining sales to offshore companies linked to Gertler’s firm.

“Together the five deals cost the DRC at least $1.36-billion, an amount equal to almost twice the DRC’s combined annual budget for health and education in 2012,” it said.

By 2035, there could be 125 million electric cars on the road, up from 2 million last year.

The result: a steep upward swing in demand for batteries and electricity, and a similarly strong decline in global oil demand.

A new report from Wood Mackenzie details the rise of electric cars around the world. It illustrates how electrification will bring a unique set of pressures for battery suppliers, utilities and oil companies.

Take battery manufacturers. According to Wood Mackenzie, current capacity for EV batteries sits at 268 gigawatts by 2020. That’s much higher than 2020 demand, which barely touches 100 gigawatts. But in a decade, that picture changes. With spiking demand driven by Europe, the U.S. and China, battery demand exceeds current manufacturing capacity after 2028. By 2035, battery production needs to triple.

Source: Wood Mackenzie

A wider array of battery chemistries (lithium nickel manganese cobalt; lithium nickel cobalt aluminum; lithium manganese oxide) will help meet those rising needs, and Wood Mackenzie does not predict a shortage. However, if the uptake of electric vehicles increases at a faster rate than expected, production constraints could become a problem.

Looking ahead to 2035, even as EV uptake increases exponentially, the broad impact on power markets is negligible. Those 125 million cars will likely add 135 terawatt-hours of power demand. That’s comparable to how much power Texas consumes, but it’s only 1 percent of the global market.

It’s likely, though, that many of those cars will be concentrated in certain areas. That could present difficulties for utilities.

“At the country and regional level, most developed markets have adequate capacity to handle many years of EV growth,” reads the report. “But when looking at the city and neighborhood level, the magnitude of impact and challenge could easily be much higher.”

Areas with pockets of electric vehicles — Silicon Valley, for example — could see problems arise along the distribution system. The next wave of smart chargers and time-of-use rates can help utilities juggle demand in areas with a concentrated supply of electric cars.

The oil markets are a different story.

“Higher-than-anticipated EV sales will disrupt oil markets long before power sector impacts,” the report reads.

In the next 20 years, Wood Mackenzie projects electric cars will knock out nearly 7 percent of global gasoline demand. That will have the biggest impact in the U.S., where a car-obsessed culture leads to more miles driven than in other countries.

In countries that require higher carbon reductions — like in the nationally determined contributions set out in the Paris Agreement — electric cars reach 20 percent of the total vehicle market by 2035. That would reduce oil demand by an additional 5 million barrels a day, added to the 1.8 million barrels a day in the base case.

“While this transformation would be extreme, it is not considered impossible given current policy, investment and technology drivers,” reads the report.

Though carbon-reduction policies have stalled in the U.S., they are expanding globally. Many countries, including China, are considering bans on internal-combustion vehicles.

Just this week, another domino fell: The World Bank announced that beginning in 2019 it will no longer fund exploration and extraction in oil and gas. The group said the decision was made in part “in recognition of a rapidly changing world.”

EVs are a big part of that changing world.

A global battery boom, driven by growing demand for electric cars, has Canadian miner RNC Minerals is in talks with commodity traders, mine operators and financiers to help secure $1.24 billion to build the world’s biggest nickel and cobalt project next year.

The need for batteries in electric vehicles is pushing prices higher for such key ingredients as nickel and cobalt and encouraging miners to accelerate development plans.

Conditions are right to build Dumont in the Canadian province of Quebec, said RNC. With 3.15 million tonnes of nickel sulphide and 126,000 tonnes of cobalt, it is the largest undeveloped reserve of both metals in the world, the Toronto-based company said on Jan. 15, citing S&P Global Market Intelligence data.

RNC, which changed its name from Royal Nickel in 2016, is in talks with large Japanese trading houses, companies that offer “streaming” deals and miners interested in off-take arrangements to feed their smelters, said Chief Executive Mark Selby in an interview.

Streaming deals offer miners upfront cash in exchange for future production at a discounted, fixed price.

“We have a clear path to secure financial backing,” said Selby.

Lithium batteries, which contain cobalt and high-grade nickel, power electric vehicles for automakers ranging from Tesla to General Motors.

RNC is not yet in direct talks with battery makers or car companies, but is open to those discussions, Selby said.

UBS estimates 15 million electric vehicles will be on the road by 2025, lifting nickel demand by 300,000-900,000 tonnes, or by some 10-40 per cent of the current market.

Analysts at CRU Group forecast the battery sector will need more than 75,000 tonnes of cobalt a year by 2025, up from around 41,000 tonnes in 2016. In the past six months, nickel prices have climbed 38 per cent and cobalt 27 per cent.

RNC is also seeking debt financing to fund half the development cost, he said, and expects to complete financing deals late this year and start the two-year construction project in 2019.

RNC owns 50 per cent of Dumont with private equity firm Waterton Global Resource Management holding the remainder.

Cobalt is mainly mined in the war-torn Democratic Republic of Congo. The market is dominated by Glencore, which produced more than 28,000 tonnes in 2016 and agreed to sell up to 20,000 tonnes of cobalt to a Chinese battery maker.

Analysts at Macquarie Research expect cobalt deficits of 885 tonnes this year, 3,205 in 2019 and 5,340 in 2020.

BMO forecasts a 36,000-tonne nickel deficit in 2018 and sees demand for nickel used in electric car batteries to grow by 215,000 tonnes by 2025, about 10 per cent of the current market size.

LI-POLYMER, WHICH IS VERY USEFUL IN TERMS OF SIZE AND LIGHTNESS, IS NOW BEING USED AS A BATTERY FOR CELL PHONES AND TABLETS.

The polymer staging is used to describe a specific lithium-based battery with or without a polymer base. These batteries typically have pore and prism-like cells. The polymer addresses a wide range of synthetic plastics to proteins and natural polymers that form the basic biological structures.

Lithium-polymer differs from other battery systems in terms of electrolyte used. The original polymer design was first made in the 1970s using solid polymer electrolyte. The solid polymer consisted of a plastic-like film layer. This insulator allowed the ion flow, taking the place of the conventional porous separator which was immersed in the electrolyte.

A conductivity of solid polymers at room temperature is very low. The battery needs to be heated to 60 degrees and above for the current to flow. Large polymer batteries used in stationary applications were removed from service because they needed to be heated. The concept of ‘real plastic battery’ that emerged at the beginning of the 2000s and held much of it could not be transferred to practice because of the inability to provide conductivity at ambient temperatures.

In order to ensure that modern Li-polymer batteries acquire conductive properties at room temperature, the assembly also has gelled electrolyte added. Today, many Li-ion polymer batteries are produced with a reagent with partially moistened micropores. It is not considered to be a unique battery chemistry, as it has many field applications, such as in similarly structured systems like polymer, Li-cobalt, NMC, Li-phosphate, and Li-manganese. Most of the Li-polymer packages are cobalt-based. Other active materials can be added to this.

What is the difference between a normal Li-ion and a Li-ion polymer in a system where there is a glued electrolyte? In case the user wishes to consider, the lithium polymer essentially has the same properties as lithium-ion. Both systems use similar cathode and anode materials and contain similar amounts of electrolyte. The Li-polymer has a unique structure with respect to the micro-sized porous electrolyte component taking place in the conventional porous separator. The Li-polymer can be produced finer than the known Li-ion battery while offering a higher level of specific energy type. But the cost of production is higher than the cylindrical design. Porous batteries are often referred to as ‘Li-polymers’.

Li-polymer batteries are also produced in a flexible foil-type casing similar to a food package. The standard Li-ion battery packs tightly together to ensure that the electrodes stick together, while the Li-polymer battery packs in thin sheets that do not require pressure application. Factors such as light weight and high specific energy potential make Li-polymer the preferred option.

Li-polymer charge and discharge characteristics are similar to other Li-ion systems and do not require a dedicated charger for this process. The safety-related conditions are also similar to the conditions required for normal-cycle protection. Gas accumulation during charging can cause some prism-shaped and porous cells to swell. For this reason, producers need to allocate enough space to overcome this swelling. A Li-polymer in the foil package may be less durable than a Li-ion battery in the cylindrical packaging

A SMALL TOWN WITH AN IRONIC NAME COULD HELP ENERGIZE TESLA’S FUTURE

When you think Tesla, your typically think Fremont, California or Sparks, Nevada. But Bloomberg recently published a fascinating story, The Canadian Ghost Town That Tesla Is Bringing Back to Life, which reports on some important mines in North America that are addressing the “global demand for cobalt, a component in batteries used to power electric cars for automakers from Tesla Inc. to Volkswagen AG.” So where is this so-called Canadian ghost town? Ironically, it’s called Cobalt, Ontario and it only has a population 1,100.

Although cobalt is critical to lithium-ion batteries, it’s been the subject of some controversy. A report from Amnesty International published concerns over cobalt being a conflict mineral when sourced in the Democratic Republic of the Congo (DRC). The report takes issue with, “several automakers like Mercedes, VW and BYD, as well as several battery manufacturers known to supply automakers, like LG Chem” who supply EV batteries for GM and Nissan.

That said, Tesla was spared: “the company [Tesla] is not named in the report because its main battery cell supplier, Panasonic, sources its cobalt from the Philippines and not Congo.”

Now, it appears (via Bloomberg) that Tesla also has access to cobalt in Canada. “Call it a cobalt rush in Cobalt… both the town and the metal, are attracting renewed attention as a buffer to rising political risks in the Democratic Republic of Congo”

Roger Bell, director of mining research at Hannam & Partners in London explains, “Anybody who has cobalt outside the DRC is in a better situation because carmakers are very worried about their supply chains.” And Bell believes the amount of cobalt being used in electric cars could easily double in the next eight to 15 years.

Tina Sartoretto is mayor of Cobalt, Ontario. It’s reported that she’s, “hoping the renewed demand for cobalt will inject some economic life into her impoverished town. With no industrial base to speak of, the town struggles to survive on legacy endowments from past silver and cobalt miners.”

But it turns out the future’s looking bright for Cobalt, Ontario. Gino Chitaroni, a local prospector, and geologist explains: “This area’s seen more airborne surveys in the last year than in the last hundred… Two years ago, if you had a cobalt property you couldn’t give it away. All of a sudden, within six months, everything changed.”

Chitaroni is quick to showcase Cobalt’s advantages over mining locales in the DRC. In addition to steering clear of the DRC controversy, he says mining in Canada’s Cobalt boasts easy access to power, hydro, and expertise. “We call it Tim Hortons’s exploration,” Chitaroni says referring to the convenience of Canada’s popular donut-and-coffee chain. “If you’ve got a breakdown, in half an hour, I’ve got parts. Try doing that in the Congo.”

The cobalt market will record a supply surplus both this year and next, according to heavyweight commodities research house CRU.

This might seem a little surprising, given all the bullish hype surrounding a metal that more than doubled in price last year.

CRU itself has drastically revised its original assessment of a sustained supply shortfall due to strong demand growth from the battery sector.

What has changed its mind?

In short, it’s the return of the Katanga mine after two years of suspended activities. Once fully operational, Katanga will be the “largest cobalt-producing mining project in the world”. (CRU Insight, Jan. 4 2018)

Bulls needn’t panic just yet, however. CRU doesn’t expect much of a price reaction.

Rather, “big future consumers of cobalt like automotive companies, tech companies and battery manufacturers will choose to invest and stockpile” material to try and mitigate future supply risk.

Because the return of Katanga simply increases the dependence of the whole cobalt supply chain on just one highly problematic country, the Democratic Republic of Congo (DRC).

DOUBLING DOWN ON THE DRC

The Katanga copper mine has been out of action since the end of 2015 for a major refurbishment.

It is now returning with a super-charged cobalt circuit and, according to owner Glencore, should produce 11,000 tonnes of the battery material this year, rising to 34,000 tonnes next year.

To put those figures into context, consider the fact that the United States Geological Survey (USGS) estimates global mined cobalt production was just 123,000 tonnes in 2016.

It’s only fair to point out that CRU is a little skeptical of Glencore’s ability to hit its production guidance, citing power stability and sulphuric acid availability.

But even if Katanga underperforms, the boost to global supply will still be enough to tilt the whole market into surplus.

It will also lift further the ratio of global production coming from the DRC. It was, according to the USGS, already over 50 percent in 2016.

And it’s difficult to think of a more unstable production base for a metal that will play a critical role in the batteries that will fuel the electric vehicle revolution.

The DRC poses a unique combination of political, financial, operational and ethical risks.

But for the foreseeable future cobalt is going to struggle to free itself of its Congo dependency.

BY-PRODUCT DEPENDENCY

Cobalt is rarely found on its own but rather exists as a by-product in copper or nickel deposits.

The largest concentration of copper-cobalt deposits is in the Central African Copperbelt running from Zambia into the DRC.

Not only is there a lot of cobalt there, around half of the world’s current reserves, but centuries of copper mining have left significant resources in easily exploited old mine tailings and workings.

Which is one reason there is a lot of artisanal mining in the DRC, another source of concern for a supply chain that is all about a “clean” and green future.

The other two main types of cobalt-containing deposits are both nickel.

The most well-known nickel-cobalt sulfide deposits are those in Canada’s Sudbury Basin, currently operated by Glencore and Vale, and those in Russia’s Far North operated by Norilsk Nickel.

Nickel-cobalt laterite deposits, by contrast, are typically located in “humid tropical climates”, according to the USGS, and classic examples are Western Australian nickel mines and the Goro mine in New Caledonia.

THE PROBLEM WITH NICKEL

If cobalt is going to reduce its dependency on the DRC, it will need a lot more investment in these sorts of nickel deposits.

The problem is that nickel is still suffering from a production surge occasioned by a price spike to over $50,000 per tonne a decade ago.

In London the nickel price has been languishing either side of the $10,000 level for the last two years.

The market is absorbing the wave of new projects that were planned in the mid-2000s. Mines such as Goro have been plagued by technical problems and are running years behind schedule, only now getting close to nameplate capacity.

Still processing the last supply surge, few in the nickel market have been investing in new supply.

And without new nickel mines, there are not going to be a lot of new cobalt mines either.

The irony is that nickel itself is expected to be a future beneficiary of the electric vehicle revolution. But right now its fortunes are still tied to the stainless steel sector and its price is still depressed by high global inventories.

FUTURE IMPERFECT

The surging cobalt price and the realization that there is no easy way to eliminate the stuff from lithium-ion batteries has triggered something of a global scramble for new sources of supply, particularly “clean” supply that isn’t tainted with insurgency groups and child labor.

There are a clutch of projects in North America and Australia that could realistically come into production in the space of a couple of years.

But they are small relative to Katanga and will not significantly alter the DRC’s core position within the cobalt supply chain.

Either the world has to find a lot more stand-alone cobalt deposits or it’s going to need a much higher nickel price to kick-start the investment cycle in new nickel-cobalt mines.

Until then, the DRC will be the world’s dominant supplier, leaving both battery and EV sectors relying on one of the world’s least reliable countries.