S-RM: Snapshot – Africa’s critical mineral risk landscape
A just and sustainable energy transition should mean opportunities for many African producers of critical minerals, but industry players should not lose sight of the challenges too. In this piece, S-RM’s Africa experts – Matthew Venturas and Gabrielle Reid – explore this ever-evolving frontier.
The global push for a green energy transition is intensifying alongside rising geopolitical risks, and growing environmental and social concerns. The mining sector faces significant opportunities as well as challenges, and a race for lithium has already driven increased interest in many African jurisdictions with vast reserves – including the Democratic Republic of Congo (“DRC”), Zimbabwe, Namibia, and Mali, to name a few. Unsurprisingly, the governments of many of these countries have identified the strategic importance of lithium, ostensibly prioritising policies to ensure that they derive the maximum benefit from their resource deposits. International mining companies, however, still face greater regulatory uncertainty, rising corruption risk, local political instability, and activism, in addition to wider macroeconomic fluctuations and geopolitical dynamics. The fact that minerals such as cobalt, lithium, copper and other minerals critical for technologies required to power clean energy are concentrated in a few countries makes the clean energy supply chain vulnerable.
More than ever, mining companies and investors will need to be especially attentive to the operational, economic, security, and regulatory landscape to determine the comparative attractiveness of jurisdictions. While a transition to renewable energy will diversify and de-risk energy supply and help companies meet their sustainability commitments, it will also increase reliance on new sourcing countries that bring new local market risks. The global lithium rush, brought on by the pursuit of emissions reduction and climate goals, is undeniably accompanied by numerous risks.
Key industry considerations
ESG risk
Environmental, social, and governance-related risks are at the forefront of investor caution in the sector. Lithium supply chains, far from benefitting producer nations, can instead foster corruption, and harm citizens and the environment – if not managed appropriately. Lithium mining in Africa especially, even at this early stage, presents high ESG risks that need to be quantified.
As a core element in electronic vehicle batteries, lithium is used for the furtherance of climate objectives, and is a key element in the achievement of government policies to reduce emissions. However, the mining of lithium is not without environmental concerns. Most environmental backlash has been aimed at cobalt and nickel, but experts have warned that lithium, with its carbon or water intensive mining methods and its poor recyclability, may be subject to similar backlash and investor scepticism. Further social concerns in the mining of lithium hinge around impacts on local communities – displacement, worsening soil, water and air quality and habitat degradation – which raises questions about the impact of lithium mines on already vulnerable communities. Driven by increasing investor awareness of ESG issues and community pressure, ESG standards are gaining momentum in the mining sector. This often means that ESG compliance is a central consideration in the project financing process. To ensure that ESG concerns aren’t a stumbling block to accessing capital, mining companies should aim to incorporate community engagement, natural capital accounting processes to assess biodiversity impacts, and maintain a ‘social license to operate’ by safeguarding environmental and community concerns.
Corruption Risk
The extractives sector has historically been a bountiful hunting ground for corrupt actors seeking to exploit the natural resources of mineral-rich countries in order to unduly enrich themselves. Government gatekeeping of resources and the oft-entrenched opacity around mining and exploration licensing have served as major impediments to the sustainable and ethical extraction of resources in many African countries. With the global audience turning its attention to Africa for minerals critical to the energy transition, the question becomes “can we do it better this time”? This sentiment was shared by UN Secretary-General, António Guterres. Speaking at COP 28 in early December 2023, Guterres rightly highlighted the need for a just and clean energy revolution that did not repeat the mistakes of the past – namely, the systematic exploitation of developing countries.
A recent investigation by Global Witness into three lithium projects in the DRC, Zimbabwe, and Namibia respectively, identified numerous concerns in relation to corruption, bribery, and human rights abuses. A recurring theme across all three mines was the proximity of politically connected individuals and elites, who allegedly leveraged their influence to secure personal benefit, at the expense of the local communities who should benefit from the economic boom associated with the mining operations.
Most commentators agree that the solution to many of these issues lie in meaningful cooperation between the public and private sector, with the Organisation for Economic Cooperation and Development (“OECD”) highlighting a number of mitigants that investors and mining companies can put in place to navigate corruption risk. Many of these relate to the impact private players can have throughout the extractives supply chain, from adopting a supplier policy that prioritises engagement with counterparties who adhere to high anti-corruption protocols, to the rotation and strict control of relationships between employees and government stakeholders. There remains an active and determined community of civic society advocates dedicated to exposing corruption throughout the extractives supply chain in Africa, and companies and investors are required to remain vigilant of the high-risk of not just the legal implications of being exposed to corruption, but also the reputational fallout that follows. Needless to say, conducting robust due diligence ahead of any transaction or partnership can be a vital safeguard against integrity risks down the line.
(Geo)political risk
The growing reliance on lithium, and by corollary its key source countries, makes battery supply chains vulnerable to political and geopolitical risks within these jurisdictions. China has already made its mark on Zimbabwe and the DRC, diversifying its EV supply chain amid growing competition with the US, meaning these African countries have a part to play in the current geopolitical landscape. Conversely, both counties have a long history of political instability and conflict, presenting contract, non-payment, resource nationalism, currency and security risks to foreign investors. For the DRC, while President Felix Tshekedi’s second term offers policy continuity for investors, it is one that seeks to carve out a greater stake for state-owned mining group, Gecamines. Meanwhile, Zimbabwean President, Emmerson Mnangagwa, has warned against deals failing to secure maximum benefit for Zimbabweans.
Other potential Lithium heavyweights, such as Mali, have also proved susceptible to political and security risks. The Bamako-based and increasingly anti-western military junta has had little success in curbing hostilities in the north of the country, while Islamist militants remain a persistent threat to the economy, including the country’s mining operations.
Cybersecurity risk
The digital landscape continues to evolve at pace and AI-driven solutions – such as machine learning (ML) and automation – are now commonplace, delivering substantial benefits and efficiencies to mine operators. Anglo American, for example, has developed rock cutting methods in its underground mines in South Africa through digitising technical equipment. The method involves using robots to perform the cutting, which allows for the breaking of rock in a continuous fashion without putting people at risk. Using this technology makes it possible to continuously cut rock without starting and stopping or having issues with re-entering, potentially increasing productivity by 20-30%.
The increased adoption of digital technologies, however, has seen a corresponding rise in cyber security threats and corollary reputational damage. If we take for example the interconnectivity that comes with the Internet of things (“IoT”), this presents some significant new vulnerabilities. The consequences of an IoT device that is within a corporate network but does not have appropriate security can be disastrous. These unprotected devices may provide an entry point to infect corporate databases, potentially exposing a huge volume of private customer or employee data over a short period of time. Additionally, if AI-based technologies are introduced by companies without robust governance, there is a risk the AI could access or leak sensitive data.
In the last year alone, we have seen numerous cyber attacks involving mining companies, including: a ransomware attack launched against Rio Tinto, which provided the attackers access to company documents including employee information; Anglo American’s compromised email newsletter distribution channels; a shut-down of computer systems of American copper miner Freeport-McMoran, and a ransomware attack on Canadian mining company Copper Mountain Mining Corp that left their technological equipment inoperable. People are often the weakest link in a company’s cyber defences, and training for mining employees, who may be presented with internet-connected technologies - despite never having to seriously consider cyber security before - is an essential step. Both education and investment in cyber security is vital if companies don’t want the opportunities presented by technology to slip through their fingers.