The electric car story continues to gather momentum, with even major oil companies scrambling to join the coming green energy revolution.
Royal Dutch Shell has just announced a partnership with leading automotive companies to install super-fast chargers on European highways.
But as ever more companies sign up to the bright, shiny electric vehicle (EV) future, there is rising concern about the heart of darkness in this new technology: You can’t power an EV without a lithium-ion battery and, for now at least, you can’t make a battery without using cobalt.
And most of the world’s cobalt comes from the Democratic Republic of Congo (DRC), a country racked by political instability, legal opacity and, at its darkest, child labour in its mines.
This concentration of supply risk, both in terms of physical units and ethical sourcing, isn’t going away any time soon and could even worsen.
The dark side
The DRC accounted for 66,000 tonnes of global mined cobalt production of 123,000 tonnes last year, according to the US Geological Survey.
That’s the official sector. There is also an artisanal stream of production, some of it using child labour and some of it controlled by insurgent militias.
Quite how much cobalt this grey sector generates is the main “known unknown” in any analysis of world production.
But it is an undisputed fact that it has been seeping into the official supply chain for years.
Speaking at a London Metal Exchange (LME) seminar in October, Tony Southgate, head of cobalt marketing at Eurasian Resources Group, warned that “it’s almost inevitable (…) there are mobile phones in this room” containing cobalt from child labour in the DRC.
The issue has moved to the top of the LME’s own agenda after complaints that one of its registered brands, produced by China’s Yantai Cash Industrial, could include metal sourced from the dark side of the DRC cobalt sector.
The LME has written to producers asking for assurances on ethical and socially responsible minerals sourcing, while Yantai told the Financial Times that it is conducting its own due diligence exercise.
Child labour is only one of multiple problems posed by the DRC to the emergence of an efficient raw materials chain for commodities used in batteries.
The legal and financial framework around the country’s mining sector is both opaque and tinged with political interference.
A recent study by US advocacy group The Carter Center described state mining company Gecamines as operating a “parallel state” and concluded that $US750 million ($943 million) from DRC’s copper mine privatisation process cannot be tracked reliably.
Such allegations are vehemently denied by the DRC government, but legal controversy is never too far away in the DRC mining sector.
Glencore, one of the leading operators in the country, has been sucked into a controversy surrounding the role of Israeli billionaire Dan Gertler in the acquisition of assets now operated by its Katanga Mining subsidiary.
Another operator, Groupe Forrest, is in legal dispute with Gecamines after the latter blocked access to its production site this year and awarded mining rights to another entity, Bloomberg reported.
This particular three-way court tussle is having a direct market impact because production at the site has been halted, taking about 5,000 tonnes of cobalt out of the supply equation this year.
The future is (DRC) cobalt
Frankly, if the rest of the world could, it would happily not source any cobalt from the DRC.
And the likes of Tesla and Apple are trying to do just that, working with potential future producers in Canada and the United States to create their own cobalt supply chains.
There is no shortage of junior miner contestants in this ethical cobalt beauty contest, but right now the DRC is the dominant producer. And it’s going to remain so for the foreseeable future.
Six of the top 10 cobalt-producing assets last year were located in the DRC, according to S&P Global Market Intelligence.
In 2022 the number will rise to nine out of the top 10, it forecasts. (“Cobalt – Supercharged as supply chain risk increases”)
Quite simply, unless someone works out how to engineer cobalt out of the lithium-ion battery, the world is going to need a lot more cobalt and it’s still going to get most of it from the DRC.
This is a dangerously concentrated dependency, leaving a whole supply chain beholden to the political, legal and ethical uncertainties surrounding the DRC’s mining sector.
The only comparison, S&P Global suggests, is a similar concentration of platinum production in South Africa.
When that country was roiled by a wave of industrial action in 2014, it translated into a 20 per cent dent in global supply that year. At least there were above-ground platinum stocks to fill the supply gap.
Whether there would be sufficient inventory of cobalt to buffer the market against serious disruption in the DRC is a very moot point.
The arrival of automotive companies to this dysfunctional market could in theory be a game-changer if they stimulate more supply and force a collective industry move to responsible sourcing.
A template already exists in a programme aimed at improving transparency in the tin-tantalum-tungsten mining sector of central Africa, including particularly challenging operating environments such as Kivu Province in the DRC.
Right now, however, a company such as Volkswagen is still at the early stage of simply trying to secure enough units to deliver on its electrification promise.
Attempts to lock in future supply at prices below current levels have not yet yielded any tangible results.
VW and other automakers are learning, to quote Rebecca Gordon, head of technology metals at CRU, “the value of cobalt in the ground”.
Investing at the mine site would be one way of simultaneously ensuring supply in outright tonnage terms and in socially acceptable terms.
Most car companies are still understandably wary of getting involved at such an upstream part of a supply chain.
But if they don’t, they will remain exposed to whatever happens in the heart of darkness that is the DRC.