From September 6 to 8, 2023, I, along with my fellow Dentons mining colleagues John Mollard, Partner (Melbourne) and David Perks, Partner (Perth), attended the Africa Down Under conference in Perth, Australia. Traditionally, the conference is a forum for Australian-African business and government relations and to promote Australian investment in African mining and energy. This year, discussions took on a more global nature. For example, the Canadian Australian Chamber of Commerce hosted a critical minerals panel in Perth during the conference to discuss the Canadian level of interest. Speakers included senior executives from Export Development Canada, EMM Consulting and BHP.
Here are a few of the themes that are worth noting from this year’s conference, which we believe are valuable takeaways for our mining clients:
1. Critical Minerals
- By far, the number one topic of discussion was urgency. Whether critical minerals are sourced from Africa, Australia, Canada or anywhere in the world, this must be done faster. The word “sourced” is obviously a complex one, and often encompasses the whole timeline, from exploration to production. Timelines are getting longer and there is a need to reverse that trend. One example of how to resolve this issue was Australia’s previous approach to implementing a mining approval process that allowed explorers to obtain development approvals for a block of claims in advance, thereby allowing the advancement of multiple projects at one time. Similarly, having government bodies simultaneously review their respective components should speed things up.
- While a relatively new phrase, the concept of “decarbonization” is not new, but rather another label given to certain aspects of climate change and ESG. These discussions have been underway for decades and decarbonization should be thought of as a continued process, rather than a new one.
- The critical minerals discussion has now emphasized that much of the mining business is really an extension of the energy business. If framing this as an integral part of the energy industry aids in achieving objectives and improving messaging and social acceptance, then it is an approach worth pursuing.
- 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 will vary from country to country. For example, until recently not all countries included copper on their list of “critical minerals”. This can make it difficult to match where resources are with an increased priority to access them.
- Critical mineral 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 AUD$700M will be invested in upgrading the port at Port Hedland in the Pilbara, Western Australia to support the increased volume of raw battery minerals produced in the region.
- When it comes to public relations, mining companies can often be their own worst enemy. However, many mining companies have been doing a better job handling ESG-related issues for longer than they give themselves credit for.
- The importance of the circular economy (the use of recycling of minerals to build new components) is increasingly prominent in industry conversations. The conference featured discussions about how many years it will take for recovery and recycling technologies to ensure the swift recovery of all of these minerals, thereby reducing the need for new additions to the supply chain.
- ESG in Africa is at an interesting juncture where equity and debt funding (including based on the Equator principles, or under the US-Africa critical minerals strategy) competes against funding from other jurisdictions without as stringent ESG requirements. Mining companies also need to heed local priorities in designing projects and ESG outcomes.
- The pandemic made us all rethink supply chain cost, stability and security. Now, for critical items in our economy, we recognize the potential for higher costs and increased environmental impact when sourcing these items from distant locations. Supply chain continuity may also be uncertain, and there may be reservations about relying on non-ally countries for essential supplies.
- Most countries are recovering from significant debt brought on by the pandemic. Resource nationalism is becoming more common globally and is taking many forms, but the green energy transition is inspiring a significant wave of resource nationalism across Africa. For example, recently:
- Namibia banned the export of unprocessed lithium ore;
- Some nationalisation of project assets in the Republic of Congo;
- Zimbabwe banned the export of unprocessed lithium ore;
- Mali has sought increased value-add / in-country processing of lithium ore; and
- Ghana approved a green-minerals policy to help manage the exploitation and production of lithium.
- The trend of resource nationalism is happening in other jurisdictions, sometimes on a smaller scale and involving other commodities. For example, the New South Wales government in Australia has announced increased coal royalties beginning in July 2024.
4. Electric vehicles (EVs)
- Aluminum is now taking on an important role in the energy transition. After steel, it is the second most used metal in modern society due to its strength-to-weight ratio. It is expected that the use of aluminum to reduce weight will significantly increase EV performance. However, aluminum production is very energy intensive and is dominated by supply from Russia.
- With respect to electric vehicles, it appears that China is still working to become the dominant player in the EV industry and, in similar ways to the solar industry, will do this by out-pricing global competitors and taking a huge market share, even in the US. The key reason for this is 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 supply the batteries to make the transition to EVs.
- A few times, it was noted that the driving force behind the transitioning electrification of the world is not only climate change, but economics. Quite simply, it is cheaper to distribute power in the world using green electricity rather than other forms of energy.
5. Security and political risks
- On the security front in Africa, there is good news and bad news. While there does seem to be a lot of fear mongering in the media, Africa is made up of 54 countries, many of which are safe and stable places to conduct business. However, the sociopolitical situation in some countries is very volatile and unsafe. For example, there have been recent coups in Mali, Niger and Gabon and ongoing conflict in Burkina Faso. In some cases:
- 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;
- Action is being taken by current governments as a pre-emptive step to demonstrate that external sanctions are not necessary in their case; and
- Russia purports to be a significant provider of armed security in many markets but, in reality, is not.
- Most African governments are pro-mining and pro-investor, and elections usually do not significantly change policies towards mining, unlike in Latin America where some governments have much stricter mining regulations. Historically, a government change towards democratic systems can go either way. Initial reports out of Gabon are that mining companies are finding it “business as usual”.
- 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 running the risk of being attacked. Most of the time, these attacks continue to be unsophisticated, on travel routes (not base camps) and involve old fashioned tactics.
- Political risk insurance is still available in most countries, it is just now more expensive almost across the board.
- When it comes to election influence, in most cases the real threat comes from cyber influences, not physical disruption or corruption payments.
6. Mining opportunities in Africa
- 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.
- 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 the many critical minerals that the continent can provide, but will have to figure out a way to loosen China’s grip on those minerals. 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.
- While US policy-makers are keen on the development of the African continent, US companies have for the most part remained cautious. That gap is currently being filled by Canadian and Australian companies which have historical appreciation of the risks involved.
- 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. In some cases, gold production is expected to pay the costs of the energy transition.
- There are a number of high grade, smaller, iron ore projects in early stage exploration, especially around Cameroon, Mali, Gabon and Niger. The success of many of these will depend on the timing and availability of the rail and port infrastructure being built in Guinea as part of the Simondou Project.
- Deep-sea mining is on the radar for a few countries, but was not as big a topic as you might have expected.
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