International | Jul 01 2021
A handful of countries on the African continent have the potential to alleviate future shortages of minerals needed to drive green energy solutions, but investment, political, regulatory and infrastructure hurdles linger.
-Due to future uncertainty miners are unlikely to pump cash into Greenfield investments
-Copper output in the DRC speculated to explode
-China’s involvement in mineral supply chains/battery manufacturing could distort prices of input commodities
-Long-run outlook for PGMs wired to governments’ plans to reduce CO2 emissions
By Mark Story
The global drive to achieve net-zero carbon dioxide emissions through greener energy has turned the world’s attention to commodities set to play a vital role in what’s being referred to as the Green Revolution.
As a result, the world has also turned its attention to the African continent, which has bountiful reserves of minerals like copper, cobalt, tin and manganese pivotal in the renewable energy drive.
Within a recently released research briefing, Africa The Green Revolution: where does Africa fit in? NKC African Economics (NKC) highlights the opportunities for key countries across the African continent to participate in the drive to supply commodities earmarked for the green transition.
Based on the researcher’s analysis, there are around a dozen countries across the African continent that are expected to play an important role in the transition to greener energy. However, the key beneficiaries of the transition to greener energy identified by NKC, are arguably South Africa and The Democratic Republic of Congo (DRC).
The research briefing also highlights the role China is playing in global demand for key green energy minerals. For example, China was the largest buyer of cobalt last year, with over 80% of its consumption utilised in the rechargeable battery industry.
China is also the largest import market for manganese with the mineral being used in steel production and the manufacturing of batteries. According to the Wall Street Journal, 75% of the world’s lithium-ion batteries and 50% of all EVs are produced in China.
Copper and cobalt
Sitting on notable reserves of cobalt, and copper, NKC believes the DRC is particularly well positioned to benefit from the shift towards more sustainable energy.
For example, according to the United States Geological Survey (USGS), the DRC possesses around half of total global reserves of cobalt. The DRC is also sitting on notable reserves of tin and last year accounted for 6.5% of global copper output, while Zambia followed with 4.2%.
Robert Friedland, mining magnate and founder of Ivanhoe Energy, which recently started mining copper in the DRC, believes continued exploration could lead to output increasing tenfold. He believes much of the country’s mineral wealth still remains undiscovered.
Tin and manganese
Recent research has found that tin serves as a cost-effective way to increase the amount of energy lithium-ion batteries can hold. The net effect is a significant increase in the driving range of EVs and more efficient renewable energy storage.
According to the USGS, the DRC also accounts for 3.7% of tin deposits globally. While Nigeria and Rwanda produced 2.2% and 0.4% of global tin output in 2020 respectively, the size of their reserves are currently unknown.
As a result, NKC expects increased exploration efforts to not only contribute to the diversification of their respective economies, but also present potential investment opportunities.
Like tin, high-purity manganese has also become increasingly important in the production of batteries used in EVs, and as backup storage for electricity harvested from renewable sources such as solar and wind. As a result, South Africa which accounts for 40% of the world’s manganese reserves and 28% of global production last year, has substantial scope to increase extraction.
Platinum-group metals
Given that South Africa sits on over 91% of the world’s Platinum-group metal (PGM) reserves, and last year accounted for 50% of global production, the country is also well positioned to benefit from increased demand. But while prices of PGMs increased significantly since last year as covid delivered a supply crunch, NKC believes the long-run view is blurred. NKC also notes 60% of the PGM mining industry’s revenue comes from the sale of catalytic converters to automotive manufacturers.
As the number of countries committing to net-zero emissions grows, NKC believes the long-run outlook for PGMs, particularly platinum, palladium, and rhodium, deteriorates.
Supply constraints due to lower mining activity saw PGM prices soar since the second half 2020. But the researcher concludes that governments’ plans to reduce carbon dioxide emissions beyond 2030 -when bans on internal combustion engine cars come into effect- makes the future of PGMs unclear.
Along with using funds to pay out dividends to shareholders, PGM mining companies have invested in extending the lifespans of existing mines and the replacement of declining assets. But according to Royal Bafokeng Platinum, it is unlikely miners will pump cash into greenfield investments given the future uncertainty as this requires a capital investment that takes 10-15 years to bear fruit.
Given the projected decline in the PGMs market from 2030 onwards, NKC suggests South Africa’s mining industry starts to zone in on those commodities set to benefit from the green drive. While South African manganese reserves guarantee the country a critical role in the green drive, the researcher suspects this role may be amplified if copper, cobalt, and rare earths mining operations get a boost.
Challenges
While Ivanhoe Energy’s Robert Friedland believes the DRC and Zambia hold the key to a greener future, he also notes various hurdles persist. For example, Friedland cites political instability, security concerns, unfavourable regulations, and inadequate energy and transport infrastructure as weighing on the DRC’s mining sector. In Zambia, concerns of nationalisation and interventionist policies continue to inhibit mining activity.
In countries like Ghana and Zimbabwe, NKC also highlights lingering issues with illegal mining. The researcher believes adequate investment and effective regulation are required to ensure that Africa shares in the spoils over the next 30 years.
NKC believes the rate at which the shift towards greener energy consumption can take place depends on the supply chain of inputs in the production process of green energy solutions. One challenge cited by NKC is the large stake Chinese firms own in many vital mineral supply chains, while also dominating battery manufacturing. As a result, the researcher believes China has the ability to impact prices of input commodities.
The other challenge cited by NKC is the relatively low investment in the mining of ‘green’ minerals. For example, in 2019, global investment in new projects for copper, nickel and lithium amounted to only 5% of funds invested in upstream oil and gas.
NKC expects a rebound in capital expenditure this year to see more cash dedicated to the green transition. But the researcher questions whether supply will be able to keep up with demand.
The researcher also expects the current supply constraints to be temporary, with commodity prices moderating over the next few years. However, NKC is concerned that supply shortages, and subsequently higher prices of ‘green’ commodities over the medium-to long term, could reduce the competitiveness of the renewable energy sources that they power.
This highlights the need for investment in production and processing of these commodities in coming years.
NKC African Economics is a subsidiary of Oxford Economics.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
FNArena is proud about its track record and past achievements: Ten Years On
