Category: Global Transition

Where others fear to tread: China and the frontiers of global lithium mining

Global demand for lithium is set to explode thanks to the insatiable demand for electric batteries. A typical electric car battery requires 8 kg of lithium. The International Energy Agency (IEA) estimates that demand for lithium will increase by 40 times from 2020 to 2040.

Lithium is the lightest and least dense of all the metals, that and its high energy density makes it the ideal component for batteries. Currently, the production of lithium is dominated by just a few countries, Australia, Chile, China and Argentina.

Chinese factories dominate the refining of lithium (refining turns it into lithium hydroxide which can used in batteries.) as well as manufacturing the lion’s share of electric batteries. This means that Chinese firms hoover up lithium supplies from across the world dominating its supply chain.

Electric Batteries

Electric batteries are set to be one of the critical industries of the future as the world tries to decarbonise by weaning itself off polluting petrol cars. Electric vehicles have reached over five percent of global car production as manufacturers switch focus . The market for electric vehicles is expected to reach US$ 827 billion by 2030.  

Now other nations have woken up to how much China power has amassed over the years. Many governments are now taking action to ensure they can take a slice of this critical industry.

The US, EU, India and many other countries want to make sure they can establish their own electric battery manufacturing sectors and avoid dependence on China. Part of this means ensuring cheap, reliable supplies of lithium. The scene is set for a battle between the great powers to control the supply and processing of this white gold.

Demand for lithium could grow to more than 40 times current levels if the world is to meet its Paris Agreement goals.

Chinas’ New Frontiers

Sinomines a Chinese mining conglomerate which is at the vanguard of China’s global commercial rise has recently invested in Bikita lithium mine in Zimbabwe. The mine around 320 km from the capital Harare underlines increasing Chinese investment in the economy which many western firms have fled.

China has also been establishing relations with the isolated Taliban Government in Afghanistan. Chinese mining giant Metallurgical Group Corp (MCC) have been looking to reopen copper and oil interests in the country. Other Chinese miners are rumoured to be considering extracting lithium in the country. Surveys conducted by the Soviet and US geologists over the last four decades indicate that the country has commercially viable lithium reserves around some of the country’s salt lakes.

Recent reports indicate that the Mes Aynak (reputedly the second richest in the world) copper mine in Afghanistan will open soon. The political and security situation in Afghanistan remains highly fragile, but demand is such that Chinese miners could be ready to extract lithium there soon.

An OPEC for Lithium?

Countries which produce and have deep reserves of lithium are looking to protect their own interests. Argentina, Bolivia and Chile are in advanced talks to create an organisation with the purpose of controlling the price of lithium. Indonesia is rumoured to be looking at starting another organisation based around the supply of other minerals vital for building batteries.

OPEC has had its ups and downs over the decades. But the organisation been highly successful in protecting the interests of major oil producers. However, the prospect of South American countries could raise the hackles of consumers like China and the US. Any attempt to control the supply of lithium may be met by a counter response. China and others could cut flow of capital and expertise needed to extract or mine lithium.

Countries that are building batteries are also looking to protect their interestes. Initiatives like the critical mineral partnership are an attempt by battery manufacturers to build reliable supply chains for critical minerals like lithium.

Australia

The biggest threat to Chinese dominance could come from the earth’s crust. Lithium is found in plentiful amounts in below the ground across the globe. Australia already produces vast quantities of lithium which is mined rather than extracted from brine. The giant Greenbushes mine alone produces a 5th of all global production. However, Australia has lacked refining capacity – turning the lithium into a usable lithium hydroxide which can be used in batteries.

The cost of extracting the metal is the main variable which determines price. High sustained demand will encourage others to try and mine lithium. The US is now looking to expand domestic production. Cornwall in the UK which was a mining powerhouse for many years is also now looking to open lithium mines. New innovative methods to extract the metal will likely emerge. All these factors should diversify the supply of the metal.

Although it takes 4 to 5 years to bring new mines online, capacity now looks set to grow rapidly. As electric batteries become more popular the potential for recycling them should increase which could also affect demand.

Dependence on lithium has pushed producers to look at alternatives such as sodium, magnesium, sea water and tungsten. However, none of these metals has been used at the scale in the way lithium batteries have.

What will the future bring?

As the demand for lithium grows so will the incentive to increase production. But new mining projects are capital intensive and can take years to become productive. Recycling, use of alternatives and new production should all ensure that there is no shortage of lithium in the long term. Lithium supplies are a crucial part of the global energy transition which means a shift from hydrocarbons to metals and minerals and that will also transform geopolitics for years to come.

The Geopolitics of Nickel: Energy Transition, Electric Vehicles and Environmental Destruction

“Nickel is the biggest challenge for high-volume, long-range batteries!” Elon Musk

Cobalt, lithium and copper have often dominated headlines about electric vehicles and energy transition. But there is another metal, traditionally used to produce stainless steel, which has emerged as a critical element in the energy transition story. Nickel is a key material in the production of electric car batteries (EV) which are experiencing rapid growth as the world moves away from fossil fuels.

These shifts mean that nickel is in hot demand and EV manufacturers are chasing precious supplies of the metal. The recognition that batteries are central to energy transition supply chains and ultimately national economies has set in motion a geopolitical race to secure supplies.

Tsingshan, a Chinese firm which is the world’s biggest producer of nickel was badly stung by this shock, losing large sums of money. Tsingshan are now reportedly looking to sell its Indonesian nickel assets to another Chinese giant Baowu. But how did it get them in the first place….

Nickel production is currently dominated by just a few countries; namely the Philippines, Russia, New Caledonia, Australia and Indonesia. This places enormous power in the hands of just a few suppliers. For instance, the fear that Russian supplies of nickel could disappear from the market following the country’s attack on Ukraine in February 2022 caused prices to rise an unprecedented 250 percent on the London Metal Exchange (LME).

It was a nickel shortage in China following the great financial crisis in 2008 that originally prompted Chinese steel giant Tsingshan to secure long term supplies. A decade ago, nickel was primarily in demand because it is a vital part of the stainless steel making process.

It soon also became apparent that nickel was also needed for building electric car batteries, which so much of the transition economy depends upon. At first sight securing nickel supplies should be easy. Indonesia is one of China’s major trading partners and holds the world’s biggest reserves of the metal.

However, the Indonesian government had realised that selling raw nickel might bring strong short-term revenues, but eventually this would leave them exposed to global commodity downswings. Instead, the Indonesian government had an ambitious plan to move up the production cycle and to process nickel to make the purified product which is needed for EVs. A more profitable process than just exporting the raw ore.

Tsingshan got on board with this vision and started investing heavily in the Indonesian district of Morowali, building the infrastructure to mine, refine and then finally ship nickel to China. There are plans for the electric battery production and an integrated supply chain for EV batteries to be established in Indonesia. An MOU was signed with CATL the Chinese battery producer in 2020 but nothing solid has yet materialised.

Enter the Dragon

Other Chinese firms soon followed in Tsingshan’s footsteps into Indonesia to secure nickel and other critical metals. Tesla was reportedly in talks with Indonesia mining interests but pulled out due to environmental concerns.

Tesla’s move highlighted the fact that environmental protections can be lax in Indonesia and that the processing of nickel can be highly carbon intensive. The nickel mines in the Indonesian Obi Islands have seriously polluted the waters around the islands turning them red.

This devasted the lives of fisherman and created a lot of anger towards nickel mining firms. Indonesian nickel is smelted using coal, which is a big problem for EV producers who want a carbon free supply chain.

The Geopolitical Race Heats Up

In August 2022 the Biden Administration launched a program to secure critical supply chains. This has accelerated a geopolitical race to secure supplies of critical materials for electric vehicle production and other key ingredients for global energy transition. Countries and corporations want to secure supplies from friendly countries so conflict or trade wars do not interrupt supplies.

Demand for nickel is expected to rise 10 fold by 2030, with supplies relatively limited and difficult to access due to local environmental and social concerns as well as the cost of developing new mines means further geopolitical competition to ensure that supplies of nickel are secure. This will mean China, the US and others which have realised the importance of reliable EV supply chains and ensuring good relations with the states which hold deposits of nickel and other critical metals is a priority.

The US fears that supply chain issues and reserves in the hands of rivals could see supplies of critical material dry up strangling the the young EV sector.

After pleading with miners to secure new supplies of nickel Tesla signed a contract with Talon Metals in 2020 to provide US mined nickel. Talon have claimed they can mine Nickel in a carbon neutral manner. This claim is a big plus for environmentally conscious battery makers like Tesla who are under pressure to ensure their vehicles are zero or low carbon.

Whether Talon can deliver on its promise of carbon neutral nickel remains to be seen. But at the very least Tesla’s deal also shows that the demand for sustainably produced nickel is there.

Environmental Damage

Another cost hangs over nickel the enormous environmental damage that it can cause. The Fenix nickel mine in Guatemala has been the scene of a long running and violent dispute over pollution in Lake Izabal. When local fishermen complained of a rusty coloured patch of water in the lake they took their concerns to the authorities. But the government and the miners attempted to put a lid on complaints about the mine, resulting in a long running dispute.

Activists managed to get the mines licence revoked, but the mine owners in league with the government struck back using threats, bribes, arrests and eventually martial law to supress the protests and reinstate the mine.

Hackivists took internal emails from the miners (Solway group a Swiss company) and exposed publicy that the firm knew the pollution was from the mine and not an algae bloom as they claimed.

As demand for nickel rockets, the pressure to develop new mines will rise. Each new mine is likely to put pressure on local communities that face the environmental destruction and pollution that nickel mining brings.

“I think ESG risk cannot be separated from business risk. The dichotomy only leads us to the old pattern that caused the current climate crisis,” says Muhammad Rushdi, a researcher with Indonesian NGO Action for Ecology and People’s Emancipation (AEER).

New Caledonia

The Goro mine in New Caledonia is another that has attracted criticism thanks to five chemical spills and a chequered history of production. Ownership passed from Brazilian Vale to locally owned Prony Resources along with Trafigura which has promised to develop a social licence and local investment, taking into account the wishes of the Kanak people that were previously ignored. 

Tesla have also become a stakeholder (or technical advisor) in Goro bringing greaterscrutiny and the hope that it will encourage best environmental practices.

Nickel production creates a lot of waste, if it isn’t dumped in the sea it needs to be drystacked or tail dammed, both options need a lot of land. The other alternative is deep sea disposal, currently only 20 mines use this method as it is notorious for destroying marine environments.

What next for Nickel?

Clearly nickel mining needs to be carefully regulated to ensure environmental issues are minimised and future environmental incidents do not become a pattern. The risk is not only to local people and communities but also to the electric battery sector – if it becomes associated with poor environmental practices it will undermine both its green credentials and the wider clean energy transition.

As well as an environmental flashpoint New Caledonia could also see geopolitical tensions over its mining assets. China is the world’s biggest EV manufacturer not coincidentally is also the biggest purchaser of nickel from the island. The Pacific island is a French province which has been rocked by demands for independence and any future shifts away from France will be watched carefully by Beijing as an opportunity to extend its influence in the region.

The race for nickel looks set to heat up over the next decade as EV batteries become a central part of the global economy. Control over nickel supplies and their carbon/environmental impact will be of critical importance to battery/car manufacturers and the countries which have an interest in controlling this vital supply chain.

Developing environmentally sustainable mines as promised by Talon will be an increasing priority for EV producers that are particularly sensitive to any criticism that their products are not green.

Geopolitics of the Clean Energy Transition

How metals and minerals will replace oil & gas as the world’s most valuable resources.

Why is the price of lithium soaring this year?

⛏️Why are the US Government backing a potentially highly polluting refining process in Texas and the Pentagon investigating so called biomining to secure supplies of rare earth metals?

📈Why is the demand for copper projected to rise rapidly in the next few decades?

The world economy is facing its biggest ever transformation as countries attempt to rapidly decarbonise in a bid to prevent runaway climate change. There will be a global energy transition from fossil fuels to renewable energy. This means solar and wind, but also hydrogen, geothermal and possibly nuclear all displacing oil, gas and coal.

Energy transition will bring in its wake huge shifts in geopolitical power. For many this transition will be painful. Many nations such as Saudi Arabia, Algeria and Norway will see the central pillar of their economy disappear along with it much of their power, influence and wealth. The countries that rapidly adopt new technology and adapt to this new world will emerge the winners.

Energy transition

⚡🛢️⛽Coal, oil, and natural gas remain the cornerstone of global energy. But change is happening, the global energy transition is well under way.

  • The falling cost and efficiency of wind and solar power, plus the emergence of other alternatives such hydrogen means that a clean energy future is possible.
  • Banks are turning away from fossil fuels as the long terms risks and costs become clear.

Energy transition means closing dirty coal fired power stations, refineries, and oil wells in favour of offshore wind farms, replacing petrol cars with electric and peppering roofs with solar panels.  

Of course this change will be slower than many would like. The transition will be a bumpy ride, but it does now feel inevitable.

Rather than relying on physical inputs of coal, gas, and oil renewable energy is technology based. Solar panels with silicone cells, ever more efficient wind turbines and electric batteries.

Tech Competition

🔋China leads the race in terms of electric batteries. In 2021, 148 of the world’s 200 lithium-ion battery megafactories in the pipeline are located in China. Whereas Europe and North America have only 21 and 11 megafactories in the pipeline.

Electric batteries and the components for wind and solar require metals and minerals, from lithium, copper, cobalt, nickel, manganese and a host of rare earth metals. As the world scales up its use of clean energy demand for these materials will rise rapidly. Demand for lithium is expected to rise 40 fold by 2040 as the global energy transition accelerates.

The world will move from an energy intensive world to a mineral intensive one.

This fundamental change has massive consequences for mining, energy and geopolitics. The world can go from harvesting and processing 13 billion tonnes of fossil fuels a year to mining 43 million tonnes of critical minerals.

Currently the production of these critical materials is focused in just a few countries. Cobalt mining is 60 – 70 percent concentrated in China and the Democratic Republic of Congo (DRC). China dominates the dirty, polluting rare earth metal refining sector (90 percent of the market).

Rare Earth Materials

🪙Realising China’s dominance in the rare earth metals sector represents a major strategic weakness, forcing the US to react. US Presidential Executive Orders and the recent US$ 1 trillion infrastructure bill have identified and attempted to rectify these supply chain weaknesses. The government recently pledged US$ 30 million towards a rare earth refining facility in Texas. Other measures are sure to follow.

Tensions over mineral rights have surfaced in Greenland and Brazil where US and Chinese interests have clashed over the supply of minerals.

Any country that dominates the supply of critical materials can if it chooses cut or restrict the supply of materials. This would cripple the green tech industries of any opponents or rivals.

Global Competition

🌏Overseas the US and western allies are looking to secure supplies of critical metals and minerals. Countries from Kazakhstan, Mongolia, to Tanzania, Zimbabwe and Malawi all have potential for mining rare earth minerals. The competition between the US and China means that any potential location will be carefully vetted as a future geopolitical flashpoint.

South America and Lithium

🌎South America is also a rich source of lithium. The metal is in demand thanks to its use in electric car batteries. Mining companies have flocked to the so-called lithium triangle of Chile, Bolivia, and Argentina to secure mineral rights in the region. Large and relatively easy to reach deposits made the region a hotspot for both western and Chinese firms.

However, South American nations are not passive hosts. Resource nationalism will always raise its head to thanks to the decades of accusations of exploitation aimed at US firms. As lithium rises in value governments will more tempted to take more control over such an important asset.

Despite being a relative newcomer China is the biggest trade partner for many countries in South America. Chinese firms will compete hard against US or Western interests for mineral resources, particularly those which feed critical industries back home.

King Copper

⚡Copper is also essential for the global energy transition. In order to meet decarbonisation targets the world needs to electrify rapidly. Plugging growing energy demand into a renewable powered grid can decarbonise power sectors rapidly. An easy win for green targets. Electrification also means heavy use of copper for wiring.

No surprise then that copper demand is expected to rise by over the next decades. Wood Mackenzie estimates this will take US$130 billion to provide another 6.5 million tonnes per year. Major copper producers are already predicted to see falling market share.

The race is on to locate new sources to match future demand. The problem is that mining is a very slow drawn out process. The planning and development of any mining project can take years or decades until anything is actually produced.

Metal Heads

Geographical concentration of production could put lithium and other metals in the hands of just a few producers. This will give the miners and refiners significant monopoly power, potentially allowing them to control the supply and price of critical materials. In turn this will push up the cost of global energy transition.

Another big problem of concentration is that any disruption through conflict, trade disputes and increasingly extreme weather events could disrupt the flow of metals to factories. Any disruption has a knock on effect delaying global energy transition.

Dirty Dangerous and Difficult

🌲Global energy transition is supposed to be environmentally friendly. Cutting out fossil fuels from the global energy mix will be decarbonise the sector, but what about other environmental factors? Unfortunately, mining is a notoriously polluting sector.

Monitoring and measuring the sustainability of supply chains and mines will come under ever greater scrutiny. The pollution and human cost of refining rare earth metals is one reason countries have not flocked to host these facilities. Inner Mongolia in China is host to huge toxic lakes full of black sludge, the by-products of rare earth metal refining.

Manufacturers of green tech do not want their credentials undermined by dirty polluting mines that abuse labour. This should put pressure on miners to clean up their act, but this could also push up the cost of extraction. However. these constraints will also spur innovation.

Recycling the electrical revolution

Recycling electric batteries, wind turbines and electrical goods has become an industry in itself as entrepreneurs try to salvage the most valuable parts of clean energy technology. An industry that is pushing sustainability does not want a dirty underbelly of waste.

At the same time demand for transition metals and minerals will push mining companies to look for new sources in different regions. This will lead to a hunt for metals and minerals that feed the energy transition that will be complicated by geopolitical competition.

Geopolitics of global energy transition

🌏The geopolitics of a mineral intense world will also look very different.

Firstly, marginal oil producers where production is expensive are likely to go out of business first when oil demand finally wanes. Places like Venezuela where the cost of production is high and the quality of oil low will be first to go and along with it any oil based geopolitical leverage.

Supply chain disruptions will not be severe as seesawing oil demand. A tight lithium supply will only impact building new electric batteries not existing vehicles. Oil requires near constant supplies to avoid disruption.

Shifting countries away from being petro-states will help them in the long run. Oil often poisons the politics of a country and creates a parasitic mono-economy.

Saudi Arabia and Gulf states will retain their power the longest. The cost of production in this region is much lower, so oil production can be sustained for longer.

What comes next?

What will replace the era of fossil fuel geopolitics. Countries that control the mining and refining of critical minerals such as lithium, cobalt and copper will gain newfound power in the energy transition. Rocketing demand and concentration of supply will create lots of talk about the “Saudi Arabia’s of lithium”.

The shift to a mineral intensive world will hand greater power to the countries and companies that can control the supply and processing of critical minerals and metals. The rest of the world will be keen to ensure that there are reliable supplies of critical materials to ensure a smooth transition.

Key Takeaways:

  • Demand for the raw materials that will build a climate economy: Copper, cobalt, lithium, graphite and rare earth metals will enjoy unprecedented demand over the coming decades. More solar panels, electric batteries and electrification means more mining for critical materials and less fossil fuels.
  • Mining is a dirty business. There will be major opportunities to help mining companies improve their environmental and social performance.
  • There is a risk that a lack of or the high cost of raw materials such as copper will stop the world from hitting decarbonisation targets. Copper projects can take years to become productive.
  • Demand for metals such as lithium combined with falling demand for oil and gas will shift global geopolitics. Lithium producers will enjoy greater bargaining power as China and western countries compete over supplies. Key oil producers such as the Gulf States will see their power grow in the medium term as marginal oil producers are forced out of business as demand falls.
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