Friday 23rd June 2017

Resource Clips


Posts tagged ‘Freeport-McMoRan Inc (FCX)’

Cobalt’s Congo conundrum

May 3rd, 2017

The battery market’s DRC dependency can only grow, says Benchmark

by Greg Klein

“If there’s any nation that contributes over 50% of supply for a mineral, alarm bells start to go off.” That’s especially true when the country is as troubled as the Democratic Republic of Congo, Benchmark Mineral Intelligence analyst Caspar Rawles told a Vancouver conference on April 21. Social and political instability combined with child labour concerns intensify what he calls the “cobalt conundrum,” in which battery manufacturers have no choice but to increase their reliance on DRC resources. That’s his forecast, even as he acknowledges demand for new sources from elsewhere.

The DRC easily dominates global cobalt, with 64% of mined supply according to the most recent Benchmark figures. No more reassuring, China dominates refined supply with 57%. Without significant cobalt reserves of its own, the country holds a prominent position in DRC mining, where the energy ingredient results as a byproduct of copper extraction.

The battery market’s DRC dependency can only grow, says Benchmark

That position expanded this year with the Freeport-McMoRan NYSE:FCX/Lundin Mining TSX:LUN sale of their DRC Tenke Fungurume copper-cobalt mine to China Molybdenum and a Chinese private equity firm. An anticipated and equally geopolitically feckless follow-up would be the American/Canadian JV’s sale of its Finnish cobalt refinery to the same people. By processing Fungurume ore, the facility provides about 10% of the world’s refined supply, Rawles says.

For all the disturbing news coming out of the Congo, “there will be no lithium-ion battery industry without DRC cobalt,” Rawles maintains. “We expect cobalt supply from the DRC to become more dominant in the market, and that’s because of where the large projects are, plus-10,000 tonnes a year.”

Yet by no means is Congo cobalt necessarily conflict cobalt, even when artisanal supply is considered. Some artisanal operations are perfectly legal, he says, while media-reported numbers can be “inflated.”

Tackling the issue presents difficulties, Rawles says. Companies often mine a small part of huge concessions, with no power to prevent the desperately poor from working other parts of the claims. The only people with any such power in the DRC “are the mining police and they just confiscate the material, they don’t take away the problem. It’s a longstanding problem and it’s going to take time to resolve.”

Not surprisingly, “substitution is definitely something that cathode companies are working on,” he points out. Not all cathodes require cobalt, unlike lithium. Even so, he sees about 81% of the market continuing to use cobalt cathodes.

As the Li-ion battery market grows from 70 GWh last year to Benchmark’s estimated 170 GWh in 2020, “cobalt demand will be high but won’t surpass supply.” Beyond 2020, Rawles predicts a deficit growing to 2023, then ending around 2024 or 2025.

“The only thing that can accelerate a reduction in cobalt is supply disruption,” he adds. Critics of DRC President Joseph Kabila attribute the country’s delayed elections to his determination to retain power after 16 years in office. Protests have resulted in scores of fatalities, raising fears of even wider civil unrest.

Another possible impact on supply/demand forecasts could come “if EVs take off even more quickly than we expect.”

The DRC hosts the world’s two big near-term copper-cobalt operations, Glencore’s majority-held Katanga mine and Eurasian Resources Group’s Metalkol Roan Tailings Reclamation project. Rawles expects Katanga to resume production early next year after its 2015 suspension. While the project’s technical report sets annual cobalt capacity at 30,000 tonnes, he expects the early years will probably realize half of that.

There will be demand from certain companies that don’t want to touch DRC cobalt.—Caspar Rawles,
Benchmark Mineral Intelligence

RTR’s slated for 2019 startup, Rawles says. ERG targets an initial 14,000 tonnes of cobalt annually, increasing to 20,000 tonnes over the next three to five years.

So despite “a number of other, smaller projects in the pipeline,” DRC dominance will prevail. Still, Rawles does see opportunity for other sources of cobalt. But new suppliers will have to follow a “value-added strategy,” he argues. They must produce a cobalt chemical that meets a manufacturer’s precise requirements. And the suppliers need to do that without refining their product in China, where it might be blended with conflict supply.

“That’s how they can brand themselves,” he says. “There’s going to be demand for that. Certainly the large supply is going to come from the DRC and if you’re really serious about EVs, that’s where the cobalt’s going to come from. It’s not going to happen without that.”

But, he emphasizes, “there will be demand from certain companies that don’t want to touch DRC cobalt.”

Not ready for another shock

March 1st, 2017

Unlike China, the West lacks a rare minerals strategy, warns David S. Abraham

by Greg Klein

Something of an epiphany came to him in 2010 as he watched the aftermath of a minor incident in internationally disputed waters. China’s shock-and-awe response turned its near-monopoly on rare earths into a mighty geopolitical weapon, exposing the perilous nature of our dependence on seemingly obscure commodities. That inspired David S. Abraham’s 2015 book The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age. Now, as a similar confrontation threatens to flare up again, he sees the West still unprepared for further attacks on vital supply lines.

Asked whether people in power have at least gained greater awareness, his response is a firm No.

Unlike China, the West lacks a rare minerals strategy, says David S. Abraham

Speaking on the phone from Indonesia, Abraham took time to discuss the issue with ResourceClips.com. The 2010 event, of course, began with the China-Japan territorial dispute in the East China Sea. Late last year American warships entered the South China Sea, in another challenge to China’s claim to sovereignty. Yet compared with previous years, “I think we’re even more vulnerable to shock in our supply lines,” he says.

“If you look at rare earths, in 2010 there were opportunities for new supplies to come onstream quite quickly, and they’ve since failed. People look at that failure and say these places couldn’t compete, they couldn’t produce economically, so they failed.”

China, having pushed up prices exponentially by withholding rare earths, swung to the other extreme and flooded the market. That dashed the hopes of many potential non-Chinese producers yet encouraged complacency among end-users. “But the supply lines themselves really look no different than they did back then,” Abraham cautions.

Of course the problem’s hardly limited to rare earths. Just one example Abraham points to is cobalt and the Democratic Republic of Congo. Estimates of DRC supply range from 51% of the world total (2015 figures from the U.S. Geological Survey), to nearly 60% (Benchmark Mineral Intelligence), to 65% (Disruptive Discoveries Journal). That gives a disproportionate amount of supply not only to a single country, but one plagued with political instability and conflict mining.

Troubling too is the ownership.

Already a major player in the country, China stands to increase its DRC position should China Molybdenum and a Chinese private equity firm succeed in their $3.8-billion purchase of a majority interest in Tenke Fungurume, one of the world’s biggest copper-cobalt mines. With a 20% stake, the DRC state-owned company Gécamines has tried to block the sale but reportedly accepted a $100-million settlement.

What you see China doing is really consolidating up the supply line…. What they’re trying to do is build up their material capacity so other people producing batteries have to use material coming through China.—David S. Abraham

“What you see China doing is really consolidating up the supply line…. What they’re trying to do is build up their material capacity so other people producing batteries have to use material coming through China.”

The country fosters economic growth by “adding to the value chain that they can produce in their own country. It’s a strong economic argument. It’s not dissimilar to what Trump says, but he hasn’t really gone into the deep thinking that’s happening in China.”

Certainly, China’s strategic approach contrasts with the West. That’s suggested by the example of Tenke Fungurume’s would-be vendors, the American/Canadian team of Freeport-McMoRan NYSE:FCX and Lundin Mining TSX:LUN.

“For those companies, it’s about profits,” Abraham acknowledges. “The question is, what are the technology companies thinking about? Companies like Apple are trying to do a better job of understanding where their materials come from, but some of the others are less concerned.”

With the U.S. military in mind, Rep. Duncan Hunter is anticipated to propose a congressional bill that would help develop domestic supplies of rare minerals.

Abraham’s skeptical. “Most bills on critical materials have not passed and his bills usually have the least chance of passing…. That’s not to say the U.S. hasn’t given money to metallurgy and mining before, but with the exception of some dabbling in beryllium in the ’90s, I can’t recall a time where the U.S. was really investing in mines from a defence perspective.”

If decision-makers lack awareness, they’re not alone, he believes. Abraham sees little evidence that consumers understand the issues. “People talk about being concerned about where these materials come from but they really have to understand the challenging supply lines, and that’s what the book was trying to introduce people to,” he says. “It’s still a little too complex to fathom and I don’t think people think beyond ‘my phone causes conflict in Congo’ and get to the point that ‘my phone leads to geopolitical war.’”

If so, that makes The Elements of Power as timely now as it was in 2015. A paperback edition comes out in April.

In concluding the phone call, Abraham offers a maxim: “Nothing changes very fast. Then everything changes all of a sudden.”

Conflict cobalt uncertainty continues to haunt consumer industries

October 3rd, 2016

by Greg Klein | October 3, 2016

Nine months after issuing a report on cobalt produced by child labour, Amnesty International says major manufacturers still can’t guarantee conflict-free sources.

The organization’s January report focused on the Democratic Republic of Congo, where children work in dangerous conditions up to 12 hours a day, making between $1 and $2 a day. “In 2014 approximately 40,000 children worked in mines across southern DRC, many of them mining cobalt, according to UNICEF,” Amnesty noted.

Conflict cobalt uncertainty continues to haunt consumer industries

DRC children sorting ore.
(Photo: Amnesty International/Afrewatch)

“Frankly companies owe it to their consumer to be transparent about their supplies and to map out their supply chains so that they know where it’s coming from,” Amnesty researcher Mark Dummett told Thomson Reuters Foundation, the charitable arm of the Thomson Reuters news agency. He maintains there’s no guarantee that the lithium-ion batteries in brand name consumer items, including vehicles, phones, computers and other devices, aren’t tainted with conflict cobalt.

Oddly enough, U.S. laws barring conflict minerals don’t cover cobalt. The Amnesty report stated at least half the world’s supply originates in the DRC, with about one-fifth of the national total coming from artisanal mines.

Benchmark Mineral Intelligence attributes over 60% of global output to the DRC.

While several manufacturers said they were scrutinizing their sources, Dummett countered that they weren’t disclosing what efforts they made to exclude child labour from their supply chains.

Last month Industrial Minerals reported that RealLi Research analyst Mo Ke told a Beijing conference there would “probably be a shortage next year” of the commodity. “Some commentators, such as Ian Pringle, managing director of Bayrock Materials and Pacific Basin Bluestone, thinks that this is an understatement,” IM added.

Already suffering from civil and political unrest, the DRC was hit by corruption allegations last week from the U.S. Securities and Exchange Commission. An SEC lawsuit claims that a DRC partner of the Och-Ziff Capital Management Group bribed government officials with more than US$100 million over 10 years.

An anonymous source alleged the partner was Dan Gertler, Bloomberg reported. “Glencore and Gertler’s Fleurette Group are partners in the $1.8-billion Mutanda copper and cobalt mine in the African country, with Glencore owning 69% and Fleurette the remainder,” the news agency added. Gertler and Fleurette denied allegations of wrongdoing.

In May Freeport-McMoRan NYSE:FCX announced a definitive agreement to sell its stake in the DRC’s Tenke copper-cobalt mine to China Molybdenum for US$2.65 billion and a contingent consideration of up to US$120 million. But a Bloomberg dispatch from last month stated that Gécamines, the DRC’s state-owned mining company and a co-owner of Tenke, said any decision by Lundin Mining TSX:LUN to divest its 24% share of the mine could threaten the deal.

Download the Amnesty International report.