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Miners should improve environmental reputation in battery metal market

As the consumer-conscious tech industry becomes increasingly valuable customers for major mining and metals producers, there will be a big push for firms to improve environmental standards and supply-chain transparency over the coming decade.

This is the view of BMI Research – a unit of the Fitch Group

Most relevant for producers of metals associated with low-carbon systems, such as copper, lithium, cobalt and aluminium, BMI Research highlights emerging leaders of this trend and notes wider industry implications.

The rapidly growing electric vehicle (EV) sector, underpinned by lithium-ion batteries, and consumer electronics sector will become increasingly valuable customers for top metal and mining companies, leading to rising pressure to reduce environmental impact and improve transparency in the industry.

Top automakers looking to expand electric vehicle fleets will boost demand for metals including lithium, nickel, cobalt and aluminium, through various cathode chemistries.

Copper will also see a boost from EVs, as the conventional internal combustion engine used in motor vehicles typically contains about 20 kg of copper compared to 80 kg used in EVs.

Additionally, consumer electronics, which account for approximately 7% of global aluminium demand and 7.5-10% of copper demand, will see strong growth in the ever-important Chinese market over the coming years.

As metal prices continue to rise, companies will have more financial flexibility to invest in initiatives, primarily through technology advances, to adhere to rising global standards for environmental and social impact.

Already, key deals between metal producers and EV or consumer electronics firms reflect the trend toward environmental sustainability and social accountability in the metals and mining industry.

In May, US electronics firm Apple and top aluminium producers Rio Tinto and Alcoa announced plans to invest in carbon-free aluminium through joint-venture Elysis.

Along with the Canadian and Quebec governments, the firms will invest C$188 million in the venture.

In February, a group of Chinese buyers of Congolese cobalt reportedly formed the ‘Responsible Cobalt Initiative’, along with major companies including Apple, Samsung and most recently car-maker Daimler.

The programme will attempt to use blockchain technology to ensure child labour was not used to produce the material, a widespread issue at artisanal cobalt mines in the DRC.

In January, BMW and top Chilean copper miner Codelco announced the ‘Responsible Copper Initiative’, aimed at improving the commitment to ecological and social responsibility in the copper industry.

In 2017, BMW purchased 42 kt of copper and expects this figure to increase by 20 kt by 2025 as EVs are rolled out.

Accountability trend to favour projects in developed markets

One implication BMI Research has previously highlighted regarding the integration of technology in the mining industry also applies to the rising environmental and social accountability in the industry – miners operating in developed markets with clear regulatory frameworks and government support for green initiatives will be at an advantage over those in emerging markets.

Reflected in the examples, Canada and Chile will be leaders of this trend, given the countries’ well-established mining industries, stable operating environments and commitment to clean energy.

In the case of Elysis, the joint-venture aimed at advancing larger scale development of the patented carbon-free aluminium process, the Canadian and Quebec governments will provide the majority of initial funding, each set to invest C$60 million, with the local government receiving a 3.5% s take.

On the other hand, both the high cost of cobalt and the challenge of ensuring conflict-free cobalt from the DRC, the largest producer by a significant margin, will incentivise consumer-conscious carmakers and tech companies to pursue substitutes.

For instance, in May, Tesla announced the battery content in the Model 3 uses significantly less cobalt in favour of cheaper nickel to reduce reliance on the former.

From a regulatory perspective, higher mineral royalties in the DRC and legal uncertainty could result in operational disruptions, jeopardising 58% of global cobalt.

In May, Glencore won temporary reprieve from leg al action against its subsidiary from state-owned partner La Générale des Carrières et des Mines (Gecamines).

However, pending a final decision, any changes to the ownership structure of the firm’s copper-cobalt assets could impact production.

Glencore also faces a lawsuit over its copper-cobalt mines in the DRC from a former partner.