Africa is a continent known to be flush with commodity reserves. Unfortunately, it’s as much of a curse as it is a blessing to some citizens in countries controlling those valuable reserves. The minerals produce more than just a cash cow, much more, including the likes of funding corruption, chaos, civil war, terrorist groups and worker exploitation. According to National Geographic News, conflicts across different countries in Africa related to aptly-named blood diamonds have resulted in millions of displaced citizens and the death of more than four million people.
For more than a decade, countries and human rights organizations have banded together to try and put an end to the pain associated with diamonds exiting Africa, home to roughly 65% of global reserves of the precious stone, with only moderate success. With the emergence of the electric vehicle industry, the next commodity on tap could be that of cobalt, a key component in rechargeable lithium-ion batteries, for which Africa, more precisely, the Democratic Republic of Congo, holds the lion’s share of known resources.
Despite the social contention, the prevalence of cobalt in the DRC prompted mining giant Glencore plc (OCTPK: GLNCY, GLNCF)(LSE:GLEN) to recently spend $960 million for the remaining 31% stake in Mutanda Mining Sarl it didn’t already own and another approximate 10.25% stake in Katanga Mining Limited, bringing its ownership in Katanga to 86.33%. The two companies operate copper and cobalt mines that are ethically run in the DRC. Both parties ensure their mines are well equipped and practice the highest standards of safety.
Outside of the DRC, Vancouver-based junior exploration company LiCo Energy Metals (TSX-V: LIC)(OTCQB: WCTXF) hasn’t missed a beat in its pursuit to one day produce lithium and cobalt to meet an expected supply crunch for both, adding to its portfolio or prospective products through the recent acquisition of Glencore’s Bucke Cobalt property six kilometers outside Cobalt, Ontario, Canada. On August 31, 2017, the young, but well-funded exploration company agreed to acquire 100% interest in the mining rights to the 16.2-hectare exploration targets located adjacent to LiCo’s Teledyne Cobalt Exploration Project covering the southern extension of a main vein on the past-producing Agaunico Mine property.
The agreement included strong incentives for LiCo to advance the project, including Glencore retaining rights to buy back 51% of Bucke if 1.5 million tons of 0.5% cobalt are discovered. Glencore also has an offtake agreement with LiCo to buy all ores and/or concentrates produced from either Teledyne or Bucke at “commercially reasonable and at prevailing market prices,” potentially giving LiCo a major partner in Canada in the future.
The DRC is a veritable treasure chest for cobalt, with about 60% of the world’s resource trapped in the country’s rock. Sad fact, though, is that an army of tens of thousands of children, some as young as four years old, are forced to scour through rocks for pennies per day under militant overseers in a bid to collect money necessary for their family to eat, with school an afterthought in the grand scheme of things.
The treatment of “miners” in the DRC was the subject of an extensive report by Amnesty International, which called out Congo DongFang, a unit of Zhejiang Huayou Cobalt (one of the biggest cobalt producers globally), for buying cobalt mined by children. The 2016 report put a spotlight on all companies sourcing their cobalt from the DRC to better vet the supply chain.
Cobalt, a transition metal found between nickel and iron on the periodic table, has always been important to energy storage in countless devices, but the ongoing commitment to clean energy and EVs is leading to swelling demand and spiking prices. Cobalt also commands value in a litany of other uses due to its incredibly high melting point and ability to sustain magnetism at a higher temperature than any other metal. Underscored by these facts, cobalt is a top performing metal this year, as prices have almost doubled so far in 2017 to trade over USD$27 per pound, according to info from InfoMine.com.
The bulk of the cobalt resources being hosted in one of the world’s most challenging and violent jurisdictions on Earth puts a significant chink in the supply chain of safe cobalt.
During a recent phone conversation with LithiumStockNews.com, Tim Fernback, President and CEO LiCo, told LithiumStockNews.com that lithium-ion batteries are a difference maker because of the sheer volume of cobalt needed for each battery. Smartphones require less than 5 grams of refined cobalt (at the very high end). An electric car battery, on the other hand, needs at least 204,000x that, or about 45 pounds of refined cobalt (1 gram = 0.00220462 pounds).
“That extra demand for cobalt must come from somewhere,” Fernback said during the call. “We understand that business is business, but the use of child labor and the various humanitarian abuses in the DRC is not right. As global citizens, we have to exercise social responsibility and use our best efforts to source cobalt from outside the DRC for these humanitarian reasons.”
LiCo Energy Metals, who recently added former BC Hydro senior executive Greg Reimer to its Board of Directors, is working on various corporate and community efforts to address the global need for both lithium and cobalt in the manufacture of lithium ion batteries. The company has a portfolio of two cobalt exploration projects in Ontario, Canada, two lithium exploration projects in Nevada, USA and another lithium exploration property in Chile. “The addition of Greg to our team is incredible and a great win for the shareholders,” said Fernback. “In addition to being a top level executive with many international connections, Greg has a deep understanding of indigenous populations and their concerns having negotiated several large infrastructure builds for BC Hydro and as the former Deputy Minister of Mines in British Columbia, Canada.”
If the world has learned nothing about the exploitation of African resources, it is that it’s a slow grind that takes unification at global scale and one that is not easily rectified due to a litany of narcissistic bad actors that really could care less about the people using primitive tools to un-earth the resources. Perhaps cobalt will be added to a list of minerals in a 2010 U.S. law mandating companies attempt to verify sources originating in the DRC, but that’s only a small piece of the puzzle. While modifications to mining practices in the country under the weight of the world’s pressure are possible, looking to alternative sources in the interim is the only viable solution to knock the DRC down the cobalt supply totem pole.
There are known deposits outside of Africa for cobalt reserves and production, including Australia, Russia, Cuba and Canada. While aiming to enact supply chain change, it only makes sense to look to mining-friendly districts with quantifiable reserves first before the world has another blood diamond situation on its hands. A surge in demand is inevitable at this point and will be in effect not only because of li-ion batteries, but increased usage in other key applications, such as high performance alloys and catalysts.
So, we’ve got a high-demand, high-value commodity. Do you think the DRC is going to concede easily to the world’s wishes? The simple fact is that the DRC ranks 151 out of 159 countries in the 2016 Human Freedom Index and 159 out of 176 in the Corruptions Perceptions Index 2016, so let’s not get too far out on our skis as far as expectations for immediate change. Let’s look elsewhere.