Under demand pressures, mining companies must balance
social issues and lengthy extraction horizons

Do you want your electric-vehicle (EV) batteries to be cheap, or
do you want them sourced ethically?

Obviously, it is a more nuanced conversation than that but with
environmental, social, and governance (ESG) concerns dominating the
sourcing of rare metals, minerals, and elements, the mining of the
raw materials that power EVs is undergoing a sea change. If we want
our cars’ battery packs, motors, and inverters to be the equivalent
of fair-trade coffee, rather than blood diamonds, we may be in for
an abrupt awakening in terms of how many EVs reach
market—simply based on ethical supply constraints.

With projected EV sales forecast to grow by tens of millions of
vehicles by 2030, the demand for minerals and elements such as
lithium, copper, and nickel is going to be extremely challenging to
reach. A CERAweek panel featuring government, mining, and
geopolitical experts analyzed the challenges facing the auto
industry in achieving its goal.

“Is the¬ goal widespread energy adoption as quickly and cheaply
as possible, or a responsibly, ethically sourced supply chain?”
asked Frank Fannon, managing director of Fannon Global Advisors and
the inaugural US assistant secretary of state for energy
resources.

S&P Global Mobility forecasts market demand of about 3.4
Terawatt hours (TWh) of lithium-ion batteries for light vehicles,
annually, by 2030. The 2021 output for the auto industry: 0.29
TWh.

Even if fresh lithium reserves were to be discovered, it takes
at least 15 to 20 years to develop an operating mine from time of
discovery, said Andrea Vaccari, director of responsible production
frameworks and sustainability for copper giant
Freeport-McMoRan.

Physically digging the mine can be the least of the concerns,
Vaccari added: “We have some mines in the US that could be online
right now that have been in litigation for several years. There is
no equation, no piece of equipment, that will drill through social
problems.”

Vaccari points to Copper Mark, an environmental assurance
program established in 2019 that can trace the chain of custody of
a shipment of copper from extraction to end user—whether it is
mine-to-vehicle, mine-to-laptop, or mine-to-building-wiring. A
similar framework could be created for the minerals and elements
that go into EV batteries.

“We don’t have a lot of (tracing and transparency) of battery
metals,” Fannon noted of the thinly traded market. “There have been
calls for increased transparency, but companies haven’t embraced
that to a sufficient degree. But if we can track emissions of
invisible gases, we can track what types of workers are in the
supply chain.”

Those extra steps—of convoluted permitting processes,
getting community buy-in, and ensuring equitable treatment of
workers—add layers of cost compared to older, more blunt
methods of mineral exploitation.

“Once we understand there is a value to that, the moral
implication forces us down that road. But there is a price to
that,” said Christopher Skeete, minister for the economy for the
province of Quebec.

The Inflation Reduction Act (IRA) provides a tax credit for EVs
if the OEM sources its battery within the US or one of its free
trade partners. Despite the industry’s move toward ESG sourcing,
Vaccari said that the current regulatory and permitting environment
in the US may stifle any chance for growth in domestic mining: “Until we fix these complex multitudes of problems, the IRA won’t
have any impact on minerals sourced in the US.”

If EV batteries are not locally sourced, that means going
abroad, and the possibility of working in countries undergoing
political upheaval or associating with bad actors engaged in
child-labor practices.

For instance, Peru and Chile—which control 40% of the
world’s copper—are undergoing political instability as well as
protests regarding worker rights and compensation. The Chilean
government also recently nixed a USD2.5-billion mining project that
would threaten a rare species of penguin. Child labor also has been
well-documented in cobalt mines in the Democratic Republic of
Congo.

“The first consideration is securing access,” Skeete said. “Going somewhere where the rule of law isn’t as established, you
might get faster, but not reliable, sourcing.

“If the goods come from processes not done in an ethical way,
you could be left out of the OEM’s bid,” Skeete added. “Or if you
are an OEM that doesn’t concern yourself with (ESG), your customers
might not buy your product because they don’t like how you
sourced.”

That may be the final deciding factor: Will consumers pay
thousands of dollars less for an EV—a supposedly virtuous
purchase—with batteries sourced from child labor, compared to
ones that are ethically sourced? Or will they boycott, even if it
considerably lightens their wallet?

The most promising development is that automakers are talking
directly to mining companies about ESG sourcing, Vaccari said. “There are 6,000 parts in a car, layer upon layer upon layer of
suppliers, and now we are having direct conversations with
automakers. That’s good, not just in terms of security of supply
but how they can raise the standards.”

– By Mark Rechtin, Executive Director and Executive Editor,
S&P Global Mobility

This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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• Source: http://www.spglobal.com/mobility/en/research-analysis/electric-vehicle-batteries-mining-esg-ceraweek.html