Q&A: SRK Consulting unpacks critical opportunities and challenges facing the African mining sector

SRK Consulting has built deep experience working in the African mining sector and has developed a firm grasp of where potential opportunities are and some of the critical challenges preventing the industry from contributing to local economies to its fullest potential.

The Northern Miner’s senior reporter, Henry Lazenby, caught up with SRK Consulting director and principal consultant Andrew van Zyl and Pengfei Xiao, managing director of SRK Consulting in China, to learn more.

The Northern Miner: Let’s start with SRK’s view on how Africa is positioned to help the global Energy Transition. Would SRK say enough is being done at the national government and regional trade block levels on the African continent to step up and produce the critical minerals the world so desperately needs?

Andrew van Zyl: While contributing relatively little to the carbon emissions that have hastened climate change, African countries are significantly contributing to supplying the minerals for a global energy transition. This is mainly through the production of copper and cobalt in central Africa and platinum group metals in southern Africa. The Democratic Republic of Congo, for instance, is a leading producer of cobalt and tantalum.

That said, only a minority of African countries have extensive mining sectors, and many of these do not include battery minerals as such. Where these minerals exist in economic quantities, governments have generally provided the necessary frameworks for the private sector to explore and develop them. Increasingly, laws and policies are also evolving to ensure that investments in mining projects have the best possible impacts on host countries and local communities.

TNM: What are the key challenges investors in African mining projects face in general (resource nationalism, rule of law, etc.), and how would SRK suggest investors navigate what some would term risky investments into Africa?

AvZ: Investment risk varies considerably between African countries, but investors continue developing and operating mining operations successfully across the continent. They do this by understanding the risk profile of their projects and building the constraints into their feasibility models. There are real risks to establishing a mine in some African countries, but it is worth remembering how many developed countries there are where no mines have been established successfully.

Mining is a sector that confronts a formidable range of technical, environment, social and other risks; the political and legal context is also important and is generally navigable if the ore resource warrants the investment. Of course, political instability such as recently experienced in certain west African countries does raise risk considerably; key factors like the reliability of centralized power sources can also affect project viability. It requires careful investigation and independent advice, ideally from experienced local professionals who understand the specific constraints and opportunities.

TNM: A lot is being said about China’s dominance in the battery metals sector globally. How does the energy transition translate into an opportunity for African nations to step up and produce these metals and minerals for the rest of the world? As a second part to it, how does China’s neo-colonialism in Africa impact Africa’s opportunity to make a meaningful contribution to the rest of the world’s critical metals demand?

AvZ: SRK cannot comment on whether China’s approach can be considered neo-colonial or whether this is relevant. It appears as if China considers a range of minerals to be strategically important and Chinese companies have thus had a higher risk tolerance and this has perhaps lowered the hurdle rate for investment. However, there are few countries where the rest of the world has been precluded from investing. As such, what we see in Africa is the aggregate outcome of the case-specific decisions made by mining companies and investors, rather than being representative of national policy – either of the host or source country.

Pengfei Xiao: China has implemented a ‘Going Global’ strategy in early 2000s and has continued this strategy in the changing periods since then. Many private companies and SOEs from China choose Africa because these companies have a well-considered balance between opportunities and risks. An important copper-cobalt player in central Africa, for example, was acquired by a Chinese company at what was considered at the time to be a very high price. As with other regions, Africa is open to both local and international participants, and has recently seen an improving investment environment in many countries.

TNM: Where in Africa is the most progress being made to develop fully integrated battery metals supply chains? Are there economic/industrial hubs being created to address the midstream and downstream (and fully integrated) needs of the battery/electric vehicle industries (outside of China)?

Avz: While certain African countries supply battery-related minerals, there is as yet not much of a local market to support an integrated supply chain that could include batteries themselves or the vehicles that use them. Where there are some exciting developments is in hydrogen technology, with work underway in South Africa to test mining trucks powered by hydrogen fuel cells. Research into ‘green hydrogen’ could lead to lower carbon emissions in mining and perhaps even smelting, replacing fossil fuels as a reductant and a source of energy.

To understand the limitations on developing integrated battery metals supply chains, it is important to understand the scale of Africa’s production – for instance, of a battery mineral like lithium. There is only one African country – Zimbabwe – producing lithium, and in 2020 this made up just 1.4% of global production.

African mining companies have developed considerable expertise in transport, logistics and in the development of local supply chains to support mining and processing. A reduction in the cost of power and increased supply along with a larger local market could see the establishment of local battery manufacturing and related industries but it is more likely that the predominance of PGMs and prevalence of solar and wind resources would lead to progress in green hydrogen production and related supply chains and products.

TNM: In SRK’s view, how is the advent of Environmental, Social and Governance (ESG) investment principles impacting mining investment for critical battery metals in Africa?

AvZ: It is important to remember that mines in Africa, like everywhere else, respond to the demands of the market. Demand for commodities – mainly by developed countries – sets the price and the conditions which mining companies must meet. Increasing priority has been placed on (ESG) factors, in terms of which mines in Africa generally align with global best practice – from reducing carbon footprint and preserving biodiversity, to stakeholder engagement and promotion of women in mining. African mining has also been a leader in the development of mining codes and best practices, including in areas like stakeholder engagement, local procurement and formal interaction with artisanal mining.

It is also worth noting that ESG principles are applied across all commodities in mining. While mining certain minerals may require more focus on specific ESG requirements, battery minerals would still fall under the overarching ESG principles relevant to the sector as a whole.

Mining countries in Africa are actively engaged with commodity consuming countries on questions of responsible sourcing, paving the way for Europe’s energy transition. This process will ensure that the value chain through which end-customers procure their commodities is ESG-aligned. In fact, SRK Consulting is directly involved as a partner in the RE-SOURCING project – funded by the European Union’s Horizon 2020 research and innovation programme. The project aims to produce a global stakeholder platform, including Africa and Asia, to align international practices and facilitate communication for responsible sourcing.

TNM: In SRK’s view, is Africa truly positioned to fill the emerging critical minerals supply gap as demand ramps up globally?

AvZ: While most countries in Africa are not significant mineral producers, the continent is certainly home to important deposits – some of which have been mined for centuries. In terms of the minerals of the future, countries like the DRC and Zambia will remain important producers of copper and cobalt, with lithium production from Zimbabwe and perhaps DRC, Namibia and Ghana in future.

Governments will be more or less successful in promoting their mineral resources to investors, but eventually it comes down to where individual companies find the most economic resources, and whether they can bring them to production. Those countries which demonstrate prospectivity will attract more attention, and those which have historically built up a mining-related skills base will find it easier to develop those operations.

A related contribution in terms of energy transition is also worth considering: some African countries are making progress in applying renewable energy, including decentralised generation – which is an important departure from the traditional model built around a centralised power grid. This may lead to increased growth as energy becomes more widely available once mining companies establish a critical mass and local supply network for renewables in particular.

TNM: Does the Energy Transition truly offer the mining industry with an opportunity to uplift the average African person? How can mining companies go about their business in a different, better way than in the often murky and unaccountable past?

AvZ: Mining certainly plays an important role in the economies of a number of African countries, but it is worth remembering that the majority of nations boast little or no mining activity. Where mining occurs, those companies are increasingly applying policies and practices that uplift local economies and communities – through their employment, procurement, royalties and taxes. Regions like the central African copper belt will benefit from growing demand, especially as commitment to ESG principles and shared value policies evolve and are implemented.

As the energy transition progresses, however, developments in renewable technology are likely to have significant impact on the lives of average citizens. In many cases, mines themselves are catalysts in this progress. Hybrid power plants established by mines to reduce their reliance on fossil fuels, for instance, have opened the door for the more rapid entry of solar power technology into their host country. On the strength of a few pioneering renewable energy installations, more affordable distribution channels are established and skills are developed to support a renewable energy sector. Local businesses will increasingly be able to source equipment like solar panels and batteries to be more productive.

TNM: What else is important when considering investing in Africa for developing new critical/battery metals supply chains in Africa?

AvZ: As a whole, the mining industry in African countries has achieved a great deal in terms of stimulating local economies through mine procurement. While this contribution is not specific to mines that produce battery metals, there are generally a range of inputs required from a network of local suppliers. This is promoted by global best practice which includes local procurement targets, supplier development and social development efforts.

The ESG focus adopted by the global mining sector – combined with enabling legal frameworks in many mining countries in Africa – is seeing more proactive attention paid to developing local supply chains. Future opportunities in the application of electric mining vehicles or hydrogen-powered trucks could also further develop the value chain in mining countries, extending into skills development and perhaps even manufacturing.