Africa: The Gold Rush for Green Minerals

Home to 30% of the world’s mineral reserves, Africa has long been a key destination for foreign investment, but the continent’s mining industry remains mainly structured around a “pit-to-port” model that ships mineral ores overseas for processing. With the global transition to cleaner technologies underway and the rush for green energy minerals in full swing, Africa is again in the investors’ spotlight as more than half of the countries on the continent have at least one of the critical minerals and metals needed for the much-aspired green economy. And as the world turns its eye on Africa’s green energy minerals, the continent seems committed to moving up the value chain and grabbing a bigger share of a market that has been growing at a neck-breaking speed. The International Energy Agency (IEA) estimates that the key energy transition minerals market has doubled over the past five years and will reach a value of USD 320bn in 2022. Demand for critical minerals such as copper, cobalt, lithium, nickel, manganese, and graphite will go up by up to 500% by 2050, the World Bank has forecast, saying that it will require the construction of up to 400 new mines and USD 1.7tn in new mining investment globally. Another key driver is the fact that the US and the EU are looking to diversify their supply chains and reduce China’s dominance over critical components, in particular in the EV industry, giving Africa a substantial advantage. The new momentum offers Africa an opportunity to escape the so-called resource curse that has blighted many of the oil and gas-rich countries on the continent. This time around, governments across the continent are stepping up their policies to control the exploitation and export of these critical minerals, including the introduction of export bans on unprocessed ores in a bid to encourage domestic processing, ensuring value and profit for the continent. 

Land of Plenty 

Africa holds significant reserves of bauxite, chromium, cobalt, copper, graphite, lithium, manganese, platinum, vanadium, and rare earth elements, to name but a few. These minerals are key inputs for the production of clean energy technologies and materials – everything from solar panels, wind farms and batteries for electric vehicles (EVs), to smartphones and digital systems. Africa is home to half of the global reserves of cobalt, over 40% of manganese, 24% of bauxite, 21% of graphite, 13% of vanadium and 92% of platinum-group metals (PGM), according to the United States Geological Survey (USGS) data as of end-2022. The major players on the continent are the Democratic Republic of Congo (DRC), Gabon, Ghana, Guinea, Madagascar, Mozambique, South Africa, Zambia, and Zimbabwe. DRC accounted for 68% of the world’s cobalt production in 2022 and ranked as the second biggest producer of copper. Another significant producer of cobalt is Zambia which ranked eighth globally in 2022. Madagascar, on the other hand is the eighth biggest producer of copper and Morocco is the 11th. Four of the world’s top producers of manganese are in Africa. With a share of 36%, South Africa was the world’s biggest producer of manganese in 2022 and Gabon ranked second with a share of 23%. Ghana and the Ivory Coast took the fifth and ninth place. South Africa, the country with the biggest PGM reserves globally, is also the largest miner of platinum (74% global share) and the second biggest of palladium (38.1%). Zimbabwe is the other African country is significant PGM reserves, ranking fourth globally in terms of platinum and palladium production. Lithium, the most valuable commodity for the EV industry, is also in stock in Africa with Zimbabwe the most prominent player taking the place of the sixth biggest producer globally. Lithium projects are also being developed in DRC, South Africa, Mali, Ghana, and Namibia. What’s more, low investment in mining exploration in Africa suggests that current estimated reserves of green minerals might be just the tip of the iceberg. 

From Resource Curse to Blessing 

Historically, natural resources have been more of a curse than an opportunity in Africa. Many African countries have been experiencing the so-called resource curse, the paradox that sees countries rich in oil and minerals suffer from high levels of poverty and civil war. One of the main reasons for that is the ineffective and overall poor governance of the mining industry that often leads to rampant corruption with the wealth being distributed among a few. Seizing the momentum, African countries seem committed to breaking the curse and ensuring wealth for the local population. In September 2023, the African Union (AU), which groups all the countries on the continent, presented Africa’s new green minerals strategy that seeks to leverage resources for revenue generation and sustainable growth. The strategy aims to reshape Africa’s mineral value chains by utilizing mineral resources for in-continent manufacturing, moving beyond raw material exports. The strategy also aims to improve mining regulations and institutions and develop a more attractive investment environment. That would require investments in not only mining the minerals but also in developing their downstream infrastructure. One way to squeeze in more value is the introduction of a restrictive export policy, a path some of the green minerals-rich African countries have chosen. According to research published in May 2023 by the Africa Development Forum and cited by Reuters, more than a dozen African countries have restricted the exports of critical transition minerals or banned them outright. In 2022, DRC imposed a temporary ban on the export of copper and cobalt, while Zimbabwe banned all unprocessed lithium exports starting January 2023, allowing for the exports of only lithium concentrates. Namibia and Ghana followed suit shortly after banning the export of unprocessed lithium and other minerals, including cobalt, manganese, graphite, and rare earth minerals. In November 2023, Tanzania announced plans to ban the exports of unprocessed lithium, effective from May 31, 2024. The policy seems to be bearing fruit. The Zimbabwean government and Chinese Eagle Canyon International Group Holding and Pacific Goal Investments signed a USD 13bn deal for the construction of a mining-to-energy park that will process metals including graphite, nickel, chrome, lithium and platinum. In July 2023, Prospect Lithium Zimbabwe, an arm of China’s Zhejiang Huayou Cobalt, opened a USD 300mn lithium processing plant in Goromonzi, some 80 km southeast of Zimbabwe’s capital, Harare. The plant has an annual capacity to process 4.5mn tonnes of hard rock lithium into a concentrate that will be further processed into battery-grade lithium outside Zimbabwe. Zhejiang Huayou Cobalt, China’s top cobalt refiner, and peers Sinomine Resource Group, Chengxin Lithium Group and Canmax Technologies have spent more than USD 1bn over the past two years to acquire and develop lithium projects in Zimbabwe. 

Moving Up the Value Chain 

The government of Zimbabwe is planning even more restrictive measures in its attempt to move up the value chain and maximise returns from the country’s natural resources, urging miners to go beyond the production of concentrates and work towards producing battery-grade lithium locally. And Zimbabwe is not the only one looking to reap more wealth from its abundant natural resources. A growing number of African countries are requiring foreign investors to invest not only in mining but also in processing the minerals. A step in that direction was the signing of a memorandum of understanding between DRC, Zambia, and the US for the development of an integrated value chain for the production of EVs. The agreement, which was announced inDecember 2022, is also seen as an attempt by the US to counter the growing influence of China in the supply chain of clean-energy minerals in Africa. In DRC, China controls nearly 80% of the country’s copper and cobalt production with Chinese entities owning stakes in nearly all the country's producing mines. Chinese companies are also behind much of Africa’s lithium projects in countries like Zimbabwe, Namibia, and Mali. Chinese mining and battery companies have invested USD 4.5bn in Africa’s lithium mines over the past two years, the US Institute of Peace said in a commentary published in June 2023. 

Revving Up Exploration Budgets 

Revving up exploration budgets is another area of improvement African countries should look at to secure a bigger chunk of the lucrative market of green energy minerals. Africa accounted for just 10% of the global mining exploration spending in 2022, the smallest share in over a decade, according to the S&P Global World Exploration Trends 2023 report. Moreover, the pace of increase in exploration allocations on the continent was below the global average for the second year in a row. Africa’s mining exploration budgets increased by 11.6% y/y to some USD 1.2bn in 2022. And while gold-focused projects continue to lead accounting for more than half of total spending, copper and lithium budgets are gearing up.   

Closing Thoughts 

Summing it all up, Africa is well-positioned to become a key player in the green economy. The abundance of natural resources alone will secure the continent a large chunk of the investment spree over the next decade with IEA estimating that manufacturers of clean energy technologies will need forty times more lithium, twenty-five times more graphite, and about twenty times more nickel and cobalt in 2040 than in 2020. But for Africa to go beyond the just mining stage and ensure more added value production, governments across the continent should work towards improving the regulatory and business environment and negotiate better deals with foreign investors to ensure that will work to the benefit of the local population. 

 

Original source: EMIS Insights