Furthermore, the demand for cobalt is likely to jump even higher in the future, as more and more Westerners switch to EVs and purchase 5G smartphones, which require 25% more cobalt than 4G phones. By 2040, energy analysts estimate more than half of all passenger vehicles sold worldwide could be electric. In the UK alone, up to six ‘gigafactories’ are being developed that are expected to churn out up to one million EV batteries a year by the end of the decade. In January 2021, BMI Research reported that up to 186 ‘megafactories’ globally – with a production capacity of more than 1GWh in battery cells a year – were expected to go live by 2030. About 7,075t of raw cobalt is needed to produce 500,000 large-format EV batteries.
The DRC’s big cobalt conundrum
However, cobalt production throws up a big ethical dilemma: the Democratic Republic of the Congo (DRC) – consistently ranked as one of the world’s most corrupt countries – supplies 70% of the world’s cobalt. It is estimated that up to 200,000 artisanal miners in the country work with their bare hands and with shovels down mines of up to 30m in length to extract the ore. Campaigners say that many children are involved in the process.
Many EV manufacturers have been trying to reduce the proportion of cobalt used in batteries because of its high costs and availability issues. Peter Slater, University of Birmingham
Cobalt is creating a gigantic ‘gold rush’ in the DRC and this has the potential to transform that country economically, but often its extraction takes places in hazardous conditions that have led to accusations of human rights violations. Moreover, today’s global cobalt supply chain is dominated by China: it owns up to 50% of the global production of this vital metal and controls about 80% of its worldwide refining. In embracing the ‘green age’, the West runs the risk of becoming more and more dependent on China.
“Cobalt will remain a vital component in the manufacture of rechargeable batteries for the foreseeable future,” says Peter Slater, professor in materials chemistry at the University of Birmingham in the UK. “Many EV manufacturers have been trying to reduce the proportion of cobalt used in batteries because of its high costs and availability issues. However, if you want your EV to have a range of, say, 300km on one charge, cobalt must be used.”
DRC has world's biggest cobalt reserves
The DRC – a francophone country strategically located in the centre of the African continent – has a population of almost 94 million (the continent's fourth largest after Nigeria with 206 million, Ethiopia with 115 million and Egypt with 102 million) but only a $58bn economy, according to the International Monetary Fund. Income per head is a paltry $588 a year. GDP grew by 5.8% in 2018 and by 4.3% in 2019, but in 2020 it was flat. For 2021 it is forecast to expand by 3.8% and in 2022 by 4.8%.
The country – led by President Félix Tshisekedi since January 2019 – is not fulfilling its economic potential. Its foreign direct investment (FDI) inflows decreased from $1.6bn in 2018 to $1.5bn in 2019, according to the UN Conference on Trade and Development. FDI stock was estimated at only $25.6bn in 2019. It is a member of the Common Market for Eastern and Southern Africa (Comesa), a regional economic community. The DRC was placed in 183rd spot among 190 countries worldwide in the World Bank's Ease of Doing Business rankings in 2020. Transparency International placed it in 170th position among 180 countries on its Corruption Perceptions Index 2020.
However, the DRC does have one thing in its favour: vast mineral deposits. It has significant quantities of the world’s diamonds and gold. Central Africa's 'copper belt' runs through the southern half of the country, close to the border with Zambia. The DRC has the largest cobalt reserves in the world at some 3.6 million metric tonnes (out of a global total of 7.1 million metric tonnes). Australia, in second place, has 1.4 million metric tonnes of reserves. As long ago as 2009, African Business magazine estimated the DRC's total mineral wealth to be $24trn – equivalent to the GDP of Europe and the US combined at the time.
In 2020, DRC produced just over 70% of the world's cobalt (followed by the Philippines and Cuba at 4% apiece), according to Darton Commodities, a UK-based trader of base metals. In 2021, the world's total cobalt production is forecast to reach 120,000 tonnes (t) and about 110,000t will come from the DRC, according to Darton Commodities. It forecasts that that country's production will jump to about 150,000t by 2025, on the back of the growing demand for cobalt for rechargeable batteries.
The problem with artisanal mining
The DRC’s cobalt mining can be broadly divided into two categories: industrial or large-scale mining (LSM) and artisanal and small-scale mining (ASM). ASM mining peaked at about 18,000t in 2018 – representing 21% of DRC’s cobalt supply – but plummeted to about 7,000t in 2020 – amounting to a mere 7% – according to Darton Commodities. There are about 150,000–200,000 artisanal miners currently working on cobalt deposits in the DRC, with more than one million others directly dependent economically on their activities. They work in hand-dug mines that can extend for tens of metres underground, often without any support to hold them up and poorly ventilated.
The Congolese people I speak to say that child labour is very rare now. Raphael Deberdt, Responsible Sourcing Network
There is extensive interaction between the two sectors, both commercially and physically, and a number of LSM producers source and process ASM material. The ASM sector has historically performed the role of ‘swing producer’, with activity rapidly responding to market movements.
Louis Maréchal, the sector lead for conflict minerals at the OECD, estimates that roughly 80% of ASM is informal, so it typically happens without proper permits or any adherence to environmental and labour regulations. Normally, they do not have a budget for anything and work with very few health and safety precautions.
"Artisanal is even more challenging than small-scale," he said in an interview with the Games Industry website in June this year. "Artisanal is what you would picture as a family or several people digging in the ground with shovels, with very little mechanised equipment. The artisanal miners are the ones that are traditionally most exposed to racketeering, extortion, abuses of human rights, etc."
Heavily mechanised large-scale operations are said to produce 90% of the world's mining output, but ASM miners make up 90% of the world's mining labour force, according to Maréchal.
In 2014, Unicef estimated that about 40,000 boys and girls were working in all the mines across southern DRC, many of them involved in cobalt mining. In 2016, Amnesty International published a seminal report entitled This Is What We Die For, which highlighted the issue of child labour in Congolese mines and other human rights violations. It received a lot of media attention and forced original equipment manufacturers (OEMs) to look again at their supply chains. The following year, the DRC government launched a new national strategy to remove child labour from artisanal mining.
Raphael Deberdt, minerals programme associate at the Responsible Sourcing Network, a non-profit organisation committed to ending human rights abuses associated with raw materials, believes very few children are now involved in cobalt mining in the country. "I think child labour might have been an issue in the past but very few children are involved today," he says. "The Congolese people I speak to say that child labour is very rare now. Children may be involved in washing the mineral but they are not involved in directly mining it. Furthermore, as the demand for cobalt shoots up, I do not really believe the amount of child labour will grow. Like parents everywhere, Congolese people want their children to be at school, not working down a mine."
However, he admits that it is very difficult to estimate the overall number of artisanal miners or children involved in the industry. Many of the artisanal mining sites are located a long way from roads or population centres.
OEMs try to avoid artisanal mining
Faced with these challenges, some companies that require cobalt to produce their goods are trying to avoid the DRC altogether. In 2017, Apple said it had stopped buying cobalt from artisanal mines in the country (through its supplier Shejiang Huayou Cobalt Company, a Chinese company operating in DRC) and boldly announced in its 2017 Environmental Responsibility Report that it would seek to use only renewable materials in its devices in the near future.
OEMs may state that they do not want to use ASM-sourced cobalt but they almost definitely do. Raphael Deberdt
In 2019, BMW, the German carmaker, said it would source cobalt from Morocco and Australia for use in the production of its EVs from 2020 onwards. During the past seven years, Tesla has reduced its average cobalt use by more than 60% and in July 2020 it announced that it would start using cobalt-free lithium-iron phosphate batteries to build its new car models. However, following this announcement, the company signed a long-term supply deal with the world’s largest mining company, Glencore, for 6,000t of cobalt a year (about 4% of global output).
"This decision by Tesla suggests that, despite its efforts to develop cobalt-free battery technology, electronics and vehicle manufacturers will continue to rely on Congolese cobalt for the foreseeable future," says an industry insider. "Generally, downstream companies are taking a greater interest in their supply chain than ever before by asking battery makers questions and, for the first time, looking to cut out the middleman and buy direct."
In December 2019, attorneys from International Rights Advocates, a law firm based in Washington, DC, sued Apple, Google, Dell, Microsoft and Tesla for involvement in the injuries or deaths of child miners. “These boys are working under Stone Age conditions for paltry wages and at immense personal risk, to provide cobalt," the complaint alleges. “The hundreds of billions of dollars generated by the defendants each year would not be possible without cobalt mined in the DRC.”
In response, Apple said that it had been improving standards since 2014 and that it is "constantly working to raise the bar for ourselves and the industry". It also said that it had made innovations in cobalt recycling.
"OEMs may state that they do not want to use ASM-sourced cobalt but they almost definitely do," adds Deberdt. "There is a big overlap between LSM and ASM. Congo Dongfang Mining – owned by the Chinese company Zhejiang Huayou Cobalt Company – operates one of the biggest artisanal cobalt mines in the DRC and hence a large proportion of Huayou's feed has been sourced from ASM. It is incredibly hard to trace where the cobalt ore comes from."
The outcry over working conditions has led industry players to found the Fair Cobalt Alliance, an organisation that supports small-scale mining with safety equipment and clean water. Glencore, Huayou, Tesla, Fairphone, Sono Motors and Signify have joined the alliance.
"It is terribly easy for Westerners – well fed and well housed – to say that there should be no artisanal mining whatsoever, but the reality is more complicated," says Jeremy Cowan, author of The Tin Soldiers, a novel about a 13-year-old Congolese farmer's son. "If these people do not do this kind of work, they could starve or their families could go hungry. They could become criminals or join the rebel armies that exist in DRC."
Mark Dummett, head of business, security and human rights at Amnesty International, agrees. "Artisanal mining is a lifeline for millions of impoverished people in the DRC," he said in an interview with the Financial Times in May 2020. "We need to see companies working with the authorities to formalise it – make it safer, remove children, provide miners with a fair price."
Congolese government takes control of artisanal mining
In November 2019, the Congolese government established Entreprise Générale du Cobalt (EGC), a state-owned company, to work alongside the country's Agency for Regulation and Control of Strategic Mineral Substance Markets. Its goal is to help formalise the ASM cobalt supply chain with a focus on respect for human rights, health and safety and environmental standards. As part of EGC’s formalisation strategy, it will be responsible for purchasing all the domestically produced ASM cobalt ore, before its processing, refining and marketing.
Furthermore, in November 2020, EGC entered into trading agreement with Trafigura, a market leader in the global commodities industry based in Geneva, Switzerland. The two are working together to develop controls and traceability mechanisms for ASM cobalt production. Trafigura will also identify industrial buyers for the cobalt sold by EGC. It plans to trade roughly $10m-worth of cobalt per month (equating to roughly 250t of cobalt at prices at the start of 2021), with plans to expand this to roughly $50m a month over time.
Today, most of the cobalt in southern DRC comes from industrial mines, which are largely owned by Chinese companies. In 2016, China Molybdenum paid the US company Freeport-McMoRan $2.65bn for a controlling stake in Tenke Fungurume, a giant copper and cobalt mine about two hours east of Kolwezi, a city located in southern DRC. Three years later, China Molybdenum acquired another stake for $1.14bn.
In August 2019, Glencore announced that it would suspend production at Mutanda Mining, the world's biggest cobalt mine located in Katanga province in southern DRC, in response to slumping cobalt prices. In 2019, it produced 25,000t of cobalt or 18% of global production. In June 2021, the company said it would reopen the mine at the start of 2022, as cobalt prices started to shoot up.
Mounting global demand for cobalt
A typical smartphone battery requires between five and 20g of cobalt while an electric vehicle battery requires between four and 30kg.
Currently, the lithium cobalt oxide battery is the main type used in smartphones, laptops, tablets, cameras and drones. Its cobalt content in its active cathode material is about 60%. Meanwhile, the nickel cobalt manganese battery is the industry standard for EVs, power tools, power banks, medical devices, e-bikes and energy storage systems. Its cobalt content in its active cathode ranges from 7–21%. Although the cobalt content in EV batteries is lower than for smartphone/laptop batteries, the amount of cobalt used is higher because they are bigger (in fact the EV industry is pushing for even bigger batteries so that its cars can run for longer distances).
EV sales are estimated to have jumped 38% globally in 2020. In Europe, they surged by a staggering 127% year-on-year. Germany – Europe’s largest single national auto market – saw its share in EV sales surge to 13% in 2020, up from 3% in 2019. In China, total EV sales increased 11% year on year during 2020, reaching a total of 1.3 million vehicles, or 42% of the global market. With about 345,000 EVs sold, the US market recorded a relatively modest 5% increase during 2020. After lagging Europe and China for a number of years, experts now predict that EV market adoption in the US will start to accelerate at a significantly faster pace. Conservative estimates suggest that EV sales will break the 400,000 vehicles barrier in that country in 2021, while some of the more bullish analysts foresee US sales exceeding the 500,000 vehicles level.
According to the International Energy Agency, in 2020, 11.2 million EVs travelled on the roads of the Earth, but the figure is projected to grow to 145 million by the end of this decade. It forecasts that the demand for lithium will jump 40-fold by 2040 and for cobalt and nickel by 20 times.
Darton Commodities forecasts a massive 35% year-on-year increase in EV sales worldwide in 2021. The demand for cobalt precursors used in EV batteries is expected to grow at a faster pace than current sales estimates suggest, as the supply chain is building up capacity and filling the pipeline to meet even larger, forward demand. Consequently, cobalt demand for EV batteries is expected to reach 46,500t in 2021, up from 28,900t in 2020.
There is a great deal more money in circulation in the DRC. The government's tax revenues could also start to go up significantly. Andries Gerbens, Darton Commodities
Market intelligence company IDC forecasts global smartphone shipments to grow 4.4% during 2021, with the share of global 5G smartphone shipments growing from 19% in 2020 to 37% in 2021. During 2020, the superalloy sector experienced its deepest demand slump since 2001, when air travel fell sharply in the aftermath of the September 11 terrorist attacks. The aviation industry is expected to remain under pressure during 2021, as air traffic – the cornerstone of superalloy demand – remains largely grounded.
Portable consumer electronics still accounted for about 62% of the total cobalt consumed in lithium-ion batteries in 2020, according to Darton Commodities. However, this share will decline in the coming years, as the use of cobalt in EV batteries takes off (the EV battery market is expected to overtake the portable electronics market in terms of consumption in 2023). Total cobalt consumption in battery materials is predicted to more than double during 2020–25, thanks to the acceleration in global EV sales. Darton estimates that by 2025 an additional 89,000t of cobalt will be consumed in rechargeable batteries annually (a total of 118,000t of cobalt will be used in EVs compared with 28,900t in 2020).
"Cobalt supply was pretty flat in 2020 because of Covid-related restrictions and some important mines under care and maintenance," says Andries Gerbens, director and cobalt specialist at Darton Commodities. "On the demand side, there was less demand by the aerospace industry for cobalt-based superalloys. However, home working led a lot of people to replace their old laptop with a new one. Rechargeable battery demand for laptops and tablets went through the roof. Batteries for EVs will be the primary growth driver in the coming years.
"Already we see the economic benefits of this in the DRC. There is a great deal more money in circulation there. The government's tax revenues could also start to go up significantly."
Cobalt could make the DRC a very rich country. However, the government must work hard to ensure that young children are not involved in the mining process there or the worldwide reputation of the industry in that country will be tarnished. It is essential that OEMs do not cut ASM out of the global supply chain, as the livelihoods of millions of Congolese depend on it. The ASM sector needs to be formalised further and brought into the formal economy, so that the ethical dilemma posed by cobalt production is reduced.
Jason Mitchell is a senior editor at Investment Monitor, with a specialisation in emerging markets.