The global race for critical minerals is on. Driven by recent shifts in geopolitical priorities between the “West” and the “East”, and the global inexorable march towards green industries and renewable energy, the demand for Southern Africa’s critical minerals has reached unprecedented heights.
Historically, at least in the past few decades, the mining powerhouse nations have been Australia, Canada, China, South Africa, and the United Kingdom, for various reasons such as geology, finance, technical expertise, and providing minerals trading platforms. The European Union nations have mostly chosen to take a backseat in the extraction of raw materials and focused more on the “cleaner” downstream activities of manufacturing and to a lesser extent, processing. In other words, European Union nations have up to now, been more comfortable being buyers rather than miners of raw materials.
The disruption of global supply chains, the Russia – Ukraine war, and the gradual frosting of “East” and “West” diplomatic relations, means that the EU can no longer afford to be over reliant on Southeast Asia for the supply of its critical raw materials. Enter the EU Critical Raw Materials Act that was proposed by the European Commission on 16 March 2023, which is meant to ensure the EU’s access to a secure, diversified, affordable and sustainable supply of critical raw materials.
THE CRITICAL RAW MATERIALS ACT
Critical raw materials (“CRMs”) include minerals such as cobalt, lithium, rare earth materials and copper, zinc, to name a few. The main purpose of the EU Critical Raw Materials Act is to diversify the EU’s imports of CRMs in order to reduce strategic dependencies on certain countries.
Interestingly, the CRM Act provides a list of Strategic Raw Materials (“SRMs”) in addition to and as a subset of CRMs. The SRMs are seen as crucial for strategic technologies in respect of the development of green, digital, defence and aerospace industries. The CRM Act proposes that the EU should not be dependent on a single country for more than 65% of SRM imports.
The CRM Act also provides for the monitoring and stress-testing of CRM value chains and imposes obligations on companies for risk preparedness mechanisms. The CRM Act provides for the management of the sustainability and environmental footprint of CRMs by empowering the European Commission, as the ultimate regulator, to make rules regarding same. This will in turn contribute to the aim for a more circular economy in the EU, promoting the recycling of CRMs which is also regulated by the Act through the establishment of requirements for recycling imposed on member states. The Act also provides for expedited timeframes in respect of the EU’s permitting procedures in order to streamline the development of mining projects within the EU.
THE DEMAND FOR CRMs AND SUPPLY CHAINS
“Derisking” from China is the new buzz word in diplomat speak, succeeding “Decoupling”. Derisking, as opposed to Decoupling from China by Western nations, is the realisation that global economies and supply chains are so integrated that completely cutting trade ties with China, is not possible. What is preferred rather, and what the derisking strategy entails, is a gradual lessening of the West’s reliance on China’s “vice like grip” on critical supply chains, such as the supply of CRMs. In order for the derisking strategy to be successful, the EU nations need to enter the primary mining sector themselves, and not rely on simply procuring raw materials.
RISKS AND OPPORTUNITIES FOR JUNIOR MINERS
The EU’s quest to diversify its CRMs supply chains could be a further boon for Southern Africa’s mining industry which is already experiencing unprecedented demand and commodity price highs. There will be more competition for CRMs, and more investors. Southern Africa’s junior miners and early-stage developers stand a chance to gain the most from the CRM Act.
Raising funding for greenfield mining projects is difficult due to the various risks inherently involved in mining and the long lead times required for investors to realise a return on their investment. In order to achieve the goals outlined in the CRM Act, EU Nations will have to put their money where their mouths are, and encourage the EU private sector and development finance institutions to invest directly into an industry they have not historically been invested in. This could open more sources of much needed funding for junior miners and early-stage developers.
On the other hand, whenever there are high commodity price cycles, and high demand for certain minerals, host governments are tempted towards resource nationalism, where governments make more stringent taxation and/or permitting requirements in order to exercise more control and derive more revenue from those minerals. In Southern Africa’s CRM mining industry for example, Zimbabwe has moved to regulate the lithium mining industry by first banning lithium exports, and later allowing the export of lithium ores only after a certain level of beneficiation has happened in country. Another example is Namibia’s lithium mining sector, where there have been reports that Namibia too could restrict the export of unprocessed lithium ores, although this is yet to be legislated.
CRMs are a peculiar group of minerals. With the exception of jurisdictions like the Democratic Republic of Congo and Zambia, many Southern African jurisdictions traditionally are accustomed to regulating precious metals, precious stones and hydrocarbons, such as gold, platinum, oil and diamonds, as opposed to regulating the mining of CRMs. The high demand for CRMs has created a new class of minerals that governments will most likely want to develop policies and regulations around issues such as local participation, environmental management, royalties and taxes, and states’ equity in mining projects. This should not scare investors away, rather EU nations should see this as an opportunity through business and diplomatic channels to explore policy positions as well as mutually beneficial investment and trade agreements with host governments where CRMs are mined.
Methembeni Moyo and Trevana Moodley | NSDV