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The paper was released on Wednesday, February 8 by the NYU Stern Center for Business & Human Rights and by the Geneva Center for Business & Human Rights. It said that electronics companies and car manufacturers also need to prioritize formalization and to collaborate with stakeholders to develop common standards and implementation strategies.
The continuing lack of such formalization remains a blow to financing banks unwilling to invest in ASM cobalt in the DRC, which accounts for around 20% of the country’s production and 10% of world production.
That is because formalization and the development of standards allow artisanal material to be accepted into the formal supply chain. Previously, concerns about the use of child labor, plus other factors including poor environmental and safety standards, have led companies to engineer cobalt out of battery supply chains where possible and contributed to a decline in prices.
Jeremy Weir, chief executive officer of commodities trading house Trafigura, recently told Fastmarkets in an interview that buyers of commodities have become increasingly focused on the origins of their materials as well as sustainability, and not only on the best price.
While cobalt cannot be completely eliminated from the batteries used in electric vehicles (EVs), the market is currently oversupplied, in part due to the concerns about its origin and the development of new projects. According to analysts at Fastmarkets, cobalt is expected to be in a 3,000-tonne surplus in 2023 and a 13,000-tonne surplus in 2024.
One such new project is Mutoshi, which is scheduled to start in 2023 and was previously the site of a pilot project to formalize ASM mining, led by Trafigura and Chemaf, the DRC’s mineral exploration, mining and processing company.
The project was suspended in March 2020 because of the Covid-19 pandemic, and local artisanal miners were provided with alternative means to make money. It was later determined that operations would not restart owing to changes in DRC law which saw the establishment in March 2021 of Entreprise Générale du Cobalt (EGC), a state-owned entity tasked with purchasing all ASM cobalt.
Yet within a few months of that suspension, ASM miners at Mutoshi could no longer reach cobalt ore by means of the shallow open pits dug for them with excavation machines, so they began digging deep mine shafts again, the paper said.
“Once formalization ended, artisanal miners removed the access fence, and the use of identity cards ceased. Some 15,000 miners now work on the site – almost five times the number during formalization,” the paper added.
EGC has meanwhile not yet become operational, the paper said.
Trafigura has a trade agreement with EGC that includes the provision of finance by the commodity trading house to fund the creation of strictly controlled ASM zones, the installation of ore purchasing stations, and financing costs related to buying, transforming and delivering cobalt hydroxide to end-buyers.
“We believe that the formation and operation of EGC by the DRC government represents one of the brightest hopes for instigating the improvements needed,” James Nicholson, Trafigura head of corporate responsibility, said.
“Trafigura remains committed to its commercial agreement with EGC and delivering on the pressing need to kick-start the large-scale formalization of the ASM cobalt sector,” he added. “At present, Trafigura is the only company permitted to buy from EGC – we encourage others to follow our approach and contribute toward meaningful change.”
EGC’s mandate is to exercise a monopoly in the country on the sourcing of cobalt from ASM operations, with processing required prior to export and trading. The new standard includes human rights, social and environmental responsibility, and traceability.
The paper also noted the commercial effect of the end of formalization. Using Mutoshi as an example, the paper said that Trafigura had an offtake agreement under which ASM miners sold cobalt ore directly to Chemaf with full price transparency.
That ore, when processed, was made available to international buyers that supported the project, and were happy to receive the material on the basis of assurances from a third-party assessor, the paper said.
“The relatively good relationship among the project partners provided some flexibility for the local mining cooperative to negotiate prices on behalf of the miners,” the paper noted.
But the paper also said that things are different now that formalization has ended and EGC is not yet up and running.
“Mutoshi miners can sell their cobalt production only at the price offered by the Chinese middleman firm active on the site. The middleman has no commercial connection to the concession holder, Chemaf, but operates on site,” the paper said.
“The Chinese firm then sells the ore to larger cobalt-processing companies in China. Miners no longer have the option to store ore at a depot until the price rises or they can negotiate a higher price,” the paper added.
Fifteen of the 19 cobalt-producing industrial mines in the DRC were owned or financed by Chinese companies in 2020, the report said.
At the same time, ASM and large-scale industrial mining are intertwined in the DRC, with cobalt extracted at ASM sites typically entering the broader supply chain when it is combined with industrially mined cobalt at mineral refineries in the DRC and China.
“ASM production contributes significant volumes to the international cobalt supply chain. This material is produced in an unregulated, unsafe environment where human rights abuses are commonplace,” Trafigura’s Nicholson said. “Trafigura calls on all those active in the supply chain to work together to formalize the sector and to ensure that it contributes to sustainable development.”
Keep up to date with cobalt market dynamics and the road ahead as it becomes key in the move to a new generation of energy.
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