New World Economy - Tech Giants Go Into Mining
BY: Fernando “Ronnie” S. Penarroyo
Late last year, the International Rights Advocates filed a lawsuit in a Washington DC court on behalf of fourteen (14) Congolese families against several companies, alleging that their children were killed or injured while mining for cobalt in the Democratic Republic of the Congo (DRC).
The lawsuit further alleges that the young children are being forced to work full-time jobs under extremely dangerous conditions at the expense of their educations and futures with the defendants knowingly benefiting from and providing substantial support to this artisanal mining system.
Cobalt extraction is beset with concerns of illegal mining, human rights abuses and corruption and this could be regarded as an ordinary suit lodged by human rights advocates and interests groups against erring mining companies operating in Africa. This is in fact a landmark suit in the annals of the mining industry.
More than 60% of the world’s supply of cobalt is mined in the ‘copper belt’ of the south-eastern provinces of DRC. Cobalt is a mineral used to produce lithium-ion batteries for electric cars, laptops and smartphones. What makes this case interesting is that among the defendants in the case are some of the world’s largest tech companies - Apple, Alphabet (which is the parent company of Google), Microsoft, Dell and Tesla. The tech companies are accused of aiding and abetting the deaths and serious injuries of children working in cobalt mines, a vital cog in the corporations’ supply chain in the manufacture of their products.
Digital Technology Drives Demand for New Economy Minerals
Digital technology is becoming a defining factor in the future of mining operations. Robotics and automation through drones, autonomous vehicles and remote-controlled operational systems will be rolled out more widely to enhance exploration efforts production. Cloud computing, information sharing and big data enable work to be performed remotely and more flexibly taking employees away from hazardous on-site events and improving health and safety conditions.
On the demand side, technology is also impacting the market for mining’s outputs. The rise of electric vehicles and the production of an ever-growing variety of high tech and green technologies, have also boosted demand and competition for new economy minerals. ‘New economy minerals’ is an umbrella term for a range of metals and mineral elements used in many emerging technologies including electric vehicles, renewable energy products, low-emission power sources, consumer devices, and products for the medical, defense and scientific research sectors. Technology have also expedited the dramatic rise of the ‘sharing economy’, where consumers use their smartphones to share goods and services such as accommodation, transportation, and finance, as well as streaming of entertainment and data.
According to a recent report by McKinsey, some 1.8 billion people are expected to “join the global consuming class by 2025”, a huge 75% increase from 2010. The mining industry will be hugely affected by this growth, with predicted shortages of a range of metals and minerals including copper, nickel, cobalt and lithium.
Tech Companies - Emerging Big Miners?
Flushed with capital and brand-savvy, technology companies who are major users of mining products, want to take full control of their supply chains and are out-competing incumbent conventional miners, who are struggling for the capital, skills and capacity to innovate. These new players have access to cutting edge technologies and a track record of success in highly regulated environments such as healthcare, finance or defense. They know they can do a better job and are free of legacy issues attached to the mining industry. These new entrants can take advantage of low valuations and asset fire sales from the conventional miners.
Technology companies have become direct or indirect investors as a way of shoring up and securing supply and are moving to control whole value chains from raw material sourcing up to product delivery of new economy minerals. Using blockchain technology, new technology entrants can engage in mining without owning any mines or distribution infrastructures in the same way that Uber does with no cars and Airbnb, with no real estate listings.
The transformation to digital technology and low-carbon clean energy was further expedited by the onslaught of the Covid-19 pandemic, which disrupted lives and operations but heightened the use of the app economy. Amazon, Apple, Facebook, Google and Microsoft are now aggressively placing new bets as the coronavirus pandemic has made them near-essential services, with people turning to them to shop online, entertain themselves and stay in touch with loved ones and business colleagues.
New investments by tech giants are transforming the landscape of the resources industry. Among those leading the charge are tech billionaires Bill Gates, Jeff Bezos and Richard Branson, who have all built their careers on innovation, thinking outside the box and pushing through disruptive change. They are backers of technology fund, Breakthrough Energy Ventures (BEV), which joined forces with hedge fund a16z to invest in mineral exploration company KoBold Metals and its search for ‘ethical’ cobalt. Google, on the other hand also entered into a partnership with a global consulting firm to boost productivity in mining in Kazakhstan.
Back in 2015, automotive and energy storage company, Tesla signed early stage agreements with junior mining companies, with no prior existing production, to supply their new ‘gigafactory’ in Nevada with lithium. The deal signaled to the world’s incumbent lithium miners that new customers like Tesla are not frightened to explore high-risk, high return alternatives when they find that current market conditions do not suit their needs. Tesla CEO Elon Musk is reportedly considering taking the company into the mining business to gain more control over its supply chain and the scalability of raw materials for its electric car and battery work.
Meanwhile lawmakers and regulators in Washington and Europe are sounding the alarm over the tech giants’ concentration of power and how that may have hurt competitors. Without any pushback from regulators, big tech companies would almost unquestionably come out of the pandemic more powerful.
Clean Energy Transition - Goodbye Fossil Fuels? Hello Minerals!
The pandemic has caused disruptions to the renewable energy industry in its supply chains, and slowdowns in permitting and construction have delayed projects. Still, analysts agree the renewable energy sector’s fundamentals are strong. Technologies have matured and prices dropped, to the point where renewables in most cases provide cheaper energy than fossil fuels. Policymakers are now starting to shift their focus from pandemic challenges to economic recovery and energy infrastructure plans.
The fossil fuel industry is among the hardest hit by the coronavirus crisis, with leading oil, gas and petrochemical companies losing an average of 45% of their total market value. The challenge from the coronavirus for oil & gas companies has been heightened by the oil price collapse and continuing price uncertainty because of weaker demand from the transportation and power industry. With the crisis also hastening a global shift to cleaner energy, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive. These two simple assumptions mean that tapping some petroleum fields no longer makes economic sense.
British Petroleum announced that it would no longer do any exploration in new countries. The pandemic will likely discourage exploration and about 10% of the world’s recoverable oil resources—some 125 billion barrels— is expected to become obsolete and stranded assets. Some larger companies would evaluate its portfolio of discoveries and leave some undeveloped. Complicated projects could be shelved in favor of fields that are quicker to develop.
Less than a decade ago, Exxon Mobil was the most valuable company in the world. On the last working day of August this year, it was taken out of the Dow Jones industrial average after nearly a century of inclusion in the index. Exxon and other oil giants mostly missed out on the fracking boom, and on the move away from fossil fuels. Apple which became a US Dollar Two Trillion company in market capitalization is now the world’s most valuable company. Today the personal wealth of Jeff Bezos of Amazon is worth more than Exxon. Exxon and the oil industry is giving way to a dominant tech industry with Exxon’s spot in the stock exchange being taken over by a tech company: Salesforce.com.
One will ask, what is the role of mining in the clean energy transition. A new World Bank Group report, “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition”, analyzes how the clean energy transition will impact future mineral demand. The report finds that the production of minerals, such as graphite, lithium and cobalt, can increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, required for achieving a below 2°C future.
The report also finds that even though clean energy technologies will require more minerals, the carbon footprint of their production—from extraction to end use—will account for only 6% of the greenhouse gas emissions generated by fossil fuel technologies. The report underscores the important role that recycling and reuse of minerals will play in meeting increasing mineral demand. It notes that even if the recycling rates for minerals like copper and aluminum is scaled up by 100%, recycling and reuse would still not be enough to meet the demand for renewable energy technologies and energy storage.
Amidst the pressure to continue or even increase the use of clean energy and electric cars, a report by the Manhattan Institute entitled “Mines, Minerals, and ‘Green’ Energy: A Reality Check” postulated issues that were left out in the discussions of the environmental and supply-chain implications in renewable energy technology.
According to the report, no energy system is actually ‘renewable’, since all machines require the continual mining and processing of millions of tons of primary materials and the disposal of hardware that inevitably wears out. Compared with hydrocarbons, green machines entail, on average, a ten-fold increase in the quantities of materials extracted and processed to produce the same amount of energy.
This means that any significant expansion of today’s modest level of green energy will create an unprecedented increase in global mining for needed minerals and radically exacerbate existing environmental and labor challenges in emerging markets. Among the material realities of green energy cited by the report are:
Building wind turbines and solar panels to generate electricity, as well as batteries to fuel electric vehicles, requires, on average, more than ten times the quantity of materials, compared with building machines using hydrocarbons to deliver the same amount of energy to society.
A single electric car contains more cobalt than a thousand smartphone batteries; the blades on a single wind turbine have more plastic than five million smartphones; and a solar array that can power one data center uses more glass than fifty million phones.
Replacing hydrocarbons with green machines under current plans will vastly increase the mining of various critical minerals around the world. For example, a single electric car battery weighing a thousand pounds requires extracting and processing some five hundred thousand pounds of materials. Averaged over a battery’s life, each mile of driving an electric car “consumes” five pounds of earth. Using an internal combustion engine consumes about 0.2 pounds of liquids per mile.
Oil, natural gas, and coal are needed to produce the concrete, steel, plastics, and purified minerals used to build green machines. The energy equivalent of a hundred barrels of oil is used in the processes to fabricate a single battery that can store the equivalent of one barrel of oil.
By 2050, with current plans, the quantity of worn-out solar panels—much of it non-recyclable—will constitute double the tonnage of all today’s global plastic waste, along with over 3 million tons per year of non-recyclable plastics from worn-out wind turbine blades. By 2030, more than ten million tons per year of batteries will become garbage.
Green machines mean mining more materials per unit of energy. Since clean tech is about supplying energy in a more ‘sustainable’ fashion, one needs to consider not just the physical mining realities but also the hidden energy costs of the underlying materials themselves. Finally, in any full accounting of environmental realities, there is the disposal challenge inherent in the very large quantities of batteries, wind turbines, and solar cells after they wear out.
Ethical Sourcing of Minerals for Tech Companies - Smarter and Greener?
Ethical supply chains and ‘green’ practices will be on the agenda for tech giants with mining ventures, a brand promise that the minerals that go into their products are produced in the most responsible way and meeting the changing expectations of their consumers.
A poll completed by Forbes in 2018 showed that 88% of consumers would like brands to be more environmentally friendly and ethical. As such, it is unsurprising that companies are increasingly starting to investigate not only their sustainability but also that of their supply chain. One condition that can slow a company’s growth is poor sustainability performance, as measured in environmental and social impact, as well as permission from consumers, investors, and regulators to do business.
While tech companies may declare their deep commitment to the responsible sourcing of ‘ethical’ minerals that go into its products, how can a company ensure the sustainability of its supplier? With supplies of metals like nickel becoming depleted, companies may have to broaden their supplier pools if they wish to expand but doing so will increase the risk of having to rely on suppliers that do not meet sustainability standards.
Elon Musk promises a ‘giant contract’ with the miner that can supply nickel for Tesla batteries at low cost with minimal environmental impact. However, the nickel projects expected to supply a large part of the demand being built in Southeast Asia will rely on coal, fuel oil or diesel to run their operations leaving a very large carbon footprint. In Indonesia which holds about a quarter of all nickel reserves, companies operating there are investing in projects that will use acid to process low-grade nickel ore and produce high-quality battery chemicals. The diluted byproducts will be piped out to the sea using a process known as deep-sea tailings disposal.
Apple, recently has been accused of abetting child labour and environmental damage. In recent years the company has sought to clean up its act by collaborating with suppliers to increase their usage of renewable energy and altering designs to reduce its usage of key aspects like aluminium.
A significant proportion of cobalt and tantalum, both used in handheld gadgets, is produced by artisanal miners in countries where regulations can be lax or non-existent. In addition, data of origin from the mine site passes through seven stages from mine to manufacturer and can be changed along this process, thus data credibility is endangered by unscrupulous traders and middlemen.
Monitoring by tech companies of their raw materials suppliers would be increasingly complicated. While companies have no real power to make their suppliers pursue sustainable practices, some tech companies are joining forces with the purpose of helping suppliers guarantee the ethical sourcing of such minerals. These companies share secured information using enterprise-grade blockchain middleware in solving the mineral sourcing problem faced by technology companies. Others are creating platforms that provide technology companies transparency on the origin of the minerals they use to avoid funding conflict or child labour, while also giving them the control to make contracts with the miners directly.
From Trade War to Tech War
The world’s largest economies obviously the most voracious users of new economy minerals are also involved in securing the commodities owing to its economic and strategic value. Rare earth metals, a suite of 17 elements, are crucial to important technological applications ranging from electric cars and smartphones to satellites, lasers, fighter jet engines and missiles. China owns 36.7 per cent of global reserves and is the world’s largest producer and exporter. Its output last year accounted for 62.8 per cent of the world’s total, according to the US Geological Survey. Because rare-earth elements have essential uses in a range of civil and military technologies such as weapons guidance systems, China’s control of supply is a powerful commercial and diplomatic bargaining chip.
China supplies the US about 80 per cent of its rare earths requirements from 2015-2018. However, exports of rare earth elements decreased down to 1,620 tonnes in July 2020, a drop of 69.1 per cent from a year earlier and down 44 per cent from June, according to Chinese customs data. Earlier threats to cut-off supplies of the elements, especially the two most important heavy rare earths, neodymium and praseodymium, have caused short-term disturbances in the market.
Part of the decline can be attributed to the risks of relying on China for rare earth supplies and the US restarting operations last year at mines in California. As the US is launching sanctions against Chinese technology companies and threatening to punish Chinese financial institutions, there are voices in China saying the country can take countermeasures by restricting rare earth exports to the US. The rising calls on rare earth trade came as the escalating rivalry between the world’s two largest economies has fueled concerns over a trade war turning into a technology war. Whether China intends to proceed with a trade embargo on rare earths is unclear but the threat itself has sparked a reaction which involves the U.S. government and several allies in pushing ahead with plans to develop non-Chinese supplies of rare earths.
The rollout of fifth generation, or 5G, network technology would be a battlefield in the US-China tech war. The upgrade from 4G to 5G is expected to exponentially increase internet-connectivity in industries that require big data, improve off-load computing to the cloud, and enable huge advances in automation and artificial intelligence. The 5G infrastructure will intertwine factories, power plants, airports, hospitals and government agencies.
Huawei Technologies, a Chinese company which is the world’s biggest telecommunications company and also the largest manufacturer of smartphones, has all but cornered the market for the roll out of 5G networks. The US has security concerns over the company and has accused it of rampant theft of intellectual property and selling U.S. tech to hostile states like Iran and North Korea. The advent of 5G using Huawei’s technology and network infrastructure brings with it enormous geo-strategic implications to the defense and security of the US and its allies.
The US is doing everything it can to slowdown Huawei’s technological advance not only in the US’ domestic market, but also putting intense pressure on allies around the world to ban Huawei from their 5G networks on national-security grounds. So far, the UK government has heeded the call to ban Huawei from participating in its 5G mobile network. Australia, New Zealand, Japan, and India have imposed similar bans while numerous countries alleged that the company’s products may purposely contain security holes and malware that China’s government could use for spying purposes. Huawei also faced numerous supply chain, chip and software partner challenges amid new U.S. regulations against the company. Google, Intel, Qualcomm, Xilinx, and Broadcom are cutting supplies to Huawei, according to multiple reports. However, industry executives and experts warned that U.S. restrictions on Huawei are likely to choke the Chinese company’s access to even off-the-shelf computer microchips ultimately disrupting global tech supply.
TikTok, a popular video-streaming app and social media platform developed by China’s ByteDance, is similarly accused of data privacy violation by the Trump administration. Trump issued an executive order forcing ByteDance to sell or spin off its U.S. TikTok business. Under the order, ByteDance is expected to destroy all its copies of TikTok data attached to U.S. users.
There are two stark realities arising from the digital and clean energy transformations - the mining industry is here to stay and tech money is flowing into the industry. There will also be disruptions in the way that mining is done as the industry migrate to a digital core. Not only will digital technology be an integral part in the mining value chain but companies will also need to address the sustainability and ethical challenges demanded from them not only by direct stakeholders but from consumers as well. The tech sector, bereft of legacy issues, offers to innovate and improve operational efficiency, reduce costs, enhance productivity, and improve safety and environmental performance. Let’s see if they can live up to their promises. As the cliche goes, “Go ahead, put your money where your mouth is”.
Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo’s professional blogsite at www.penarroyo.com
Bridgwater, Holly, Vanadium Industry In The News, Bill Gates and Richard Branson Have Their Sights on the Mining Sector — and Investment Opportunities for Startups Abound, https://www.vanadiumcorp.com/news/industry/bill-gates-and-richard-branson-have-their-sights-on-the-mining-sector-and-investment-opportunities-for-startups-abound/
Casey, JP and Lempriere, Molly, Debate: Can Tech Giants Like Tesla and Apple Change Mining for the Better? Mining Technology, 19 November 2019, https://www.mining-technology.com/features/tesla-apple-mining-technology/
Hund, Kirsten; La Porta, Daniele; Fabregas, Thao P.; Laing, Tim; Drexhage, John, Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition, World Bank Climate-Smart Mining Facility, 2020, http://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.pdf
Hurst, Laura, Oil Companies Wonder If It’s Worth Looking for Oil Anymore, Bloomberg, August 16, 2020, https://www.bloomberg.com/news/articles/2020-08-16/oil-companies-wonder-if-it-s-worth-looking-for-oil-anymore?campaign_id=7&emc=edit_MBAE_p_20200816&instance_id=21327&nl=morning-briefing®i_id=61527711§ion=whatElse&segment_id=36249&te=1&user_id=9d764125756d748742119e474622a869
Is Mining Really Ready for the Future? https://www.pwc.com/gx/en/energy-utilities-mining/assets/pwc-mining-transformation-final.pdf
Mills, Mark P., Mines, Minerals, and "Green" Energy: A Reality Check, Manhattan Institute, July 9, 2020, https://www.manhattan-institute.org/mines-minerals-and-green-energy-reality-check
Ochab, Ewelina, Are These Tech Companies Complicit In Human Rights Abuses Of Child Cobalt Miners In Congo? Forbes, Jan 13, 2020, https://www.forbes.com/sites/ewelinaochab/2020/01/13/are-these-tech-companies-complicit-in-human-rights-abuses-of-child-cobalt-miners-in-congo/#6bc8cd483b17
Tang, Frank, China’s Rare Earth Export Plunge Caused by Coronavirus, Not Beijing Agenda, Industry Group Says, South China Morning Post, 18 August 2020, https://www.scmp.com/economy/china-economy/article/3097847/chinas-rare-earth-export-plunge-caused-coronavirus-not
Tech Companies Join Forces to Promote Ethical Sourcing of Minerals, MINING.COM, October 11, 2019, https://www.mining.com/tech-companies-join-forces-to-promote-ethical-sourcing-of-minerals/
The Future of Work: The Changing Skills Landscape for Miners, Ernst and Young, Mining Minerals Council of Australia, https://minerals.org.au/sites/default/files/190214%20The%20Future%20of%20Work%20the%20Changing%20Skills%20Landscape%20for%20Miners.pdf