As the production of Li-Ion batteries increases, fueled by demand for electric vehicles and renewable energy storage, the price of some of their components, cobalt and nickel, is surging. Today most of those minerals are coming from regions in conflict, especially in Africa. But soon American manufacturers could get these needed minerals from their Canadian neighbors, dramatically simplifying the supply chain.
Canadian smelter RNC (formerly Royal Nickel) is in negotiations to build a $1 billion nickel and cobalt project next year in Quebec.
The new facility could supply the minerals for North American manufacturers of electric vehicles. Worldwide, UBS estimates 50 million electric vehicles will be on the road by 2025. The battery sector will need more than 75,000 tons of cobalt a year by 2025, up from around 41,000 tons in 2016.
As one indication of the growing demand, in the past six months, nickel prices have climbed 38 percent and cobalt 27%, according to Reuters.
The new Canadian facility will be located at the “Dumont” site –approximately 60 km northeast of the industrial and mining city of Rouyn-Noranda in northern Quebec, where around 3.15 million tons of nickel sulfide and 126,000 tons of cobalt have been found. Those reserves represent the largest undeveloped reserve of both metals in the world, according to RNC Minerals (based on data sourced from S&P Global Market Intelligence).
Conflict minerals problem
Having a reliable supply of cobalt is complex since the biggest producer, and the country with the largest deposits, is the infamous Democratic Republic of Congo (DRC), with reported 3.5 million tons in reserves of the mineral.
The conflict in Congo has been on the radar of the United States and many other countries for many years. Back in 2006, then-Senator Barack Obama co-sponsored the Democratic Republic of Congo Relief, Security, and Democracy Promotion Act. The legislation committed the United States to work toward peace, prosperity, and good governance in the Congo.
Because many manufacturers need to obtain certain minerals for their products that can be sourced in conflict zones, such as the Congo, detailed information about their supply chain, which normally wouldn’t be disclosed publicly, is present in many reporting documents to the SEC and other government agencies.
In 2011, the Organization for Economic Co-operation and Development (OECD) published guidance on due diligence for responsible supply chains of minerals from conflict zones.
And last year, the European Parliament approved, by a landslide vote, the EU Conflict Minerals Regulation, which will take effect Jan. 1, 2021. While companies will have until then to comply with the new rules, any stocks of products or materials containing minerals affected by the regulation will be banned for sale in the European Union after that date. This regulation, when enabled, will affect any metals or stocks created after Feb. 1, 2013, and covers both companies and individuals.
While the US rule concerning Congo only affects minerals originating in that country or an adjoining one, the new EU regulation casts a wider net, targeting any minerals sourced in areas of conflict, and any other regions the European Commission determines that human rights are being violated by minerals smelters and traders.
That is why the new Canadian facility will be a blessing for car manufacturers such as Nissan, General Motors, and Tesla, which is directly involved in designing new battery technologies.
The other country with large deposits of cobalt and proximity to the US market is Cuba. But the US embargo has made its reserves inaccessible. Things could change if the US opens up to Cuban products in the future.
Fortunately, lithium, the other mineral badly needed for manufacturing batteries, is widely available, especially in South America, where Chile –a stable OECD member country– is currently the largest exporter to the US.