Artisanal mining formalization: strategic supply for the energy transition

Artisanal mining (ASM) is a largely untapped strategic source of supply of critical minerals that are essential for the energy transition.

The batteries, solar arrays and wind power solutions that are needed to shift from carbon-based energy solutions are causing an exponential increase in demand for a variety of minerals that are in short supply to varying degrees.

Critical minerals demand outlooks projected by the IEA call for unprecedented growth in important minerals such as:

• Copper
• 2022 demand related to clean technologies– 5,736 KT
• 2050 demand related to clean tech – net zero scenario – 17,351 KT
• Clean technology related demand in 2050 is 3 times 2022 levels

• Cobalt
• 2022 demand related to clean technologies– 68 KT
• 2050 demand related to clean tech – net zero scenario – 291 KT
• Clean technology related demand in 2050 is 4 times 2022 levels

• Lithium
• 2022 demand related to clean technologies– 130 KT
• 2050 demand related to clean tech – net zero scenario – 1,313 KT
• Clean technology related demand in 2050 is 10 times 2022 levels

• Nickel
• 2022 demand related to clean technologies– 457 KT
• 2050 demand related to clean tech – net zero scenario – 3,768 KT
• Clean technology related demand in 2050 is 8 times 2022 levels

Putting this demand in context, BHP estimates that meeting desired climate goals requires 140 new large copper mines, 60 new nickel mines and 50 new lithium mines by 2030. McKinsey has estimated that meeting copper and nickel demand requires $250-350 billion in capital expenditures by 2030. 

The pipeline to support this level of growth simply does not exist for many critical minerals. 

Using copper as an example:

• It takes 15+ years to develop a project from pre-exploration through to operations – today’s pipeline represents growth that we will see in the late 2030s, and it falls significantly short of energy transition requirements
• Many countries with large copper reserves have experienced social challenges with mining. The recent First Quantum situation in Panama is one example, and the Las Bambas and Tia Maria projects in Peru are another example of community conflicts impacting the viability of copper projects
• A variety of other risks, ranging from geopolitical rivalries, cost challenges, exploration risks and environmental considerations have impeded mining investors from aggressively growing supply, despite the likelihood that price will be meaningfully higher in the long term

Details vary by material, but the theme of supply outlooks that fall meaningfully below projected demand remains consistent across most critical minerals.

Artisanal mining – bridging supply gaps

Working in largely manual informal ways, artisanal miners already generate significant critical minerals quantities. Global ASM production includes close to 20% of aggregate mined cobalt tonnage, 5% of copper and significant quantities of nickel, manganese and other minerals that are in short supply.

The professionalization of ASM multiplies production both directly through the work of artisanal miners and indirectly as ASM-LSM relationships evolve. 

1. Equipping, training and transitioning artisanal miners to good practices directly increases production across the sector. For any given location, shifting from largely manual production based on hands and shovels to equipment-driven approaches where consistent practices become the norm can result in 2X, 3X, or in some cases even 5X increases in tonnage. Remembering that ASM already generates meaningful volumes, this multiplication means that artisanal miners are well-positioned to bridge meaningful portions of supply gaps
2. Artisanal miners are often early indicators of exploration – mining is happening at the ground level, which provides large-scale projects with a leading indicator of where to explore. Artisanal miners are generally unpaid for being early exploration indicators today, leaving strong collaboration opportunities with large projects unfulfilled
3. Artisanal miners often share large project land concessions. Relationships are often tenuous at best, where ASM and LSM tend to ignore each other. This leaves mutual collaboration opportunities on the table that could increase joint productivity and worse, results in ongoing conflict risk that could impact large project production. The Tia Maria and Las Bambas projects in Peru are examples where this has happened, both projects were impacted by community conflict that got in the way of production, both including ASM dimensions in these conflicts given that artisanal miners tend to be extensions of neighboring communities. Collaboration flips narratives from potential conflict toward collaborative productivity

Where does formalization fit?

Estelle Levin, founder of Levin Sources and a recognized global expert on artisanal mining, defines formalization as ‘the transition toward organized and professionalized systems of production in and through which responsible business conduct and sustainable development are more feasible and desirable, and thus more likely.’ 

A ‘transition to organized and professionalized systems’ sets the ground for equipping and training miners while shifting patterns of work toward good practices. Productivity results. Along with this direct productivity, formalization is the basis for developing stable business relationships with stakeholders – recognizing that ASM is often found on the land concessions controlled by large-scale projects, stable ASM-LSM business relationships that naturally result from effective formalization are paradigm changing, as productive collaboration replaces conflict risk. Further productivity results.

It is important to remember that formalization focuses on interconnected impacts – the organization of miners changes realities around the dignity of work, with sustainable development enabled in neighboring communities as stable relationships and infrastructure improvements extend benefits, and with productivity shifts as automation combined with practice improvements take hold. Thinking in terms of multiple deliverable areas, one of which is productivity-focused, is how sustainable gains can be locked in through win/win solutions.

Formalization is commercially realistic. A large copper mine may require $10B+ in upfront capital investment over a 15+ year time horizon that extends from pre-exploration through to operationalization. By contrast, formalizing 1,000 artisanal miners in a specific area may cost $150-250K, resulting in multiplied production in 12-18 months. Of course, it takes many formalization projects to develop the volume of a single large mine, but growth in production makes ASM formalization a compelling area for combining positive impact with productivity that supports value for investors.

In summary

There is a meaningful gap in the mining industry’s capacity for delivering productivity growth that is essential for the energy transition. As we search for alternatives that bridge supply gaps, the large artisanal mining sector represents a compelling opportunity for combining dignity and productivity improvements in commercially realistic ways. 

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