Sourcing the energy transition: artisanal mining

The energy transition needs artisanal mining.

Why?

Large-scale mining will not meet demand requirements that are needed to shift us toward net zero.

Many minerals are needed to transition to clean energy solutions that will replace today’s carbon-based technologies. These minerals, collectively called ‘critical minerals,’ are all too often in short supply. Projected shortages are a direct risk for the energy transition. Geopolitical rivalries, such as the US/UK/EU vs China/Russia, further complicate the realities of supply.

Countries have come to understand the strategic importance of critical minerals in the context of energy security.  Supply gaps can impede progress, a direct impact on net zero as well as on energy security.  As a response, many countries have created critical minerals sourcing strategies intended to mitigate risks.  Different approaches are incorporated into these strategies, ranging from in-country mining through to multi-regional value chain-based focus on delivering supply from often underdeveloped countries that happen to have significant mineral reserves.  China has been very long-term focused and disciplined in growing mining and refining capabilities, resulting in today’s dominant positions.  The US, UK, and EU are now playing catch up on their own supply needs after recognizing strategic gaps and risks in critical minerals supply positions.

Details of what minerals are considered critical vary somewhat across countries, but for the most part lists are consistent.  Copper, cobalt, rare earth elements, manganese, nickel and lithium are referred to as being critical across the board.  

Growth in supply capacity requires investment, but this has not been forthcoming at necessary levels.  Differing minerals have different details in terms of required investment and capacity growth, but themes are consistent across the sector.  Copper is a good example, with estimates being that the same tonnage needs to be mined in the next 50 years that the world has mined over the last 5,000 years.  Wood MacKenzie estimates that $23 billion of annual investment is needed to accommodate necessary copper mining capacity growth, 64% higher than average annual investment over the last 30 years.  Put simply, the gap is huge.

Artisanal mining is an opportunity

Artisanal miners already produce significant quantities of many critical minerals.  Despite being largely informal and devoid of equipment for increasing productivity, ASM produces 10%+ of global cobalt, 5% of global copper, material manganese, nickel and numerous other critical minerals.  The sector is a natural opportunity for productivity growth that bridges gaps in supply outlooks.  Investment is of course a key enabler for catalyzing growth.

Formalization of artisanal mining also enhances the productivity potential of large scale mining.  At a basic level, land concessions are shared between large projects and artisanal miners.  The very existence of ASM is an early indicator that large projects consider in their exploration strategies – minerals at the ground level suggest the possibility of significantly greater mineral reserves underground.  ASM formalization shifts business relationships toward being stable and predictable.  Given the combination of shared land and the ability to integrate exploration strategies based on where artisanal mining is found, formalization is a natural opportunity for amplifying large mine productivity even as the tonnage directly generated by ASM also increases.

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.’

Miners are trained, equipped and shifted to good practices as ‘organized and professionalized systems of production’ become a norm through formalization.  Productivity results.  Long term gains are sustained as miners organize into coops, associations or companies, governance structures that reduce vulnerability.  Productivity can increase 2X, 3X or even 5X depending on the details as professionalization shifts miners toward being aptly equipped and toward consistent good practices.  Large scale mining projects take 15+ years to go from pre-exploration through to operations, whereas ASM formalization takes 12-18 months, a compelling time factor differentiation for enhancing productivity.  With ASM already generating significant critical tonnage today in largely manual informal ways, it is clear that multiplying this productivity makes the sector highly strategic as a source for global supply growth.

Collaborating on ASM professionalization also enhances the productivity of large-scale mining operations, partly given opportunities to accelerate exploration, but also given the win/win outcomes that are setup over time as potential LSM-ASM conflict is shifted toward a joint focus on productivity.

ASM Formalization is geopolitically strategic

Artisanal mining is largely untapped as a source for productivity growth.  China has developed dominant mining and refining positions on most critical minerals, with the US/UK/EU now playing catchup as geopolitical rivalries driven by long term energy security intensify around minerals supply.  ASM formalization support and engagement is a strategic geopolitical opportunity in this context, a means of growing supply in areas that have been largely untapped to date.  Responsible mining focused on LSM-ASM relationships, where companies with land concessions and investors focused on critical minerals support formalization as a means of growing productivity, is a potential competitive advantage.  A win/win mentality focused on how local value is a natural starting point for building trust with artisanal miners and supporting longer-term win/win growth in the dignity and productivity of work is key to success.

Artisanal mining is clearly strategic as a source of growth and supply stability for countries that understand the importance of critical minerals for energy security.  Individual groups of miners are small scale by definition, but there are millions of miners who operate across dozens of countries, a compelling at scale opportunity for delivering formalization support underlaid by clear responsible mining practices.  From the perspective of investors, the same logic holds, with formalization delivering enhanced dignity and productivity of work, or said differently, social impact combined with value from productivity.  Diversification mitigates risk across a diversified portfolio of formalization projects, and patient capital enjoys long-term value as productivity is grown.  The logic for mining and impact investors is clear.

It is important to remember that formalization in support of dignity and productivity is not an imposed process.  Effective engagement starts with the voices of miners and communities that neighbor mining, driving toward collaboratively designed solutions that make local sense given concerns and realities that are inherently local.  Success takes meaningful expertise, where a mindset grounded in flexible frameworks supports locally apt approaches.

In summary

Artisanal mining is a strategic opportunity for building the productivity in critical minerals that is essential for delivering the energy transition.  Capital is needed at scale to support broad-based formalization initiatives.  The results of these initiatives are commercially sound for mining and impact investors, given the combination of social impact and productivity that equates to value.  Recognizing the supply gaps that are in play around critical minerals and the long timelines for developing large mining projects, now is the time for a strong focus on artisanal mining that will support the energy transition, local value for miners, local value and development for communities and end-to-end integrated opportunities for value chains that start with the work that happens on the ground.