Cobalt Blue in driver’s seat as governments crack down on unethical supply chains

Cobalt Blue in driver’s seat as governments crack down on unethical supply chains

This article is a sponsored feature from partner Cobalt Blue Holdings Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.

With serious failings in battery supply chains coming into focus, major western governments are beginning to tighten regulatory screws to fend off a looming ESG disaster.

According to the website ScienceDirect, 69% of the world’s cobalt produced in 2020 was sourced from the Democratic Republic of Congo (DRC). While this battery metal is a vital component powering the rise of the EV revolution, dangerous and highly-unethical working conditions in the country are forcing manufacturers to re-examine supply chains.

And with these headwinds blowing, Broken Hill based miner Cobalt Blue (ASX:COB) finds itself in line to become a key supplier of responsibly-sourced cobalt for major manufacturing nations.

Harvard academic fires shot across the bow

In his book ‘Cobalt Red: How the Blood of the Congo Powers Our Lives’, Siddharth Kara gathers testimonials from DRC cobalt miners who describe the brutal mining practices present in the country.

The Harvard lecturer documents exploitation faced by miners including child labour, toxic and dangerous work conditions, extremely low wages, and foreign-controled cobalt mines using heavily-armed guards to threaten miners.

Kara also investigates how countries in the Western hemisphere are falling short in addressing these issues, with examples including using wire fencing to keep child labourers off mine sites, as well as mixing untraceable cobalt into bags tagged as ‘responsibly sourced’.

In the book, Kara further calls for companies that benefit from unethically sourced cobalt mining practices to be held accountable for their actions, and to realise cost cutting measures have real-world consequences that continues the cycle of exploitation.

Biden legislation forces manufacturers’ hand

In December 2022, United States President Joe Biden signed the Inflation Reduction Act (IRA) into law. The act includes financial measures such as tax cuts to support the transition to clean energy, and to decrease energy costs for consumers.

Importantly, the IRA also introduced a tax credit of up to US$7,500 for buyers of new Electric Vehicles manufactured in the US, with battery packs using no less than 40% of critical minerals sourced and extracted locally or via Free Trade Agreement partner countries.

The Cobalt Institute notes that a major domestic bottleneck of this act is the limited number of critical mineral reserves in the US, which accounts for only 69,000 tonnes compared to an estimated 1.9 million tonnes in Australia.

Cobalt Blue Investor Relations / Commercial Manager Joel Crane explains: “The passing of the Inflation Reduction Act in the US is looking to be a game changer for our segment of the battery supply chain. There is a lot in the US$370bn legislation, including the key objectives of onshoring EV related manufacturing and eliminating “foreign entities of concern” (FECs) from the US supply chain

“The passing of the Inflation Reduction Act in the US is looking to be a game changer for our segment of the battery supply chain”

However, the important part for COB is a new requirement that 40% of the value of the critical minerals used in the manufacture of batteries, must be sourced domestically or from a country that has a free-trade agreement (FTA) with the US, increasing to 80% by 2027.”

Cobalt Blue well-positioned with Broken Hill Demonstration Plant

In December 2022 Cobalt Blue reported that its Broken Hill Demonstration Plant was on track to deliver initial processing plant design criteria for an upcoming Definitive Feasibility Study by the end of Q1 2023.

The plant is progressing as planned, with approximately 5,000 tonnes of ore from the Pyrite Hill deposit extracted and crushed, and the concentrator circuit achieving an impressive combined recovery rate of 95%.

The company also plans to spend the first quarter of 2023 continuously operating its mixed hydroxide precipitate (MHP) and leach circuits to obtain large samples of cobalt and sulphur products for market acceptance, and to obtain reliability data for the DFS.

Benefits of strong ESG focus come to fruition

Cobalt Blue says it is already operating under a responsible, and sustainable ESG framework by sourcing its cobalt locally at its Broken Hill Project. In addition, the company has begun working with other mining companies and community leaders on projects including housing, childcare, and liveability solutions.

This strong commitment to ESG principles places Cobalt Blue in a favourable position in the international cobalt market, with offtake partners already showing interest in the company’s battery-grade products.

Crane adds: “We are already speaking with most of the major US EV manufacturers, so we are certainly on the radar. The initial advantage for Australia and the other FTAs will be automakers rushing to secure the supply that qualifies – and there is not enough, meaning some will lose out.

“We are already speaking with most of the major US EV manufacturers, so we are certainly on the radar”

This may likely prove to be the beginning of a premium market. Prior to this legislation, there was already push back, for instance, Tesla received an open letter from environmental groups outlining their concerns with nickel production in Indonesia.”

Operating under the Cobalt Industry Responsible Assessment Framework (CIRAF) Cobalt Blue upholds a human rights policy that respects the Universal Declaration of Human Rights for its operations in Australia and follows a due diligence assessment to evaluate associated third parties.

The company also upholds a standard for responsible mining by ensuring issues surrounding legal compliance, community engagement, environmental impacts and human rights due diligence are cleared for all projects.

Cobalt Blue also notes it is striving to achieve carbon neutrality at the Broken Hill Cobalt Project by 2040. Currently 90% of all carbon emissions from the project are attributed to power generation activities.

To combat this, the company is weighing options such as turning to solar, wind, compressed air generators, and an onsite battery to generate power. In addition, the company is assessing plans to electrify the mine fleet to further offset carbon footprint.

Government intervention a positive step for local suppliers

The growing trend of government intervention and support systems is seen as a positive development by the industry, as it provides local players with the necessary resources and incentives to secure mining and processing capacity, driving growth in the sector.

The continued growth of the ethical battery supply chain is seen as essential to meeting the increasing demand for batteries and other energy storage solutions, and the government support is viewed as a key factor in ensuring that this growth is sustained.

Crane summarises: “we find it very encouraging to see this rapidly evolving trend of government support systems that build upon the already strong momentum among our industry peers to develop the battery supply chain across the globe.

These quick first moves following the signing of the IRA will only further incentivise industry players to secure mining and processing capacity, a very positive development for COB and others that possess relevant intellectual property.”