Critical Minerals in Conflict Zones: Managing the risk to face the demand
The energy and digital transitions are creating an unprecedented need for critical metals and minerals. Electric vehicles, wind turbines and batteries are just some of the goods for which they are essential to manufacture and use.
While mining projects are being developed in France and Europe, geological resources mean that supplies have to be sourced abroad, including in areas where governance is sometimes unstable. For manufacturers and investors alike, getting involved in the extraction of critical metals and minerals means taking into account the risks associated with operations in armed conflict zones.
Unprecedented demand for minerals and critical metals
Electric cars, wind turbines, solar panels: low-carbon technologies require unprecedented quantities of critical metals and minerals. According to forecasts by the International Energy Agency (IEA), the energy transition will require the production of 4 to 6 times more critical minerals than is the case today. Demand for lithium could increase by a factor of 40 by 2040, while demand for graphite, cobalt and nickel could increase by a factor of 20 to 25. A need summed up by Philippe Varin, author of a report to the French government in 2022 on securing the supply of mineral raw materials, who estimates that "in the next 30 years, we will extract as much material as we have since the beginning of mankind".
Critical minerals impose their constraints
This unprecedented need arises at a time when geopolitical tensions are giving rise to a desire for independence on the part of the European Union. An independence that is difficult to achieve, given that it lags behind other economic powers and that its resources are located in sometimes sensitive areas with which it will have to contend.
A quest for European independence
Growing tensions with China and the consequences of the war in Ukraine have prompted the United States to rethink its dependence. Following in its footsteps, and notably on the model of the Inflation Reduction Act (IRA), Europe has drawn up a roadmap in a draft European Regulation on critical raw materials. The ambitious objective is to ensure access to a secure and sustainable supply chain, based on a number of measures, including :
The development of extraction in Europe;
Support for the recycling of raw materials;
Diversification of foreign sources of supply, with a maximum of 65% of each metal's requirements coming from a single third country.
France has also recognised the importance of overcoming its dependence on metals and minerals. 500 million of the Plan France 2030 have been granted to a Fund dedicated to Critical Materials (Fonds dédié aux Métaux Critiques) led by Infravia, with a target of €2 billion. Aware of the limits of its soil capacity, France has also drawn up a policy for sourcing critical ores from abroad, which echoes the proposed European regulation and is organised around two axes:
Develop a "mineral resource diplomacy", as promoted by Philippe Varin and illustrated by the agreement signed between France's Bureau de Recherches Géologiques et Minières (BRGM) and Congo's National Geological Survey in March 2023.
Diversifying supplies to avoid dependency.
Critical minerals and high-risk areas
Aspirations for independence come up against geological constraints and Europe's limited resources. Reserves of critical metals and minerals are unevenly distributed, and a significant proportion are located in sensitive areas with unstable governance.
The DRC, Mozambique, Guinea, Ethiopia and Mali are all home to significant reserves of lithium, graphite and bauxite. From the tensions affecting the Great Lakes region, to the ground gained by armed jihadist groups, to the arrival in power of military regimes, they are also affected by tensions that the presence of resources is likely to exacerbate.
Finally, resource-holding states are making no secret of their desire to move from a pure extraction economy to a processing economy. They are doing this in a number of ways, including banning the export of unprocessed raw materials, controlling available supply and reforming mining codes. A larger proportion of the processes will therefore take place on the territory of these states, multiplying the risk for international companies in the extractive sector.
A risk commensurate with the need
Operating in conflict zones presents legal, financial and reputational risks that companies must take into consideration. They may be complicit in the human rights abuses that often accompany armed conflict, particularly through the security companies that protect them. Companies may also contribute to the financing of armed groups, thereby fuelling the conflict and exposing them to prosecution. Such periods of instability are also marked by the resurgence of organised crime and systems of corruption, which can become endemic and difficult to stay out of. Employers will also have to deploy human and financial resources to protect their employees. Consideration must therefore be given upstream to assessing the additional resources required by a presence in an unstable zone, and whether the prospects justify them.
Optimising the predictability of conflict risk
Armed conflict is a challenge for business for two main reasons. Firstly, its occurrence is beyond the company's control. Secondly, the company has limited influence over its occurrence and the conditions surrounding it. This is particularly true of mining projects, which take a long time to complete: on average, 17 years elapse between the start of a project and the first tonne produced.
In the absence of control over the risk, companies can base their strategy on a number of considerations:
Leverage the little influence they can exert in the regions where they are present to prevent the development of tensions, by engaging civil society and promoting access to education and employment for women;
Plan for possible disengagement in the event that it becomes impossible to maintain operations on the ground;
Prioritise the safety of people, from employees to the communities affected by the conflict, while remaining vigilant not to become an accomplice to violations such as forced population displacement;
Rely on instruments that provide a framework for implementing enhanced due diligence, such as the United Nations Development Programme's Guide to Heightened Due Diligence.
Conclusion
Meeting the need for critical metals and minerals arising from the energy and digital transitions will require careful risk assessment by companies and investors keen to seize this opportunity. Rigorous country monitoring, enhanced due diligence and engagement with the local community are all measures that will help to manage these highly volatile risks.