Ethical Cobalt: Feel Good About Your Batteries

there's no substitute for experience. It reminds me of that Bruce Springsteen song. Bobby Jean Rees says, we learned more from a three minute record baby than we ever did in school when it comes to understanding what's actually going on, for getting a feel for something, it's so true. You've got to be there, you have to do the thing. So back in Hawthorne, six am at the El Capitan Casino.

Look it up. It's as glamorous as it sounds. I met up with a freelance geologist, really nice guy, known to take off into the desert on his own for weeks at a time and come back to his client with beautiful accurate hand drawn maps. From there, we drove in his truck north and east deep into the U. S Grade basin. After three or so hours on a dirt road, we came to a sort of dingo fence. Then we had to get out and open up, and

then we kept going more to crawl. Now, given the rocks we had to cross over, we kept bouncing along for another hour or so until we got to our destination, the middle of absolute nowhere. He said, in all likelihood we were the first people to visit this patch of land in at least fifty years. There was a rusted out nineteen twenties Ish trucks standing next to a fallen shack. But all this was right next to a bunch of

hot springs. He was there to map them in relation to fault lines in the surrounding area, to get an initial sense of the reservoir down below. Very cool. About two hours into our drive back to Hawthorne, he looks over at me and he says, hey, you want to see my claim? You mean, like old timey prospector claim. Um, yeah, I do. So he turned to the next crossing on the dirt road we were on, and we arrived at a big pit. Whatever you find you can keep, he said, Well,

turns out it was a turquoise claim. So there I was with a hammer and the Nevada son, banging on rocks and finding more than a handful of really great turquoise that I still have to this day. Turns out that when he found this claim, he immediately quit his job at a commercial copper mine in Utah and focused on this full time. From mining the turquoise to making jewelry.

He said he was doing okay at it for a while, but then in the end couldn't compete with the commercial minds and jewelers and had to let the business go. Today on switched on. We're going to talk about how natural resource discoveries can be a boon for those in a position to benefit from them, but for others they can up end lives with some pretty dire consequences. We'll focus specifically on cobalt and a trip. BENF Medals analyst Quasi Mpofo recently took to the Democratic Republic of the Congo.

He went to better understand the market and conditions in a country that supplies seventy of the world's cobalt, a key component in the batteries in our bones and increasingly electric cars. The episode is based on a report titled Solving the Blood Cobalt Challenge for EVS. Benof users can access this report on BNF dot com, the BENF mobile app, and the Bloomberg terminal. As a reminder, being If does not provide investment of strategy advice, and you can hear

the full disclaimer at the end of the show. I'm Mark Taylor here Withdanna Perkins and you're listening to switch on to being a podcast Quazy, Thank you for joining us here today. Thank you for having me. You recently returned from a trip from the Democratic Republic of the Congo, which we will refer to as the DRC probably for the rest of this podcast and really is going to

be the focus of our conversation today. While bienny F analysts over the course of their career do often come in contact with the research topics that they cover, you know, there usually is a reason to go and it explore a little deeper. What were you hoping to achieve on this trip and maybe you could tell us a little bit more about what these minds are actually like. Yeah, sure, so festival to put it in a little bit. In context, cobalt is one of the metals that goes into the

lathing my own batteries. It's a key component and the DRC currently produces as of the global cobalt, so it's a very key market for cobalts. And then as part of our coverage, we wanted to understand what is it that is happening on the ground. We wanted to visit some minds to be able to put production that's apply into perspective. And also importantly we wanted to have our own independent view of how it iss No on mind supply is on the ground, what was it like? Can

you describe? Well, first what is artisanal mining and what kind of things did you see there? So it iss not minding pretty much has to do with the tools we used to mind, So it's just using normal pickasts, like the kind of tools you use in the backyard garden to mine. And also secondly, it has to do with how much or how deep you can go. I think in the Congo you can't go below fifteen meters somewhere on that. So it's pretty much the tools and

the skill that's which you can mind. And it was quite fascinating and interesting because before I went had read a lot about you know, how unsafe it is for people. And I must say it was fun, but at the same time it was sometimes very confusing. I don't know what Charles Dickens says. It was the best of times at the same time it was the West of time.

So in some areas you go, people seem to be following the laid down rules, the wing that right, using the right tools, but then in other places not so many people were doing it right and using the right tools. And it was just having to be in both wells. And what's quite interesting, other minds, other kinds of other different commodities are done in a different way. They're not used using these pick axes. It is it's something that is specific to cobalt that requires this type of mining,

or is it something that's specific to the country. So I mean it's a it's just not mining. It's a global challenge. You're looking at globally about forty million or more people involved in it all around the world, And yeah, it's pretty huge, and it's specifically. We used to find this happening in the precious method or precious minerals area. And by that I mean gold. You're talking about the diamonds, things that have really high value and it's very easy

and less downting to process. But historically what we've seen with the cobal sector is that so the value of cobal is shut up two hundred thousand dollar pet on last year, up from about twenty thousand five years ago. So all of a sudden, you have just this piece of sun in your backyard which is worth hundred thousand that's probably your whole lifetime. And so people just started

digging their back yards and decide that. I went to the history of it is in this young man was digging his sea wage at his back yard and he hits what he would later learn his cobalt. So all of the sudden, his neighbors that digging their bedrooms, their bathrooms, their poaches and everywhere. Everyone was just digging. And to put it in perspective, this was in the middle of the city where the local market was. So the government had to step in and that is when they had

to do something. How did you figure out it was good question. So these are people that have lived in they've lived in cobalt all their lives, I mean expected to be blue. But I was told in a previous episode by Sophie Lou that a couple of mine is not blue. No, it's not blue. So it's black mixed with up. So it's just the nature of the rock. As a trained geologist, I'm able to tell. We're training it should be able to tell what it looks like

from other monros in the soil. There there are a large number of people who have actually become millionaires off of this or is it really people are digging this stuff up, but somewhere centrally there's a company that's really profiting off of this. So it's an interesting value chain. So basically you have the people who do the dig in, so they are at the lower end of the value chain.

So from what I'm told to get about, in good times when prices are high, they get about fifty to thirty dollars per day for their efforts and their work. And as you go higher, you get closer to the hundred thousand dollar bounty I talked about. So you find that they gets getting the least, and then that gets transported to the next level of um workers, who are mostly the washers, and that's where you find most women

getting involved and in the DFC. According to estimates, we recorded forty percent of people in that art is now mining sector women. So they they do the washing in other ways, trying to increase the concentrates of the cobalts in the matter reals that they have, and that moves out to the value chain to what we call the bias. So these are biased that come all over the world, particularly from China from India who buy these and they send it off to the smeltes who do the further processing.

And from these smeltes eight percent of the cobalt that is producing congo and get shipped to China and it's refined into chemicals that we use for batteries. So when I read your note, I thought China, okay, so that means the batteries that I used probably in in my phone. But then I thought, oh no, not my phone. I'm sure my phone is fine, but that's that's wrong, right, The stuff is in my phone is very wrong. It's

very hard to trace the value chain. Where does they get marquis So mostly what we noticed it was at the smelter on the refinery level, because they buy and it mix it in this hot cooking pots where it comes from every source. So you have those who are doing it right sending it to the same smelter as those who are mining with children sending it to the same smelter. So that melting pot is where we found the hardest child. Is there a pricing difference between ethical

and not ethical cobalt? For now? Not on the market. The London Metals Exchange le MY sets the price for cobalt, and that is what pretty much everyone around the world uses, So why wouldn't everyone buy ethical cobalt? So, like I mentioned earlier, the d r C produces seventy of the current cobalt market. The problem there is that it's a country where it's hard to trace the origin of the

cobalts you buy. You don't know. There had been conversations about relying on other markets like Australia, like Canada, like Cuba. But what we found in our research is that if all automakers were to rely on cobord that comes out of the d r C, by one, there will not be enough cobalt for our batteries and that might threatend the whole Evie revolution. So one way or the other you have to deal with the d r C if

we want to get sustainable supply of cobalt. But the challenger is that you just don't know where your cobalt

is coming from. So literally, in a year from now, if we decided, okay, we're just not going to buy anything from the Democratic Republic of the Congo, we wouldn't have lithium my own batteries, and lithium my own batteries are used in well, my phone, your phone, cars, stationary storage for utilities, so pretty widespread and we've got some pretty aggressive forecasts for there to be more of them.

Can you actually, So there's there's this term ethical cobalt which exists and it has a pretty strict definition of what is ethical. Can you explain that? So ethical cobalt is cobalts that first of all, is free from child labor, very important. Secondly, you don't have issues of corruptions around in it, and in the d C on Congo in particular their incidents where minerals sold where used to fund wars and other conflicts within the region, so there's no

incident of corruption and human rights is respected. Also in the d r C, d A incidents where people like in regions where they are not assured than guarantee of a good safety wakened environment. So basically, ethical cobortists about three tens eliminate children out of those, MINCE guarantee human rights safety, and thirdly, it should be free from corruption. So further down the line, there are companies that are very aware of this and trying to source ethical cobalt,

even if it's very challenging to do. What are some of the companies that are sort of leading the way and trying to improve this particular issue. So in this area, the Kunsumer electronic industry actually had a head stats, so you think and been like Apple. Apple is one of the companies that initiated very strong supply chain principles to

ensure that the acborts is eartically sourced. So I would say the EV sector is playing a catch up to that, and we've had BMW, for example, showing really strong leadership by engaging with companies in the DRC and with that Sisenal Mince and the DFC. Currently they've entered a three year partnership with the German government to pilot how best

they can ensure transparency in the chain. We've also have incidents where Voxwagon VW also working with blockchain technologies to ensure that the cobalt the source is traceable and they know where it's coming from. There's also the incident like companies like why You that are actively engaging with companies on the ground to ensure that they're able to verify

wherever the source their cobalt. So there are companies around doing quite great stuff in the process, but as I said earlier, it is a very very challenging issue, especially where it gets missed in the hot pot. In other ways, the smelter does the regulatory oversight for other minerals, would it work for cobalt as well the same frameworks that

are used for other minerals. It should. So in terms of framework particularly what is this that before the whole cobalt type was what we call the dot frank, which is a United States Act, and part of that was to ensure that confluce minerals produced in the origion of the d r C do not end up in the global supply chain to fund conflict in the DRC. And with these ones it will focus on gold it's in

and other metals, So yes, it that's weak. But then the limitation of the dot Frank is the fact that it already focused on finance and conflicts, and this is a different issue. And then dot frank what the framework did was you just have to do a due diligence on your upstream and just put it in the United States SEG document that you've done it due diligence and to the best of your knowledge, ABC requirements has been satisfied.

But when you're talking about these ethical stuff I mentioned, you need to take it a step further when it comes to trying to improve that. You can do diligence, but only the information has to be good enough to do diligence on. You mentioned in this note that maybe blockchain could be part of the solution. What are some of the ways to improve the transparency for those that do care a lot about improving this for the miners, So first of all, you have to go to the

DFC and work with the producers. It's very important because I say, you're developing a blockchain technology in the corner streets in London and hoping that people in the d r C or elsewhere mining cobal to do the writing. By feeding you with the right information can be a disaster at the end of the day. And like basic computer knowledge, we are no garbage in garbage out. You don't put in the right data, you wouldn't get the

right output. So one of the companies I got to engage with when I was in La Laba, which is where most of the cob artists produced, had actually got a third party to monitor four seven some of these mind sides and the monitor or the monitoring officer had a mobile phone connected to the internet. He is on the app. They've developed a special app for him and he's able to report everything or any inconsistency that he

witnesses according to a framework he's been given. So as soon as he imputed that data, there's a whole group and I think France or somewhere in Europe picks it up, action it. They send it back to the an Honor and tell them that hey, these are the issues we flagged. You have twenty eight days to do it right or

else we will take you off the supply chain. So there are some quite interesting innovative things being done in the DRC that I witnessed that I believe, if it should be skilled, it can really really help make ethical sourcing of cobalt reality. So back to your question of blockchain, Yes, it would play a role, and like every blockchain technology,

it would help democratize the way information is shed. But then the end game is that it has to be in conjunction with what is happening undergone for us to have a full value out of it. Okay, can we start? Can we try to do something like a like a beginner's guide If I'm a strategist, say at a utility who wants to install a bunch of batteries that you need cobalt, It's all a bunch of batteries. Look at my batteries, thank you. Where do I even get started

to find? Ethically? So, so currently there are companies that are conducting or they will conduct your monitoring and evaluation for you in the DRC on the ground. So an example of the company's be interacted it was OURCS Global. So they have this system where they send a monitoring officer on site who monitors a side for you twenty four seven. And then what they do is that they have a framework within which every mind that the monitor

is supposed to comply. So what the framework is? Do you have children and there are you working safely, So about twenty one or more questions that has to be answered every day by this monitoring officer. So whenever this monitoring officers witnesses what we call red flags, he has too quickly in real time put it in the system. So there are two layers of review. So I think there's the first local review that reviews the red flag, say, for example, someone showed up to work drunk, so that

is escalator too. Maybe there's a European team that also looks at it in the second review. And then I'd say after a week, the compiler report to the minor and go like these are the red flags before observed. On your side, these are the remedies. We recommend. You have twenty one days to work on it or else until your supplies. So you the utility company and they will tell you that, look, mine is not reliable, Please

don't buy it from mine anymore. Does this monitoring officer work for you, and it is essentially going down the list of things that you've defined are important or did they come with their own framework that you essentially are just collecting information on and have multiple clients that are all collecting that information. I think they're probably working with the standardized framework. And because they have been in the industry for quite a world. Our CS has been doing

this for fairly long time. They know the kind of red flags that wouldn't matter for most utility companies or electric vehicle companies. They have the high level framework. Like like said, we don't want human rights ap uses. Those are high level questions. We don't want children. There's are

high level questions. But I think what these third party companies that have been in the game for a while understand how to break down these questions into actionable items or frameworks that the Monday turn office I can understand. But then certainly I'm pretty sure there's a way where they can amend it or be flexible whether to ensure that the capture your specific needs. Are there a lot of these businesses, so I think it's an imagined area. I know in terms of blockchain, I know the tracker

by Anglo America that that's something similar. But then from the online perspective, I know this mind Spider base out of Germany that is working with Vido w and other companies. It's a pretty cool name mind Spider. They just spread out the web every mind he's saying the note that a lot of cobalt comes from as a byproduct of copper production. Right, that makes me wonder, like, why why does Chile I not have a bunch of cobalt. That's

about the moment. About fifty six percent of global production come from copper minds and the remaining come from nickel mind And I must add only one mind in the world commonly produced cobalts as a primary product, and that is in Morocco. So back to your question of why Chile doesn't have so, it's just it's probably a gift of Nata. We have this deposit called the copper belt. And if I'm about to go a little bit geology's hydrothermal deposits that comes with heaps of so it's just

the way historic geological processes came about. So the nature of the copper deposits in what we call the Copal copper belts, which stretches from Zambia through the d r C and into a little bit of Uganda, is that it comes with these high pressure commodities like cobalts in this instance. Yeah, but historically there has been a cobalt mine in Chile. Yeah, I think about a hundred fifty years ago, so quite recently they have gone back to

these mines. I think there's a company that is currently looking into reviving this particular cobalt mine, and it could be what we call the resource case that we probably have one commodity which is big, you tend to forget or not even think about the fact that you could have other stuff around the corner. So I think Chile is coming to the realization. You'd expect Indonesia as well, maybe with the nickel mining, So Indonesia is also another

future market. We expect about four to five thousand metric tones of production to come from Indonesia from by productive the nickel mince over the next five to six years, so it would not necessarily be a market leader, but then I think within the coal market, five thousand metric tones is pretty solid number. Bloomberginny F is a service

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