EP10: Is there a future in US domestic mining for cobalt and lithium versus global mining for them?

Summary:

 In this episode we explore the economic viability of domestic cobalt and lithium mining in the United States compared to global mining operations, particularly in Australia and the Democratic Republic of Congo (DRC). We explore how domestic mining is unlikely to be competitive due to higher costs, regulatory hurdles, and potential environmental concerns. Furthermore, we point out the ethical implications of cobalt mining in the DRC, where child labor and low wages are rampant. While the Inflation Reduction Act (IRA) seeks to incentivize domestic mining with subsidies, we examine why there should be skepticism about their effectiveness. We discuss how without significant policy changes and technological advancements, domestic US cobalt and lithium mining will struggle to compete with lower-cost, albeit ethically problematic, global mining operations.

 

 Questions to consider as you read/listen: 

1. What are the economic and political factors that make it challenging to establish a sustainable domestic cobalt and lithium mining industry in the United States compared to other countries?
2. What are the environmental and ethical considerations surrounding lithium and cobalt mining, particularly in the context of global supply chains and the role of the Democratic Republic of Congo?
3. How might the Inflation Reduction Act impact the future of cobalt and lithium mining in the United States, and what are the potential implications for global supply chains and the overall EV industry?

 

  Long format:

 

Is there a future in US domestic mining for cobalt and lithium versus global mining for them?
If you look at discoveries in the US such as the recent McDermitt Caldera in Nevada. I mean academically it is interesting but practically it might as well not even be of note. 

 Lithium carbonate mining measured in LCE in Australia is way way way less per ton than the same unit costs in the USA. It only truly becomes economically viable to mine these domestic discoveries if they are heavily subsidized which is value judgement or political judgment. The IRA seeks to do this to a degree. Will it work? Dunno. Lithium is perhaps the best case for it. Cobalt perhaps the worst case for it working. 

 Australia could produce lithium hydroxide at approximately $6,600 per ton of LCE (assuming integration with lithium mining), compared with $10,400 per ton of LCE for China. Indeed, South Korea and Canada, the closest countries to Australia from a cost perspective, still have costs approximately 24 to 51 percent higher than Australia’s. 

 China

Analysts estimate that processing a ton of LCE from lepidolite in China costs around 80,000 to 120,000 yuan ($11,120), while processing the same volume from brine deposits and spodumene costs around 40,000 yuan and 60,000 yuan, respectively. 

 Although projection of costs for production LCE/ton in the US is to a degree opaque because of IRA subsidies and that we don’t have a long history of lithium mining in the US, there are hard cost estimates in some published accounts but very few soft cost estimates such as overcoming NIMBY objections such as run into at Thacker Pass. Regulatory compliance issues with EPA and state environmental protection agencies too. Labor and mining labor certainly costs more here than in China. There’s also the investor risk of capital investment into brine water use or recirculation issues that the federal or state government might suddenly clamp down on. 

 Lithium perhaps has the highest margin and therefore the best potential to attract investment. 

 Contrast lithium with cobalt mining in the US. Just look at what happened with Jervois Global's Idaho Cobalt Operations. When price dropped to $25 or so the company decided to shutter. 

 Further, for example, a report by the US Bureau of Mines estimated the capital cost of a hypothetical copper-cobalt processing plant (with a capacity of 10,000 tons per day) to be around $700 million, and operating costs at $44 per ton processed. This is a 1991 report so it doesn’t include IRA based subsidies or more recent technology accomplishments but it is of note. 

 Whereas in the DRC with Artisanal miners, the cost is very very very low. No regulations. Just labor. Of the 255,000 Congolese mining for cobalt, 40,000 are children, some as young as six years. Much of the work is informal small-scale mining in which laborers earn less than $2 per day while using their own tools, primarily their hands. The margins are astronomically high. 

 So until there is a political decision to make DRC cobalt something like Blood Diamonds which might slightly skew the market or a sudden decision by DRC to nationalize cobalt (which would be utterly practically unenforceable I think), I don’t foresee a viable subsidy free, market based reason for future US cobalt mining with current technology and more or less abundance of cobalt in DRC for cheap. 

 My Sources:

 https://www.mckinsey.com/industries/metals-and-mining/our-insights/australias-potential-in-the-lithium-market#

 

https://www.reuters.com/markets/commodities/china-lithium-boom-slows-sagging-prices-batter-high-cost-miners-2024-03-13/

 

https://www.npr.org/2023/12/14/1219246964/cobalt-is-important-for-green-energy-so-why-has-americas-only-coablt-mine-closed

 

https://www.miningpedia.cn/dressing/cobalt-extraction-plant-price.html#:~:text=03Estimating%20the%20Cost%20of%20a%20Cobalt%20Extraction%20Plant&text=For%20example%2C%20a%20report%20by,at%20%2444%20per%20ton%20processed

 

https://www.wilsoncenter.org/blog-post/drc-mining-industry-child-labor-and-formalization-small-scale-mining#:~:text=Of%20the%20255%2C000%20Congolese%20mining,own%20tools%2C%20primarily%20their%20hands.

 

Cobalt Red: How the Blood of the Congo Powers Our Lives by Siddharth Kara