COLUMN-For cobalt buyers, is artisanal mining the problem or the solution? Andy Home

(The opinions expressed here are those of the author, a columnist for Reuters.)

By Andy Home

LONDON, Feb 22 (Reuters) - One reason the cobalt price has gone supernova over the last year is the realisation that not only does most of the available supply come from just one country, the Democratic Republic of Congo (DRC (Shenzhen: 000530.SZ - news) ), but a good part of it comes from artisanal mines.

In the case of cobalt, however, artisanal mining may in fact be part of the solution to securing long-term supplies of the "hot" metal used for lithium-ion batteries key to the electric vehicle revolution.

The real problem in the DRC is less this mining itself, but more the lawlessness that surrounds it and makes much of the cobalt from the region effectively a "conflict mineral".

For as Apple (NasdaqGS: AAPL - news) has already found out and automotive companies are learning, it's tricky enough selling yourself as a pioneer of 21st century technology if one of your key raw materials conjures up images of impoverished children wheeling barrows laden with ore or being lowered into rickety tunnels.

Such stark representations of small-scale mining, however, risk over-simplifying the "informal" sector, which is a major employer and plays a crucial economic and development role for millions of people around the world.

A GLOBAL INFORMAL ECONOMY

The World Bank estimates that artisanal mining, by small cooperative or family groups, employs some 40 million people globally. ("Artisanal and small-scale mining", Nov. 21, 2013).

It's inevitably a rough guess, but the World Bank's assessment implies that some 100 million people, workers and their families depend on the sector for their livelihood.

The comparable world figure for the official industrial mining sector is seven million people.

And artisanal mining probably represents around 15-20 percent of all global minerals and metals production, first and foremost gold, diamonds and other precious stones, according to the International Institute for Environment and Development.

It thrives on a combination of resource wealth and income poverty, a toxic brew found in many developing countries, particularly countries like the DRC, which has one of the starkest divides between mineral riches and local poverty.

MINING VIOLENCE

There may be around two million artisanal workers operating in the DRC, the country's Chamber of Mines estimates. ("2015 Annual Report").

As in the rest of the world, most of them are digging for gold, diamonds and semi-precious stones such as tourmaline.

However, around 200,000 are working copper-cobalt mines and a similar number "3T" (tin, tungsten and tantalum) deposits.

Belgian research group IPIS, with backing from the DRC's ministry of mines, has conducted invaluable research into the artisanal mining camps in the east of the country.

Its researchers visited 1,615 sites between 2013 and 2015, calculating that 240,000 artisanal workers were employed on them, around 80 percent of them searching for gold.

The alarming statistic from IPIS is that "at least one armed actor was present" at 56 percent of all visited sites.

The Congolese army was found to be running mines accounting for 26 percent of the artisanal workforce with "at least one non-state armed group" present at 25 percent of mine sites.

The Congolese wars at the turn of the century never really ended and factions are still clashing in the eastern part of the country, with millions of people fleeing a new flare-up described by Secretary General of the Norwegian Refugee Council, Jan Egeland, as "violence by hundreds of armed groups".

These factions are drawn to the artisanal mining sector for money, whether in the form of "taxation" on miners, forced labour or just plain pillaging. And the resulting output is correctly called "conflict minerals".

PROBLEM OR SOLUTION?

Much of the DRC's artisanal production is smuggled out of the country, depriving the government of much-needed revenue.

But a lot of it has also been seeping into domestic mineral supply chains and Amnesty International has warned of "significant risk of cobalt mined by children in the DRC ending up in the batteries of electric cars". ("Industry giants fail to tackle child labour allegations in cobalt battery supply chains," Nov. 15, 2017).

While this is the stuff of PR nightmares for automotive companies, so too is an inability to lock in future supply.

But could the "problem" of artisanal mining also be the solution?

A template already exists in the ITRI Tin Supply Chain Initiative (iTSCi), which was born out of the concerns of companies such as Apple about whether "3T" minerals from conflict parts of the DRC were entering their supply chains.

It has been running for several years in the tin-rich South Kivu province and now encompasses more than 50,000 miners.

Not only does it promote better health and safety, it also facilitates audited mine-to-smelter "clean" supply chains.

Apple has spent the last two years devising a similar mechanism for its cobalt purchases, tracing its sourcing all the way back to the DRC mine site.

Its most recent annual "Supplier Responsibility Progress Report" includes for the first time a list of cobalt suppliers.

Three out of the six refiners, all Chinese players, are still working on their audit trails, but Apple explains that "we've consciously chosen to stay engaged with mines and smelters that are not yet meeting our high standards and will work with them to develop responsible practices."

"We know there are real challenges with artisanal mining of cobalt, but walking away from it indefinitely would be harmful to communities who rely on this mining for their income."

The World Bank agrees, arguing that artisanal mining supports millions of families in an estimated 80 countries, diversifies rural economies away from subsistence farming and can have a significant wealth distribution impact.

The bank has programmes in various countries aimed both at bringing artisanal mining into the official economy and educating miners as to why, for example, they really don't need to use polluting mercury to produce gold.

Integrating the artisanal cobalt miners of the DRC into the formal supply chain would make both economic and moral sense, but first requires an end to the lawlessness whose main victims include the miners themselves.

(Editing by Alexander Smith)