The sole cobalt mine in the United States lays abandoned in the forests of northern Idaho, a neglected chunk of steel and dirt that is too costly for its owner to run due to Chinese competitors flooding international markets with low-cost supplies of the blue metal used in electronics and batteries for electric vehicles.

Having excavated the mine into the side of a roughly 8,000-foot (2,400-meter) mountain, Jervois Global was left powerless last year when cobalt prices crashed following the opening of China’s CMOC Group’s Kisanfu mine in the Democratic Republic of the Congo, which drove global cobalt output to an all-time high.

Just a few weeks before it was scheduled to open, in June 2023, the Idaho property that Jervois had purchased in 2019 was abandoned.

Over 250 employees lost their jobs. Unused rock crushing equipment is now rotated once a week by a skeleton crew to prevent it from collapsing under its own weight.

“We told our staff that this is all about the price of cobalt, and we were straightforward with them,” site manager Matthew Lengerich said to Reuters while touring the plant. According to Jervois, in order for the facility to operate, cobalt prices must rise to at least $20 per pound. But in July, the price was around $12.17.

BHP, Albemarle, and other Western mining corporations confront a similar dilemma when attempting to compete with Chinese-affiliated enterprises that produce metals, some of which employ child labour, coal-generated energy, or other methods that do not match criteria set by several governments and manufacturers.

Despite the fact that the prices of cobalt, lithium, and nickel have dropped more than a third over the last 18 months, Western miners claim that their rivals have intrinsic cost advantages that allow for quick production increases. As a result, many of these Western enterprises’ operating expenses have been higher than what market pricing will allow.

Interviews with over thirty traders, investors, executives, buying agents, and pricing agencies reveal that this has driven increased requests for a two-tier pricing structure with a premium for sustainably produced metals from certain policymakers and miners, including Jervois and Albemarle.

The idea is to set a premium for sustainably produced metals, either via direct sales or by offering different pricing for metals listed on futures exchanges based on the methods of production. For instance, ordinary nickel would have one price while green nickel would have another.

“China has demonstrated a willingness to drive market prices way, way down, and Western miners simply cannot compete with them,” stated Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines.

The way that the metals essential for the energy transition have been purchased and sold for millennia may be drastically changed by two-tier pricing, but it would also lessen market transparency since miners could bargain directly with clients instead of going via metals exchanges. Additionally, two analysts told Reuters that it may result in different interpretations of what precisely qualifies as “green metal.”

Industry executives have long advocated for two pricing systems, but as Western governments became increasingly concerned about Chinese competition last autumn, investors, legislators, and consumers began to pay greater attention to the need for change.

According to three industry sources, mining executives have been pleading with governments in meetings held in Washington and Brussels to intervene in some way until two-tiered pricing is more widely accepted. They have suggested that tariffs, requirements for supply chain transparency, or government insurance for mines could be possible solutions.

Two of the individuals claim that although U.S. and EU officials have privately voiced sympathy with the mining industry, they have thus far been reluctant to meddle in the mechanisms by which exchanges and others establish pricing.

Jose Fernandez of the U.S. State Department, who is in charge of a programme meant to speed up transactions involving the supply of metals, stated, “I don’t want to say what the markets should or shouldn’t do to ensure strong ESG practices.” “But it is true that all of those commitments have a cost.”

Customers of the mining sector, including automakers, are thus forced to balance keeping prices low with ensuring a stable and varied supply of metals. Certain agreements are beginning to take shape, partly due to emission-related laws.

By 2027, the European Union will demand that EV producers disclose their metal procurement sources and production-related carbon footprints.

Failure to comply would make it illegal to sell electric vehicles (EVs) in the area. While the US has not yet implemented this measure, it is generally regarded as the most active in the world for increasing supply chain transparency, which is expected to support premium metals contracts.

Last year, Northern Graphite began to effectively demand a premium from clients in Canada who wanted to ensure that North American supply of the battery metal would be available. According to a person with firsthand knowledge, Teck Resources began selling concentrate—a kind of copper that has been little processed—to Aurubis earlier this year.

The deal ensures Aurubis a consistent supply of ESG-compliant concentrate, which it transforms into copper and sells to the automotive sector. It also does not rely on exchange rates.

Teck chose not to respond. Aurubis stated that it views “the way to a green-friendly copper industry as a joint task for the entire value chain, which needs to be honoured from the raw material supplier to the end consumer.”

Although there is now no punishment for customers who do not get sustainable metals, there is a growing danger to their image.

“The question is really for car companies: Are you OK with something that might be priced lower or are you willing to pay premiums knowing that this is sourced sustainably in the correct way?” stated Michael Scherb, the chief executive officer of the mining-focused private equity company Appian Capital Advisory.

The largest mining firm in the world, BHP, said this month that it will halt operations at its nickel mines in Australia because of “the substantial economic challenges driven by a global oversupply of nickel.”

A corporation that had foolishly wagered that its clients would be prepared to pay more for nickel produced in a nation that practices sustainable mining suffered a setback as a result of the decision.

Due to Huayou Cobalt, and other factors that contributed to a 153% increase in nickel production in Indonesia from 2020 to the end of last year—production that environmentalists claim has partially resulted from the destruction of the nation’s vast rainforests—BHP issued a warning that nearly two-thirds of Australia’s nickel market is in danger of closing due to low market prices.

Officials from the United States are pressuring Jakarta to raise the nation’s mining regulations. An inquiry for comments was not answered by Huayou Cobalt.

According to statistics from ESG consultancy Skarn Associates, Australia’s nickel sector is among the cleanest in the world, in large part because of how it manages carbon emissions. According to the research, China’s nickel sector releases emissions that are over seven times worse than those from Australia, with nickel processed in Indonesia emitting more than five times the carbon as produced in Australia.

The world’s largest producer of lithium, Albemarle, made workforce layoffs in January due to poor pricing, which were partly brought on by increased output from Chinese companies like Yongxing Special Materials Technology.

“If there isn’t an incentive above current prices, you’re not going to get the investment you need to build the domestic (U.S.) supply chain,” said Eric Norris, who oversees Albemarle’s lithium operations.

According to U.S. State Department official Fernandez, growing demand for minerals will balance out the existing “global oversupplies,” but for the time being, miners are stuck in a difficult situation.

Fernandez stated, “We need to figure out how to weather the storm.”

International leaders have countered China’s market dominance in a number of ways since January.

With the justification that “(metals) prices are unfairly low because Chinese companies don’t need to worry about a profit,” President Joe Biden placed tariffs on vital minerals produced in China in May.

Australia’s treasurer, Jim Chalmers, stated in February that nations have to think about endorsing “a differentiated international trading market for resources produced to higher ESG standards.”

Canada’s deputy prime minister, Chrystia Freeland, declared in April that Ottawa will oppose China, Indonesia, and other countries’ dumping of vital minerals.

A request for comment was not answered by the Chinese delegation to the UN. Graphite and other metal exports have been prohibited by China for the last year.

Senate aides report that many U.S. senators, from both parties, have stated they are exploring legislation that would provide price protection for metals, akin to a government insurance programme for crops. By doing this, miners would have a price for their metals regardless of the state of the market.

Because they are aware that consumers are hesitant to pay extra for electric vehicles, automakers have been warily following the evolving trend towards green pricing premiums.

A person closely involved in General Motors’ procurement of minerals says that although the largest U.S. carmaker feels that essential minerals should be produced responsibly, it is unwilling to pay a premium for the minerals, fearing it would lose out to Chinese competitors.

GM informed Reuters that it has strict requirements for suppliers to follow, which is also the position held by Volkswagen, BMW, and Stellantis. Requests for comments from Tesla and Ford, which is constructing a nickel processing plant in Indonesia in collaboration with Huayou Cobalt and PT Vale Indonesia, went unanswered.

Regarding its decision to price sustainable nickel, the London Metal Exchange (LME) said that it has had “positive market feedback”. The German online metals auction site Metalshub, which is its partner, sold 144 metric tonnes of low-carbon nickel in May. When further transactions occur, the price will be made public.

Green metals pricing contracts have been introduced by Benchmark Mineral Intelligence, a UK-based supplier of vital minerals pricing and data. Each price is determined by a mining firm’s compliance with 79 criteria that the business claims indicate high production standards.

“You will not be able to guarantee by any stretch of the imagination a non-China supply of certain metals unless you’re willing to pay some degree of a premium for that product,” said Daniel Fletcher-Manuel of Benchmark.

That is the message Jervois has been trying, but failing, to get out. The CEO of the firm, Bryce Crocker, stated that ESG ultimately comes at a cost. “It’s a worthwhile cost.”

(Adapted from Reuters.com)