Battery Powered: Specialty metal mining and the future of tech, our economy & the environment

Gowling’s Ian Mitchell explores battery metal mining and its impact on the world – and our future

The push for a carbon-neutral economy has led to an intense search for green alternatives. One solution has been to develop and expand the application of batteries in everything from electric vehicles to power grids. The mining industry plays a critical role in battery production – batteries are produced using certain core metals that are found in deposits worldwide and the exploration and exploitation of these resources requires significant expertise and financial capability. We asked Gowling WLG’s Canadian mining lead, Ian Mitchell, to explain to us the rise of battery metals, their impact on the environment and the economy, and what this means for Canadian mining companies now and going forward.

What are battery metals and which devices are they used for? What is Canada’s role in the global market and why is this industry seeing such explosive growth? What are the longer term economic and geopolitical impacts that this growth will have on the mining sector?

The current push to reduce carbon dioxide emissions through the use of low carbon power sources (commonly known as “decarbonization”) is seeing one of the world’s oldest industries colliding with high tech companies and it is going to create change. 

Battery metals are those metals most commonly used in the manufacture of batteries. As technology and battery formulations evolve, so does the list of “core” battery metals.  For example, electric vehicle (EV) batteries’ core components today would be Lithium, Cobalt, Graphite, Manganese and Nickel, but other metals such as Vanadium, Zinc, Magnesium, Copper and Aluminium play important and expanding/evolving roles, especially in other energy storage applications.

As the world looks to reduce carbon dioxide emissions through decarbonization, the battery industry has taken a primary role.  The explosive growth of the industry is largely being driven by two areas that hold the greatest potential for overall reduction in greenhouse gas (GHG) emissions - the electrification of transportation and the adoption of intermittent renewable energy (which creates a corresponding need for grid level storage solutions). 

However, the carbon footprint of battery production is not insignificant.  On the transportation side, it is commonly accepted that the production of an EV is currently more carbon intensive generally than the production of a traditional combustion engine vehicle and that the net carbon benefit of an EV is only realized over its lifecycle (incorporating its use phases).  As the integration of batteries into our lives increases, the focus will be on trying to reduce the carbon footprint inherent in the production phase (including mining) and on ensuring that the electricity used to charge the batteries is generated using low carbon power sources. 

The lithium-ion technology that is currently the most pervasive in EVs may also not be the best fit for all applications.  Flow batteries, for example, may be a better overall solution for grid level storage.  In particular, vanadium redox flow batteries (VRFBs) are ideal for long use with no degradation in the electrolyte over the useful life of the battery and, following the useful life of the battery, the electrolyte can be readily used in another battery system or the contained vanadium can be readily separated from the electrolyte and used in other applications. This is a challenge with lithium-ion battery systems where the electrolyte degrades over use and is required to be replenished over the course of the same useful life.  In addition, the electrolyte in a VRFB is neither flammable, nor explosive - as a result of its high water content – which as you scale to grid size storage offers increased operational safety compared to the lithium ion systems.  All of this results in an overall safer and greener alternative for grid applications.

Environmental, social, and corporate governance (ESG) is also a major concern with battery metals and, in particular, for cobalt where a significant proportion of the world’s cobalt comes from the Democratic Republic of Congo and from companies/producers that do not necessarily adhere to global standards and best practices.  However, following a number of major incidents – most notably the Brumadinho dam disaster in Brazil – ESG in mining has been a very public and growing area of focus globally for companies of all sizes.  That being said, most Canadian mining companies are good corporate and global citizens and are working hard to be both sustainable and profitable – looking to find ways to benefit the communities in which they operate, maintain the environment and still produce the commodities we need to electrify the world. 

Mining is and needs to be a part of the global energy solution as, without it, the world will not be able to meet the increasing demand for battery metals required to achieve decarbonization targets.   With new technology and a renewed commitment to ESG, I am confident that mining companies can meet this demand in a responsible manner, including ensuring that they minimize any environmental impact of their efforts.

How does an increased focus on extraction of these metals affect the federal government’s carbon reduction plans? Can the demand for these commodities be reconciled with Canadian climate targets? What are some potential legal ramifications for this industry in the future, and should this concern potential investors?

As discussed above, mining and overall battery production are currently carbon-intensive processes.  However, with some effort there is hope that this can be changed and in a recent paper published by the World Economic Forum[1] it was posited that by applying a set of circular economy and sustainable technology levers, the battery value chain could come close to halving its GHG emissions while still creating more economic value.  Battery technology – at the grid level – is an absolute necessity in a world that is driving towards a larger percentage of renewable power and we need to find sustainable ways to make this work. 

We also need to keep in mind that electrification of EVs only helps to meet decarbonization goals if the generation of the electricity that powers them comes from low carbon sources and so governments must focus on making new long-term plans for sustainable energy across the board.  In order to make progress in the time frames defined for decarbonization, our government (and others globally) need to start planning and thinking long-term and working with industry to make the required grid level investments and create the required incentives to ensure that we achieve success in this area. 

From a mining perspective, although Ontario is home to nickel, copper and cobalt reserves and production, Quebec hosts copper, lithium, graphite and vanadium resources, and projects in British Columbia produce copper and zinc, a number of the core battery metals currently in use are mined in other jurisdictions – with lithium being prominent in Latin America and Australia, cobalt in the Democratic Republic of Congo and vanadium in Brazil and South Africa. 

As the need for these metals is increasing, Canadian companies are exploring for new reserves and are also looking for other ways to produce them – for example, there is currently research being done to see whether lithium can be extracted from oilfield wastewater brines.  Given that the best locations to find battery metals are geographically dispersed, Canadian companies that are active in the exploration for, and production of, battery metals globally must be conscious of GHG emissions on such countries and the global impact of their mining operations.  As a result, our policy makers also need to look beyond Canada’s borders to ensure that Canada has a cohesive decarbonization plan that works not only for Canada but also for the larger world.

Time is also not on our side.  A normal mining project usually takes years (5-10) to come into commercial production with a complicated process that requires defining reserves, permitting and build out of the mine infrastructure.  With the current pressure to ramp-up decarbonization, this lead-time to bring more battery metal capacity online is a concern.  Our government and industry alike should be finding ways to plan and invest today in order to ensure a production pipeline when needed.

Do you foresee a shift in priorities for mining companies away from gold and towards other commodities such as copper or battery metals? What are the reasons that such a shift might happen, and how would that affect the industry as a whole?

Given the uncertainty inherent in the world today, I don’t see a shift away from gold but I do see far more activity in the base metals and specialty metals space.  Activity in this area is picking up exponentially and demand for these other metals is only expected to increase as the shift to a lower carbon future continues and so I would expect this to continue for the foreseeable future.  From a market perspective, people invest in gold for different reasons – reasons that are not directly tied to specific uses for the commodity.  Gold continues to be viewed as a hedge against volatility, inflation, or currency weakness and so the factors driving gold exploration and production are very different and do not necessarily compete with base and speciality metals.

Why is Latin America important for battery metal mining? How has the COVID-19 pandemic affected the region’s mining industry, and what wider repercussions has that had for the global mining sector? From a Canadian perspective, is there any way for local businesses and investors to take advantage of the opportunity the region’s struggles present?

The team at Gowling WLG is very familiar with the mining industry in Latin America (currently a major source for the world’s lithium) and we work quite closely with a variety of companies in the region at both the exploration and production levels.  The COVID-19 pandemic has, in my view, exacerbated already difficult political and economic conditions in Latin America.  In addition, a delay by some countries in implementing stricter measures nationally, most notably in Brazil, coupled with economies where the majority of the jobs need to be done in person and cannot be done remotely is likely to result in the pandemic continuing longer or having a more significant impact in some of these countries than in North America and Western Europe.  Further, many countries in Latin America have experienced and/or are experiencing political uncertainty and/or unrest and have also either just held or are in the process of holding elections with radical swings to either side of the political spectrum being possible.  

All of this is likely to mean an additional degree of political instability in the region for some time to come.  In addition, many countries are looking at ways to offset the significant costs of the impact of COVID-19 to their economies.  For example, Chile is currently considering a constitutional reform that would impose a flat 3% royalty on the production of copper and lithium, which royalty, in respect of copper, would also increase to a marginal rate of 15% when the copper price rises above $2.00 per lb., 35% above $2.50 per lb., and 75% above $4.00 per lb.  If approved, this royalty will have a material impact on both current producers and would also likely stymie development of new projects in the region, being one of the world’s most prolific regions for copper and lithium production. 

One of the tenets of mining is that mineral deposits cannot be moved, and Canadian investors and mining companies have always been great at taking calculated risks to explore and develop properties in spite of their location.  Exploring for minerals is a highly risky proposition - you may never find a commercially viable deposit and, even if one is found, dealing with geopolitical risk and/or lack of infrastructure in the jurisdictions and regions in which a discovery is made can be challenging, time consuming and very costly. 

Canadian companies are generally good global players and they know that they need to make sure that the communities in which they operate benefit from their successes.  In a challenging jurisdiction, one of the best allies you can have is the local community. One major concern on the ESG front in Latin America stems from the significant artisanal and small-scale mining that takes place in most countries.  The environmental impact that these operations can have and the unrest that these informal miners can cause if they are not allowed to work are not insignificant. 

Countries in the region are looking for ways to bring these operations into compliance without taking away the miners’ means to provide for their families and, in some jurisdictions like Colombia and Nicaragua, their rights have even been formalized in law.  One of our Latin American based mining clients has taken this to heart and has developed ways to work with these informal mining operations at their projects resulting in both a profitable and environmentally sustainable relationship.  Examples like this could open the door for other companies to find creative ways to work with the local communities to benefit all parties involved and related stakeholders. 

[1] A Vision for a Sustainable Battery Value Chain in 2030: Unlocking the Full Potential to Power Sustainable Development and Climate Change Mitigation (September 2019)

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Ian Mitchell is a partner in Gowling WLG’s capital markets practice in Toronto and is Head of the firm’s Mining Practice Group. Ian’s practice consists of advising on corporate finance, mergers & acquisitions, commercial, and securities law matters, with particular emphasis on cross-border transactions in the resource and technology sectors. Ian regularly acts on public and private securities offerings, stock exchange listings, plans of arrangement, asset and share purchases, and related party transactions, as well as commercial arrangements. Ian has gained extensive experience in a number of industries, including mining, technology, and clean energy, and is able to help his clients navigate a complex and constantly evolving landscape. Ian regularly works with his clients’ legal and executive teams to find solutions that also manage their risk. Clients include issuers, dealers and advisers, underwriters, targets, special committees, and independent directors.

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