Strategic considerations for critical minerals projects

Critical minerals are at the heart of the digital transition and the energy transition. Increased automation, processing and the use of artificial intelligence (AI) mean more smart phone batteries, computer chips and data centres. The reduced reliance on fossil fuels means more electric vehicle (EV) batteries, large scale battery storage, and renewables infrastructure and technology. A typical electric car requires six times the mineral inputs of a traditional combustion-engine car, and an onshore wind farm requires nine times more mineral resources than a gas-fired power plant. Africa is a substantial potential source of the metal and mineral reserves needed to power the energy and digital revolution.

Market demand for the commodities from critical minerals projects in Africa will continue to exponentially increase in the coming decades. However, these projects are not without challenges. Recently, access to debt and equity funding has become more competitive. Consumer, shareholder and lender requirements in relation to ESG (environmental, social and governance) issues continue to increase, both in relation to mining and refining processes. Companies face hardening legal obligations around carbon, environment, human rights, and bribery and corruption. Sovereign risk is a key investment factor, reflected in the increased cost of sovereign risk insurance and the increased use of treaty structuring and international arbitration by foreign companies investing in African resources projects. There is also the need to navigate the regulatory impact on the supply chain from initiatives like the US Inflation Reduction Act and the EU Critical Raw Materials Act.

These challenges can however be managed and mitigated. With careful and strategic planning at the outset and at critical stages of a project, there are significant opportunities for resources companies and their investors in partnership with host countries.

Consideration must also be given to community and broader social engagement. Successful ventures in this sector hinge on a delicate balance between economic goals and ethical responsibilities, emphasising the need for a forward-thinking approach that not only capitalises on Africa's resource wealth but also contributes to the long-term well-being of its communities and ecosystems.

Resources companies should:

• consider project structuring, including for taxation and treaty protection, early in the project planning process
• consider the ESG requirements of investors and potential lenders
• consider hard and soft ESG obligations in both the project country, the company’s home country, the directors’ countries of residence, and global ESG obligations that can be enforced domestically
• have an engagement strategy with host governments that includes preserving legal rights
• consider supply chain, processing and offtake strategy, including where to maximise value and augment incentives and government support, as well as end user support around critical minerals consumption.

Navigating the landscape of critical minerals projects in Africa demands a nuanced understanding of geopolitical dynamics, the increasing legal obligations throughout the commodity supply chain (including with respect to ESG), evolving lender and shareholder requirements, and the importance of managing relationships with communities and host governments.