Apparently, the world is moving in a new direction in terms of its energy needs, starting to embrace carbon neutrality and trying to combat climate change. Even though these new developments are off to a slow start, considerable resources are being allocated to this goal.
The International Energy Agency (IEA) estimates that reaching net zero carbon emissions before 2050 (which the UN states as its goal) will cost $4 trillion a year over the next 30 years for a total of $100 - $120 trillion. With the world’s estimated GDP valued at $100 trillion in 2022, this represents an enormous amount for the global economy.
Let’s leave the feasibility of this goal for experts to evaluate and talk about our niche which is crucial for the energy transition. Mining industry is meant to provide all the “building blocks” for the new economic model. There are base and precious metals such as copper, platinum, palladium and gold to produce the clean hydrogen from renewable sources and store the energy they generate for further applications in industry, and to manufacture electric wires and circuit boards for infrastructure. There are battery metals such as lithium, nickel and cobalt for further use in transportation and electronics. And there are other elements to extract and lead us all to a brighter, environmentally friendly tomorrow.
So, the mining sector will play a big role in helping the world achieve “net zero” in less than three decades. With demand for green energy projects expected to skyrocket, mining companies have flocked to both new and mothballed deposits of critical minerals worldwide. Of course, their plan is to cash out big, especially when companies and stakeholders in the industry are incentivized by the governments with preferential legislative and financial support.
But where the big money is, there is corruption, and the mining industry is no exception.
The story as old as time
Although some analysts doubt that the Earth can hold enough mineral wealth to support the green transition, this is not the major point of this article. Green transition will probably happen to some extent, but the speed of its implementation depends on how fast the raw materials to make it work can be extracted. More specifically, if the world needs more critical minerals, mining companies need to gain new mining licenses in a short period of time as it takes years to commission new projects. And governments are notoriously slow to grant said licenses. You can already see where this is going.
“Collective ability to fight climate change depends on reliable and sustainable supplies of minerals,” states the World Economic Forum’s website.
“Low-carbon technologies rely heavily on minerals, which puts increased demand on the mining sector and makes it more susceptible to corruption, especially in relation to the award of new mining licenses.”
Corrupt mining deals are of course nothing new. But over the past decades, governments began to recognize that this practice is detrimental to public sector. Regulations exist for a reason but adhering to them is a slow process both due to bureaucracy and the need to satisfy the demands of all parties involved - the state, ecological groups and local communities among many others.
Unfortunately, the majority of countries with low levels of underhand practices cannot boast a thriving mining industry. But, conveniently for miners who are comfortable with making deals using “brown envelopes”, governments in some countries with vast critical mineral resources lag behind in transparency practices.
Sticky fingers
There are a few key minerals for green energy transition - copper, cobalt, lithium, graphite, nickel, platinum, and rare-earth elements. Interestingly, countries with relatively high corruption levels provide many of these minerals to the rest of the world.
According to analysts, 38% of complaints registered with a Corruption Watch organization in South Africa in 2023 related to activity in the mining industry. It said that less than a quarter of the reports made to it about corruption in 2022 related to activity in the mining sector, and compared to just 11% of the reports about state-owned entities, it suggests miners are starting to face a more difficult compliance landscape in the country. The most recent Mining Indaba held in Cape Town in February even featured a special panel discussion on corruption in the industry.
The state-owned national power company Eskom was involved in numerous corruption scandals since the start of the South African energy crisis in 2008. The power outages were severe not only for the general population, but also for miners who had to either scale down production or come up with their own solution to the energy deficiency issue. South Africa hosts more than 80% of the world’s platinum reserves, a metal that is used extensively in making hydrogen electrolyzers and fuel cells necessary for green transition.
Another country in this sketchy list is the Democratic Republic of the Congo (DRC) which holds the 162th place out of 180 in the global corruption perception index. DRC is currently the global leader in cobalt mining, accounting for more than 63% of the world's supply, and has sizeable deposits of copper, another metal used extensively in electronics. Such well-known companies as commodity trader and miner Glencore were involved in shady dealings of acquiring mining rights in the country, picking an infamous Dan Gertler (whom you may recognize as DRC’s former diamond kingpin) as partner in negotiations with authorities, and paying a fine of over $1 billion to the authorities in Brazil, the United States and the United Kingdom for bribery of public officials in various foreign jurisdictions in the end.
When you add negative publicity surrounding cobalt mining in DRC, sometimes even referred to as “blood diamond of batteries”, the situation is not looking good for the international cobalt trade.
Meanwhile, corruption is quickly becoming a major concern in Indonesia, world’s largest producer of nickel. According to a report, a number of central and regional government officials currently either standing trial or under investigation concerning bribery allegations related to nickel mining permits. In February, a report highlighted "frequent corrupt practices" in the nickel sector, alleging involvement of government officials at the central and local level, including village chiefs in nickel-rich areas.
These are just a few examples of underhand dealings that are plaguing the mining sector across the globe - in Africa, South America, Asia and Europe. Add geopolitical tensions to the mix which limits supply of critical minerals from Russia and Middle East, and all of a sudden a green energy future is starting to look way more distant.
Battle you cannot win
Global corruption watchdogs are of course not sitting idle and are closing in on underhand practices and shady individuals internationally thanks to compliance mechanisms and traceability systems which are finally being adopted by major mining companies and commodity traders, albeit not without flaws.
In March, human rights activists have urged the London Bullion Market Association (LBMA), one of the world’s largest precious metals exchanges, to do more to exclude gold from unsustainable sources from its supply chain, as some gold refineries that are included in the association's Good Delivery list of sustainable suppliers, still source gold from “questionable suppliers and mines”. The NGOs noted slight improvements in the LBMA’s systems since 2021 but some of its suppliers may still be linked to money laundering, land and water pollution, or human rights abuses.
On their part, traders in base and battery metals have been scrutinized for corruption and wrongdoings. A major trader Trafigura has had an impressive string of scandals, allegations and outright prosecutions over the last few years - everything from stolen nickel valued at more than $600 million (which is seemingly a third party fraud), to bribing Brazilian officials for oil contracts, which subsequently led to a chain of resignations of its top officials. Its rivals Vitol Group, Glencore Plc and Gunvor Group Ltd. have already admitted wrongdoing in separate corruption cases.
Of course, mining companies are not the only ones to blame. Bureaucratic hurdles that go hand in hand with both ambitious plans for the transformation of the world economy and greed create a volatile mixture that can only end in corruption. Miners are trying to seize the moment and commission projects faster to satisfy the future demand, their investors are demanding an ever-increasing rise in revenue, and governments are slow to adopt a better legislation while setting exorbitant goals.
Localized corruption in certain regions can, and will, have a detrimental effect on a global scale for UN’s emissions reduction plans due to increased spending on traceability and compliance, in addition to reputational risks. If we enter another commodity supercycle in the foreseeable future, it will be even harder to stick to the projected $100 trillion investment in green transition due to rising metal prices, while competition for resources would exacerbate the issue of corruption. Market entities who produce high-carbon fuel such as oil may step in and push their product as a cheaper alternative to carbon-free energy. If this vicious cycle continues, net zero carbon emissions goal can bring net zero results by 2050.
Shady practices wouldn’t be necessary in an ideal world where bureaucratic burden is minimized and mining companies make deals with governments and communities for common good. But with red tape and greed taking the lead, green pastures of energy transition are still closed for us.
Theodor Lisovoy, Editor in Chief of the European bureau, Rough&Polished
