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Is the African mining sector ready to respond to the opportunities offered by the energy transition?

Published by , Editor
Global Mining Review,

Nabil Khodadad and Nonkululeko Zondo, Vinson & Elkins LLP, explore how the African mining sector can benefit from and take a lead in the energy transition, due to increased demand for critical minerals globally.

With the global surge in demand for critical minerals, the security of supply has become paramount. With its vast mineral reserves, Africa is poised to play a leading role in the energy transition. The continent’s potential is undeniable; holding almost one-third of the world’s mineral reserves, many of which are vital to renewable and low-carbon technology.

Yet, despite its abundance of critical raw minerals, the African mining sector is facing significant challenges. Investment shortfalls in critical mining projects, secondary industries and infrastructure, uncertain regulatory frameworks, and broadscale ESG failings are among the pressing issues that demand immediate attention. These challenges underscore the fact that the presence of critical minerals is not a guarantee of success. Addressing these challenges necessitates a collaborative, multi-stakeholder approach.

Countries can attract investment in the critical minerals sector by introducing incentives targeted at green technology and critical raw minerals. For instance, the US Inflation Reduction Act (IRA) has been a successful model, attracting nearly US$100 billion in investments and creating 100 000 jobs since its enactment in 2022. Central to the IRA and frameworks like it are incentives that give preferential treatment and credit support to domestically mined and beneficiated critical minerals and keeping any extracted minerals in the domestic supply chain as long as possible before export. Another critical intervention involves the development of transcontinental infrastructure such as railways, roads, and pipelines that can bolster intra-African trade, reduce trade barriers, and enhance knowledge and skills transfer amongst trade partners.

Legal and regulatory frameworks for minerals pose another risk for investors in the mining sector. Throughout the continent, the mineral licensing regimes differ in content and complexity, often giving rise to uncertainty and disputes that may stall exploration and production activity. Countries may respond to the surge in demand by introducing accelerated or priority licensing regimes for critical minerals.

As demand for these critical minerals grows, so does the demand that they be ethically and responsibly sourced from their countries of origin. As a result, ESG issues in the mining sector are under the spotlight – particularly given the ease at which critical minerals can become conflict minerals when coupled with political and other instability. The disparate application of ESG frameworks and the lack of a universal understanding of what constitutes ethically sourced and responsibly sourced minerals further complicate ESG issues and implementation. Establishing common ground on the best practices and standards for the African mining sector will be essential for creating African mineral supply chains that are harmonious with demand-side supply expectations, whilst satisfying the requirements of international financiers and maintaining the social licence to operate from host communities.

In the 2023 Nairobi Declaration, the African Union emphasised that, in its natural resources and people, the continent has “the fundamentals to spearhead a climate compatible pathway” and become an industrial hub supporting global net zero ambitions. The energy transition and the resultant hike in mineral demand allow Africa’s mining industry to take centre stage. Still, the effectiveness of the continent’s response will depend on how quickly it can implement unified interventions to create incentives to investment in the sector; develop transportation, power, and other infrastructure required by the mining industry; establish stable legal and fiscal environments; and promote consistent and transparent ESG frameworks.

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African mining news