West African Metals in the Energy Transition

Questions of Feasibility

Positive commodity fundamentals coupled with the right mineral endowment are insufficient to make a case for West Africa’s contribution to the energy transition. To leverage their resource inheritance, West African nations and private developers need to be able to align to high international standards of sustainability and transparency, attract investment through well-framed projects, and, above all, act quickly to jump on the bandwagon of the decarbonization trend ahead of other countries.

First, the mining of metals used in decarbonization has to grapple with a paradox of their condition - that their extraction is harmful to the environment, and to prove a net positive contribution to climate change through limited environmental damages. Mishandled, uranium mining can leave a radioactive footprint from tailings and raffinates, decaying to radon, a radioactive gas. Bauxite mining, on the other hand, involves the stripping of the topsoil and long-term rehabilitation; Guinea’s luxuriant landscape is scattered with a decorum of red earth bauxite quarries as a result.

Ghana has been considering what to do about its undeveloped bauxite reserves for decades, but the proposed projects are sensitive. Out of the 900 million tonnes of bauxite estimated, about 350 million tonnes of Ghanaian bauxite are found under Ghana’s Upper Guinean Forest, a tropical forest important for local biodiversity in Ghana’s Ashanti region. Global Forest Watch warned that deforestation in the country has increased by 60% in 2018 compared to the previous year.

“Africa has the top 90% of the energy transition minerals, but the continent needs to take charge of its own destiny in the energy transition, avoiding the mistakes we made with oil.”

Osam Iyahen, Senior Director, African Finance Corporation (AFC)

The green transition means two opposing things for aluminum - one, that the world will need more aluminum and therefore more bauxite, and two, that countries with an already large production and very high CO2 emissions, that is China, are forced to reduce production. Africa brings into this picture some of the largest bauxite reserves in the world, Guinea having already overtaken Australia as the biggest exporter of bauxite to China, while Ghana has the potential to produce between 10 to 20 million tons a year. For now, it is producing a lot less.

In 2021, Ghana produced 1,162,000 tonnes of bauxite, according to the Ghana Chamber of Mines. In 2018 and 2019, Ghana signed successive contracts with China for the development of the bauxite industry and the Chinese government committed to a US$10 billion facility for 5% of Ghana’s bauxite. Ghana also entered a Master Project Support Agreement with Sinohydro to build infrastructure projects valued at US$2 billion. However, there is no news of recent developments from these deals.

Taking matters into its own hands, the Ghanaian government announced this year a new deal worth US$1.2 billion to develop the country’s aluminium industry. Ghanaian leading contractor, Rocksure International, was selected to partner state-owned Ghana Integrated Aluminum Development Corporation (GIADEC) to develop a bauxite mine and a bauxite refinery as part of a four-phased development plan by the Ghana Integrated Aluminum Industry (IAI). Fabian Limberger, chief commercial officer at Rocksure International, said: “We are proud and honoured to take part in this enormous project and to play a role in the country’s economic development. We also understand the complexity and size of the task bestowed on us. This is a long-waged project starting with exploration and infrastructure developments - such as building a railway to transport the bauxite. Only then we can think about mining and refining the bauxite.”

The company will require significant financing and is looking for a partner. Bauxite mining is not capital intensive, but the infrastructure associated with transportation and processing is. In both Ghana and Guinea, access to infrastructure and the money required to build the infrastructure are decisive factors in the feasibility of bauxite projects. Lindian Resources, one of the few bauxite developers in the region, plans a two-staged approach to overcome this challenge: “The short-term strategy of the Company is to utilize existing infrastructure for low capital solutions to generate near-term cashflow. We speak to current infrastructure owners and developers to find the shortest route to the market. The longer-term strategy is to develop our own infrastructure with a port and rail solution to augment mining operations. An opportunity exists to access potentially the best port location in Guinea,” said Asimwe Kabunga, the chairman of Lindian Resources (ASX: LIN).

“The equation we must consider does not only concern the commodity we need to find assets in but the availability of those assets and what are the best assets in that space,” said James Wallbank, managing director at private equity firm, Ibaera Capital.

The availability of good projects and the possibility to develop them on time to feed into growing demand are the other critical considerations for a successful energy transition in which West African lithium, bauxite or uranium can take part. For example, uranium is relatively abundant in the earth’s crust, but there is a shortage of new economic projects. Many uranium developers failed to survive in the grim market conditions of the last 10 years. Developing uranium mines takes time: “It took Global Atomic 15 years to develop the Dasa project in a country with a relatively quick permitting regime. In countries like Canada, it could take decades to obtain the required permits,” said Stephen Roman, president and CEO of TSX-listed Global Atomic (TSX: GLO).

Located in Niger, Dasa is the largest, highest-grade uranium deposit discovered in Africa in the last 50 years.

But convincing projects without supportive political governance are also not enough, or Guinea’s Simandou project, holding the world’s largest known iron reserve in the world (2.4 billion tons of high-grade ore reserves) would not lain undeveloped.

In Niger, uranium projects have been dominated by parastatals, and the country had not opened itself to international investors. After 60 years since independence, the country concluded its first democratic transfer of power between two presidents in 2020, and is now actively promoting the country’s uranium resources. Canadian developers GoviEx Uranium (TSXV: GXU) and Global Atomic have both successfully developed very good projects in the country, Madouela and Dasa, respectively. Daniel Major, the CEO of GoviEx, thinks the reinvigorated market conditions and the country’s improved attractiveness will be propelling its project: “After being on slow-paddle, we are certainly paddling forward much faster as the uranium market is starting to move. We think 2022 will be a very busy year for us.”

Image courtesy of Genser