How Blockchain Can Help Modernize the Mining Industry
Global demand is soaring for cobalt, a scarce metal used to conduct heat in lithium-ion batteries in products ranging from smartphones to electric vehicles. A typical EV battery contains 18 to 20 pounds of cobalt.
But the path of minerals like cobalt across the supply chain is complex and inefficient, especially in the mining and metals industry, where many operational and commercial practices remain costly and antiquated. Outdated, paper-based processes cost the industry millions of dollars each year, while a lack of data transparency can invite fraud, unsafe working conditions and confounds regulation efforts.
To address these challenges, IBM has announced two blockchain-enabled projects purpose-built for the mining industry.
The first is a consortium bringing together Ford Motor Company, LG Chem and other partners on a blockchain network aimed at bringing more transparency to mineral traceability and provenance. It’s hard to trace the source of cobalt because although most of it comes from the Democratic Republic of the Congo, the metal passes through many companies and countries before it reaches manufacturers.
The second is a collaboration with MineHub Technologies, a company creating an online platform designed to use blockchain to help reduce paper documentation and manual processes in the mining and metals industry, from the mine to the end buyer. The result will be greater transparency and collaboration in the mining supply chain, which should lead to cost savings, stronger security and increasing the speed at which minerals travel downstream. The first use case, currently being built on the MineHub platform, manages ore from GoldCorp’s Penasquito Mine in Mexico throughout its path to market.
To learn more about these efforts, we sat down with Manish Chawla, General Manager, Global Industrial Products at IBM, where he helps bring digital transformation to manufacturing and resource companies around the world.
What do you see as some of the biggest inefficiencies in a conventional mining supply chain?
There are still a lot of manual processes and complexity when it comes to path of minerals and metals along the supply chain, whether it is traceability of minerals and ores, rights management, regulatory compliance or trade finance. Once ore is extracted from the mine, it moves between a variety of parties, such as banks and smelters, each of whom must verify a significant number of paper documents. That inefficiency in itself not only can cost the mining industry significant dollars, but it also creates multiple opportunities for fraud, because there isn't visibility and data transparency.
Then another dimension to this is that cobalt is not necessarily found in the most hospitable conditions. To ensure that minerals are mined responsibly and sustainably requires being able to track where a particular mineral comes from, and that’s proven very difficult to do with paper-based processes.
Do you see the trading side of the industry as equally archaic?
Absolutely. In today's world, I have seen that trading is so manual that a buyer literally picks up the phone and calls the seller. The seller has to manually check whether there is even a contract that exists between the parties. It's not electronically recorded or automated whatsoever. The process is completely reliant on a middle man. With MineHub Platform, we’re introducing smart contracts that automate most of these manual processes, which not only removes intermediaries but also can help you to sell more minerals much faster. I think that in itself is going to create a lot of value for everybody in the supply chain by vastly reducing the amount of time it takes for minerals and metals to move from point a to point b, minimizing the possibility of fraud in commodity trading and increasing finance in the mining industry.
Why is it so difficult to enforce international mining regulations like the OECD Due Diligence Guidance?
I believe that the fact that all of this is being handled manually today is a big obstacle, but the greatest challenge is that as you move downstream along the supply chain, different resource streams end up getting mixed together, which makes it impossible to trace the provenance of minerals. The fool-proof method that many companies have adopted is to segregate their supply chain. So, what we're trying to do with blockchain is provide a platform where those who are tracking this data and adhering to the OECD guidelines can put their certifications in a platform, which is then made visible as the ore moves through the supply chain which will build trust.
Why is IBM focusing on cobalt in its initial pilot?
We felt that this is where we would have the biggest impact as a first step. Most cobalt comes from a single country, the Democratic Republic of the Congo, which has been in the press for some time with regard to its mining labor practices. As most people are aware, that demand for cobalt is skyrocketing, especially as automotive OEMs come under increasing pressure to move away from traditional gasoline-powered machines into electric vehicles. That demand has put a lot of pressure on local regions, such as DRC, to produce more. And we have seen that this has often led to unethical sourcing practices. Once we’ve concluded the cobalt pilot, the intent is to apply our learnings into other conflict minerals critical to battery production and other electronics manufacturing.
What is the onboarding process for new participants in this network?
First, we're introducing a simple option to join, which is a best practice we gleaned from TradeLens and IBM Food Trust, two other large blockchain networks supporting entire industries. Once they've opted in, we make it very easy for members to upload relevant information through mobile apps and various APIs. In addition to industrial-side large-scale miners, we also need to connect hundreds of thousands of artisanal miners. Many of them simply don't have the opportunity to go and build out systems on their own — they don't even have the opportunity to log into a website using a laptop.
We're trying to make it as efficient as possible for members to input the necessary information to facilitate end-to-end transparency in the supply chain.
What are some other ways that IBM has applied its experience on TradeLens and IBM Food Trust to the mining blockchain?
Responsible mining has parallels to food safety. The key goal is understanding where something is coming from and how it's being handled through the supply chain. It’s a very similar problem to when you can take a shipment of produce and mix it with another lot or shipment, and then not be able to tell where it's coming from. Another parallel is that the agriculture and mining industries both have small-scale and large-scale producers, and we need to build a platform that accommodates everyone. Most of all, we’ve learned how to scale blockchain networks through an open, industry-wide standard, which is vital if you want to create a platform that various brands will actually participate in. Figuring out how to facilitate that trust has been one of our key takeaways throughout all of the extensive work we’ve done building hundreds of blockchain networks.