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03 August 2022

More countries pursue security of supply of critical minerals

Middle East & Africa, Americas, Asia-Pacific, Europe
The issue of critical mineral supply is widening as more countries consider putting in place a policy or strategy to maximise domestic and international value. Such policies will create genuine opportunities for mining and processing companies, commodity traders and support from banks, ECAs and DFIs.

For some countries, issues surrounding the security of supply of critical minerals has been high on the agenda for some time now. But as the clean energy technologies transition/electrification gathers pace, with renewables, battery storage, the electric vehicle (EV) revolution and other infrastructure, much more attention is now being placed on the ability to have greater national security of supply of the raw materials – many of which are so-called critical minerals - needed to develop the related products and sectors. 

So, what is a critical mineral? There is no global definition of critical minerals, but essentially, they are mineral deposits with high economic vulnerability and high global supply chain risk. There is an immense range of these of course and many countries already have their own specific lists of what they currently consider critical minerals – depending on their industrial production requirements. But globally, there is a gap between projected supply and projected demand for many critical minerals by the end of this decade, especially in cobalt and lithium – and this also exacerbates the issue.

Coupled with this, the issue of supply has changed dramatically in recent years as countries and trading blocs try to move away from being reliant on a tight, or single source supplier. For some countries with strategic partnerships with certain countries this can work quite well, but over-reliance is rarely good policy. This has been rammed home hard for the European Union (EU) following Russia’s invasion of Ukraine and the subsequent problems relating in particular to the supply of natural gas, as well as coal and crude oil from Russia. And at a time of already heavily increased cost of hydrocarbons and under-investment in renewables, the situation is quite dire indeed.

Governments around the world are consequently refining their strategies around the security and supply of what they consider to be critical minerals. The latest country to develop a strategy – and it is a progressive one – is the UK (see below). The development of security of supply is one which will involve mining companies, processors, commodity trading companies and export credit agencies in varying capacities. In addition, the increased demand for critical minerals will in itself necessitate increased strategic collaboration between companies and certain countries.

For the United States (US) the recognition of the need to have more ‘home security’ has been there for a considerable time, and this has been pushed forward much faster with the largely Trump initiated trade ‘wars’ between the US and China, coupled with the vying for overall global industrial technological supremacy. The US, along with Japan, Germany and of course China and others already have quite well-developed frameworks focusing on security of critical minerals. 

Following a presidential order in December 2017, the US government revealed in February 2018 plans to boost production of 35 critical minerals, including uranium, cobalt, and lithium to reduce the dependence on overseas suppliers. The US Department of the Interior (DoI) said at the time: “Any shortage of these resources constitutes a strategic vulnerability for the security and prosperity of the United States.” 

As part of this drive, in mid-2019, the US said that nine countries had joined its Energy Resource Governance Initiative (ERGI) to help discover and develop reserves of minerals used to make EVs, as part of its effort to cut the reliance on China for critical minerals. Those countries were: Australia, Botswana, Peru, Argentina, Brazil, Democratic Republic of the Congo, Namibia, the Philippines and Zambia. Through the pact the US will share mining expertise with member countries to help develop lithium, copper and cobalt etc, as well as advise on management and governance frameworks.

More recently, Canada, Australia and the UK have also been formulating frameworks for critical mineral policies. And the most recent push comes from the UK which on 22 July this year published a policy paper entitled ‘Resilience for the future: The UK's critical minerals strategy’ (UKCMS). The UKCMS outlines how the UK will secure critical mineral supply chains to ensure the energy transition. It also sets out UK state support for domestic production of critical minerals as well as enabling the supply from third-party nations. 

The progressive vision of the UKCMS

In the foreword of the UKCMS, the then secretary of state for business, energy and industrial strategy, Kwasi Kwarteng declared: “We are moving to a world powered by critical minerals: we need lithium, cobalt and graphite to make batteries for electric cars; silicon and tin for our electronics; rare earth elements for electric cars and wind turbines. The world in 2040 is expected to need four times as many critical minerals for clean energy technologies as it does today. However, critical mineral supply chains are complex and opaque, the market is volatile and distorted, and China is the dominant player. This government is taking action to ensure we remain in the game.”

The UKCMS has three goals: to accelerate the growth of the UK's domestic capabilities; to collaborate with international partners; and, to enhance international markets to make them more responsive, transparent and responsible. And as part of enhancing markets, the government also wants to champion London as the world's capital of responsible finance for critical minerals.

Like other countries the UK has defined a cohort of minerals with high criticality for the UK. These include: antimony, bismuth, cobalt, gallium, graphite, indium, lithium, magnesium, niobium, palladium, platinum, rare earth elements, silicon, tantalum, tellurium, tin, tungsten and vanadium. The list of critical minerals will be reviewed annually by the new Critical Minerals Intelligence Centre, led by the British Geological Survey.

The UKCMS also points out how strangled some of the current supply chains are: “Critical mineral supply chains are highly concentrated. For each of the 18 critical minerals, the top three producer countries control between 73% and 98% percent of total global production. China is the biggest producer of 12 out of the 18 minerals. We believe that the more diverse our supply chains the more resilient they are.” Pragmatically, it also notes: “We need to continue to engage with China to achieve our objectives, including to improve ESG performance in critical mineral supply chains, while continuing to strive for diversified and resilient supply chains.”

In an insight paper on the UKCMS produced by international law firm Baker McKenzie it notes that: “The UKCMS is progressive as it recognises the dynamic nature of ‘criticality’ in the world of fast-developing technology.” 

It certainly is that. The UK will have a Critical Minerals Expert Committee which will advise on a ‘watchlist’ of minerals that are deemed to be increasing in criticality. Within the first watchlist are: iridium, manganese, nickel, phosphates and ruthenium. The UKCMS notes: The overall intention within this approach is for the UK to have an evidence-based, clearly articulated and evolving list of critical minerals, which reflects the dynamic nature of global supply chains and mineral markets.”

The policy paper is clear and realistic in its goals, and notes: “The UK has limited natural resources and depends on relatively concentrated, opaque global supply chains. Instead of aiming for self-sufficiency, our intention is to improve UK manufacturers’ access to critical minerals – either domestically or internationally – and ensure UK businesses benefit from the growth of global demand. We will use a suite of policy levers to promote a more resilient global supply chain, including through diversification, international partnerships and the circular economy.”

It also emphasises: “We will be pragmatic in our approach, recognising some countries will not share UK values or ambitions for a diverse and transparent system. We will focus on building capabilities in collaboration with countries that share our ambitions and engaging constructively with others, while protecting our national security and values.”

As part of the financial support for the development of the critical minerals supply chain, the UKCMS lists several existing financial support opportunities for UK businesses including the Automotive Transformation Fund (ATF), the Industrial Energy Transformation Fund, the National Security Strategic Investment Fund, the new UK Infrastructure Bank (UKIB) and importantly UK Export Finance (UKEF), the UK export credit agency. 

The UKIB has £22 billion of financing capacity to deploy and is aiming to invest across the capital structure, including senior debt, mezzanine, guarantees and equity. The policy paper also notes that: “UKEF products can support eligible critical mineral projects, including UK-based projects with potential to export or overseas projects that present opportunities for export of UK goods and services.”

The UKCMS also pledges to work with development banks: "to direct Overseas Development Assistance towards helping like-minded, resource-rich countries develop critical mineral resources in a market-led way that aligns with sustainability, transparency, human rights and environmental goals, and supports our development priorities".

Opportunities for supply will develop for companies with specific expertise, and some commodity trading companies along with mining entities have already found a niche or are exploring new avenues. In one example, Britishvolt received government support through the ATF to develop a gigafactory in Blyth, Northumberland, and will become a major consumer of battery materials such as lithium, graphite and cobalt. The project will support 3,000 direct jobs, and a further 5,000 in its supply chain. Britishvolt is also working with global commodity trader Glencore to develop an ecosystem for battery recycling in the UK. 

Announced in February this year, this ecosystem will be anchored at a new recycling plant located at the Britannia Refined Metals operation (BRM-located in Northfleet), a Glencore company. BRM will continue with its current production and trading operations. Once complete, the plant will be Glencore and Britishvolt’s first battery recycling facility in the UK with an expected processing capacity of a minimum of 10,000 tonnes of lithium-ion batteries per year. The facility will process all Britishvolt’s battery manufacturing scrap from their gigafactory in Blyth. 

The facility is expected to be operational by mid-2023, with the long-term aim of being 100% powered by renewable energy. The partnership will also look to develop other recycling activities such as the refining of black mass into battery grade raw materials. At the time, David Brocas, head cobalt trader at Glencore, commented: “This recycling partnership complements our long-term supply agreement for responsible cobalt from our operations in Norway and the Democratic Republic of Congo. We believe the opportunity to utilise BRM’s operations as a cutting-edge battery recycling facility will help support the development of a UK battery recycling industry.” 

In May this year, another leading commodity trading company, Trafigura, agreed terms with lithium UK processing company Green Lithium to support the development of one of the first centralised commercial lithium refineries in Europe. The new refinery, expected to be built in the Teesside region of north-east England, will supply European electric vehicle and battery manufacturers with battery-grade lithium chemicals. Under the newly-established relationship, Trafigura plans to supply lithium feedstock required for the refinery and invest equity in Green Lithium’s development phase funding round.

Socrates Economou, head of nickel and cobalt trading for Trafigura, said at the time: “This landmark project has the potential to revolutionise the European supply chain for EV production and sustainable energy storage at this critical time in the energy transition.”

The UKCMS lists a number of other specific cases within renewables, battery, EVs, tech and other sectors where financial support has already been forthcoming from the UK government and other sources. For example, in July 2021, Envision AESC announced investment in a new gigafactory in Sunderland, which forms part of the £1 billion North East Electric Vehicle Hub that also includes investment by Nissan in electric vehicle manufacturing. And in January 2022, it was announced that intended government support for Britishvolt’s gigafactory in Blyth, had unlocked £1.7 billion of private investment.

In terms of international collaboration, the UKCMS also points to a several international partnerships which exist with other countries. In particular it refers to the Minerals Security Partnership, which was entered into in June 2022 at the Prospectors and Developers Association of Canada (PDAC) conference in Toronto by the UK and Australia, Canada, the European Commission, Finland, France, Germany, Japan, South Korea, Sweden and the US. The partnership aims to promote investment into critical mineral supply chains to incentivise diversification in the market.

In its Insight paper, Baker McKenzie sums up the UKCMS initiative as: “The UKCMS is an important policy development that will no doubt shape not only the UK critical minerals sector but also the critical minerals supply chains around the world. It acknowledges and reflects the dynamic nature of the industry and is progressive in nature. It also has teeth — the policy statement comes with significant funding opportunities both for the mining industry in the UK and in support of the critical minerals supply chains globally.”

Australia looks to gear up substantially

Along with the UK’s progression, this year Australia is another nation closely looking at improving their critical minerals strategy. In March this year the government released an updated strategy which builds on the first critical minerals strategy, published in 2019. The aim is to underpin the country’s prosperity and security by growing the critical minerals sector, expanding downstream processing and improving access to reliable, secure and resilient supplies of critical minerals.

As part of the update, Australia has added two new minerals to the country’s critical minerals list – high purity alumina and silicon – reflecting the expanding significance of mineral inputs in strategic applications like semiconductors and electrification.

Keith Pitt, the minister for resources and water commented: “Australia has been blessed with extraordinary reserves of the critical minerals needed by these sectors. We produce around half the world’s lithium, are the second-largest producer of cobalt and the fourth-largest producer of rare earths.  But we have the potential to do so much more. The Australian government is taking action to grow Australia into a critical minerals powerhouse, capitalising on the strength of our world-leading resources sector, expertise in processing and highly skilled workforce.” He added: “We have committed $200 million to the Critical Minerals Accelerator Initiative to support strategically significant projects at challenging points in their development.”

The Australian government also says that it will also build on relationships with key countries such as the US, Japan, the Republic of Korea, the UK, India and EU members, as well as looking to work with new partners and in new groupings if those opportunities emerge.

The government is keen to help de-risk projects by: helping to bring them to the market earlier; by supporting projects to secure offtake agreements; and, by giving investors the confidence to commit. The $2 billion Critical Minerals Facility (CMF), announced in 2021, is key to the strategy which is already providing loans to the sector. Projects are accessing grants under the Modern Manufacturing Initiative and concessional finance through the Northern Australia Infrastructure Facility. 

The CMF is administered by Export Finance Australia, the country’s export credit agency. It will help projects aligned with the Critical Minerals Strategy overcome gaps in private finance to get off the ground. It will support jobs and communities, particularly in regional Australia, and bolster a strategically important sector in the Australian economy.

In February 2022, the Critical Minerals Facility issued its first loans to two Australian companies. Firstly, to EcoGraf which is developing the Australian Battery Anode Material Facility in the Rockingham-Kwinana Strategic Industrial Area in Western Australia. The loan of up to $35 million will help EcoGraf expand the facility and produce spherical graphite products. Secondly, to Renascor Resources which is developing an integrated graphite mine and a processing facility in South Australia. The loan of up to $185 million will support Renascor’s ambition to become a world-leading supplier of purified spherical graphite.

In other related financing initiatives, mid-stage critical minerals projects can access the government’s $1.3 billion Modern Manufacturing Initiative (MMI). MMI funding helps companies’ pilot, demonstrate or scale up the techniques and processes they need to achieve commercial close.

The first round of MMI funding under the collaboration stream saw four critical minerals projects receive grants totalling $243.6 million. The recipients included: Pure Battery Technologies, which received $119.6 million to develop a nickel and cobalt battery material refinery in Western Australia; Australian Vanadium, which received $49 million to establish an Australian vanadium battery industry in Western Australia, powered by green hydrogen; Alpha HPA, which received $45 million to construct a high-purity alumina production facility in Yarwun, Queensland; and, Arafura Resources, which received $30 million to construct the Nolans Project rare earth separation plant in the Northern Territory.

Canada seeks to finalise critical minerals strategy

In June this year, the  Canadian government released a discussion paperon Canada’s critical minerals strategy. The consultation period will run to 15 September 2022. The final Strategy will be published in Fall 2022. 

In the foreword, Jonathan Wilkinson, minister of natural resources, states: “Our mining industry - indeed our country - is faced with a generational opportunity: critical minerals. Simply put, there is no energy transition without critical minerals, and this is why critical mineral supply chain resilience is an increasing priority for advanced economies.

“And because of this we are seeing projections for significantly increased demand for several of these minerals, overwhelming current supply. In fact, the World Bank forecasts a 500% increase is required - by 2050 - in production of minerals like cobalt just to feed the clean energy transition to batteries.

And for minerals such as lithium and graphite, demand could increase by as much as 4,000%. With this increased demand comes the risk that, without sufficient supply, critical minerals could become the bottleneck, rather than an enabler, in the energy transition.

“At the same time as these projections for increased demand, geopolitical uncertainty has magnified the precariousness of existing sources of minerals and metals. Governments around the world have begun to assess their vulnerability to supply shocks for commodities they cannot sufficiently source inside their own borders but on which their economies depend. It is in this context that the government of Canada views the development of our critical minerals value chain as a generational opportunity for our country.

“Every stage of the critical minerals value chain presents an opportunity for Canada: exploration, mining, processing, manufacturing and advanced manufacturing, and recycling. That’s why our government has committed to develop a Critical Minerals Strategy, backed by nearly $4 billion in budget 2022 — a strategy that will address the entire value chain.”

The Canadian strategy will address five core objectives: support economic growth and competitiveness; promote climate action and environmental protection; enhance global security and partnerships with allies; advance indigenous reconciliation; and foster diverse and inclusive workforces and communities.

Canada’s current list of critical minerals consists of 31 minerals. The list is reviewed and, if necessary, revised every three years. Canada already produces over 60 minerals and metals, is a leading global producer of many critical minerals, including nickel, potash, aluminium, and uranium, and has the potential to supply more to both domestic and international markets. And as part of the strategy, the consultation paper notes: “Given the urgent need to develop Canada’s critical minerals supply chains, our research suggests that early efforts should focus on the following six minerals: lithium, graphite, nickel, cobalt, copper, and rare-earth elements.”

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