Deep Dive: Who, What, and Why of National Critical Minerals Strategies
Cultivating Domestic Mining Industries or Stabilizing Metal Supply Chains?
Who, What, and Why of National Critical Minerals Strategies
Cultivating Domestic Mining Industries or Stabilizing Metal Supply Chains?
Welcome back to this iteration of Non Ferrous Flows!
Last time we talked about Indonesia and its new rules regarding mineral processing, which you can find here. This week we are going to be doing something a little different. Rather than a deep dive into a single national industry, we are going to look at the broader international trend of “critical mineral strategies,” and its effect on the Asia Pacific. In the last several years, governments around the world have put out a whole new rash of critical mineral strategies, laws, and plans. We are going to examine some themes and main takeaways.
What defines a critical mineral? How do these plans differ country by country? How does the critical mineral label change how businesses can operate, and are those standardized across countries? What are the advantages of being classified in a critical minerals group? Or put another way, if copper is suddenly a critical mineral, what can the copper miner do now?
This article is curious about public policy because it affects business and how supply chains are changing, rather than the other way around. A broad understanding of contemporary geopolitical tensions is a prerequisite to understanding transformations and risks in those supply chains. We are excited about this week’s article, and we hope you enjoy it as well.
Why Critical Minerals?
On this point, I’m going to lift a quote from the recently published Canadian strategy (which, much like your author himself, has been slightly altered here to sound less Canadian-centric.)
“Critical minerals are the building blocks for the green and digital economy. There is no energy transition without critical minerals: no batteries, no electric cars, no wind turbines and no solar panels. The sun provides raw energy, but electricity flows through copper. Wind turbines need manganese, platinum and rare earth magnets. Nuclear power requires uranium. Electric vehicles require batteries made with lithium, cobalt and nickel and magnets. Indium and tellurium are integral to solar panel manufacturing…
Simply put, there is no energy transition without critical minerals, which is why their supply chain resilience has become an increasing priority for advanced economies. By growing … expertise at every point along the critical mineral value chain — from mining to manufacturing to recycling — we will create good jobs, build a strong, globally competitive … economy, and take real action to fight climate change”
While the importance of critical minerals is not in doubt, several other reasons come to mind about this issue has become so high-profile within the last two years in particular. Economic scars from covid-era supply chain woes, commodity chaos post-Ukraine invasion, growing geopolitical concerns between China and the West, and a projected shortfall in mineral supply due to the green transition all likely contributed.
One thing that is going to become abundantly clear as we proceed, is that these are political documents, feeding the needs of each given domestic political expectation. In short, amongst Western allies, this means that there is a clear split along two lines — those that have domestic major mining industries, and those that do not. Canadian and Australian critical mineral strategies outline national goals for building their domestic industry, maximizing economic opportunities, and jobs, and ensuring environmental standards. Alternatively, places like the EU and Japan are concerned about minimizing potential supply chain disruptions and diversifying their suppliers. The strategy coming down the pipeline for India also seems to follow this pattern, prioritizing de-risking, especially from China.
“What is a critical mineral?
The term critical minerals itself is flexible and is used inconsistently within the public policy realm, however, most include some combination of the following factors.
- Centralized in one country (especially outside the Global North— few plans lament Australian dominance of minerals)
- No sufficient substitute
- High levels of volatility
- Large projected shortfall
Iron and lead make the South African list, while no other country includes those important but plentiful metals. Meanwhile, Cobalt (important for batteries and 70% concentrated in the Democratic Republic of the Congo), Rare Earth elements (electronics and 90%+ concentrated in China,) and Lithium (lithium-ion batteries, which are used in EVs) were found on almost all lists. A useful chart comparing different classifications is provided at the end of this article.
Who is producing these plans?
These plans have been coming out quite rapidly over the last several years. Japan put theirs out in 2020. Australia, Canada, South Korea, and the US each put their out last year (2022,) the UK and EU are each in the process of building theirs with the most recent contribution last month (March). Finally, India is reportedly in the process of constructing their plan. These countries are massively important in the global economy and account for roughly 55% of the world’s GDP. These countries have certain key aspects in common, namely large, educated bureaucracies, advanced manufacturing capacity, and concerns about Chinese dominance in metal supply chains, which are less common in the global south.
However, given the prominence of the critical mineral strategies in those countries, Western readers might overestimate this trend. The phenomenon of creating specific critical mineral strategies has taken off in the Global North, but not so much across the Global South. Furthermore, in South Africa and Malaysia for example, the focus has been less on supply chains and more on increasing domestic mining capacity with less concentration on specific minerals themselves. Malaysia’s new plan is mostly concerned with growing the Malay mining sector and identifying “strategic minerals” in the sense that their exploitation could produce strategic economic growth, rather than the minerals themselves being strategic for the green transition. At present, it is still a collection of rich, large countries producing these strategies.
China
Let’s start with a simple question — Does China have a critical mineral plan?
The answer is not really, but it has other outlets and structures instead.
The fundamental structure of the Chinese system is entirely different from that of other countries, in the sense that there is more collaboration and communication between the public and private sectors because those lines are blurred. Communication channels are fundamentally different in the Chinese context — rather than publish a significant strategy, China’s mineral strategy takes place privately within ministries or larger documents like five-year plans. These points are then disseminated through other channels. It can be seen here, with a discussion about resource security (自然安全,) often used for energy security, but also applicable to metals. This system, combined with a dispensation towards keeping policy documents private means that China does not have a critical minerals plan per se. But…To say that China does not have a public critical mineral strategy is not to say China does not strategically consider its mineral future.
China initially published a list of strategic minerals in 2016. Since then the Ministry of Natural Resources (中国人民共和国自然资源部) publishes its meeting minutes and provides interviews where officials occasionally indicate the government’s feelings. This is often done in collaboration with state media like party mouthpiece newspaper People’s Daily (人民日报.）So, China does not have a cohesive singular, publicly available critical minerals strategy. However, it’s also less important for Chinese companies because A: government prioritized minerals is clear from government statements and B: governmental relationships with companies are already strong especially since many are State Owned Enterprises (SOEs,) where tax credits and other government subsidies are given through other channels.
Canada
Canada’s most recent Critical Minerals Strategy was released late last year, and much like Australia, is a hopeful domestic policy document laying out the plans for an enhanced mining industry. This plan frames critical minerals as a Canadian economic opportunity, a distinct tone change from the European plans concentrating on setting supply chain diversification requirements. The first four core objectives laid out are each domestic (addressing economic, environmental, indigenous, and diversity issues), while the fifth and final goal “5. Enhancing global security and partnerships with allies” addresses Canada’s international circumstances. Outside of a few comments about the Russian invasion of Ukraine and a thinly veiled comment about China that, “Nonmarket economies are taking increasingly aggressive steps to further cement their control of critical minerals markets and achieve foreign policy goals,” the document is mostly domestic.
Canada has a list of 31 minerals it currently considers to be “critical,” of which six are priorities —lithium, graphite, nickel, cobalt, copper, and rare earth elements. The Canadian government imagines this as a jump-off point to start manufacturing high-complexity goods along the value chain, as seen below. These include complex items like electronics, EVs, wind turbines, batteries, and solar panels.
The plan also lays out the government’s budgetary commitments to assist the mining industry, although most of these had already been announced in the preceding annual budgets. These range from developing human capital and improving public geoscience. The biggest addition, Critical Minerals Exploration Tax Credit (operating in combination with the existing flow-through share,) was proposed in last year’s budget to help incentivize exploration. Altogether, the government estimates there will be approximately C$1.5 billion to support project development.
More important than the 1.5 billion set aside for project development was a promise to help streamline permitting and project approval processes, important given that Canada also seeks ion increase FDI along the value chain. Natural Resource Minister Jonathan Wilkinson acknowledged the need to speed up permitting, claiming the average timeline is probably 10-15 years, sometimes reaching up to 25 years. The possibility for projects to get shovels in the ground faster, while maintaining environmental standards and indigenous relationships, will incentivize more investment than a couple billion dollars in government assistance. The focus on critical minerals exploration as a time-sensitive opportunity indicates that the government follow through, and there have already been alterations made to Ontario law along this path, but the proof will be in the pudding.
The opportunities provided by the green transition have been widely talked about in Canada over the last 18 months, punctuated by President Biden’s visit in March 2023. Even Canadian subnational governments have been producing Critical mineral strategies, with the Canadian province of Ontario releasing its own provincial critical minerals strategy last year. Now let’s move on to another similarly placed mining nation.
Australia
Australia, much like Canada, is one of the world’s most important miners. In that vein, the Australian Critical Minerals Strategy concentrates on building out their domestic industry. Australia had previously written a critical minerals strategy in the late 2010s, so the strategy published last year (2022) was an update rather than an entirely new document.
There is little discussion of diversifying supply chains because they are the supply chain. Instead, it’s about improving domestic human capital, creating job growth in manufacturing and battery production, and greening mining projects. The plan provides funding for a wide array of initiatives, $20 million here, $30 million there. $50 million is provided for the Virtual National Critical Minerals R&D Centre, where the goal is to develop Australian Intellectual Property for refinement.
Many of these are market-friendly policies. There is a desire to bring projects to the market earlier, help secure offtake agreements, and increase investor confidence. Of course, Allied countries looking for sustained relationships with Australian producers will also be excited by the prospect of long-term offtake agreements. While the offtake agreement clause is coming from an Australian government with the explicit intent of helping de-risk projects and make them more financially viable, it also has the added benefit for entities like the EU or Japan to have sustained reliable supply chains with trusted partners.
There is some discussion of Australia’s role on the global stage, mentioning the Memoranda of Understanding with strategic partners like India, Japan, and South Korea, but this pales in comparison to the domestic focus. Even the desire to help secure longer-term offtake agreements, a massive achievement in minimizing volatility for foreign countries, is couched in the context of derisking projects to make them easier to fund.
Japan
To be upfront, your author does not speak Japanese (Chinese and Indonesian proved daunting enough for his language-challenged brain!)
Japan’s latest critical mineral policy was released in 2020, and the policy is primarily based on stockpiling, and collaborating with allies. Unlike other countries, Japan’s critical mineral strategy is not a standalone document, but rather part of a grander natural resources strategy, which also includes energy inputs like oil and coal.
This system follows a similar path that the resource-challenged island nation turned high-tech manufacturing powerhouse has been following for decades. Japan has traditionally stockpiled critical materials and relied on domestic “sogo shosha” (Japanese trading house conglomerates) to import natural resources from abroad. The biggest change in this new act is that more metals have been added to the stockpiling list, and stockpiles have gotten larger. After 2020, the default stockpile rose to roughly 60 days, but this could be extended up to 180 days for certain metals.
Threats to supply chains land particularly heavily in Japan, after China temporarily cut off exports of rare earths in the early 2010s, harming Japanese industry. Financially, government entities can subsidize interest payments on metal purchases and warehouses to ensure stockpile volumes are sufficient. Subsidizing stockpiles are incentives tailored to their larger national plan, but are also limited compared to some of the major tax credits found in other countries. That being said, only looking at financial incentives from this particular 2020 plan likely undercounts other fiscal incentives between sogo shosha and the government.
Overall the structure of the 2020 Japanese resource strategy is relatively simple, expand their natural resource stockpiling program to include more metals and larger quantities. In addition to this, Japanese diplomats and officials have been travelling to places like Australia and Canada to sign memorandums regarding metal offtake, but as of now, Japan’s the core of Japan’s primary public program is refreshingly simple: stock up for winter.
European Union
The European Union’s most recent update, published last month (March 2023,) was short but very clear about its primary goal of de-risking supply chains. The press release was entitled “European Commission - Press release Critical Raw Materials: ensuring secure and sustainable supply chains for EU's green and digital future,” and had the following key benchmarks for domestic production of strategic raw materials.
- At least 10% of the EU's annual consumption for extraction,
- At least 40% of the EU's annual consumption for processing,
- At least 15% of the EU's annual consumption for recycling,
- Not more than 65% of the Union's annual consumption of each strategic raw material at any relevant stage of processing from a single third country.
This was in response to the following concerns presumably regarding China. ”While demand for critical raw materials is projected to increase drastically, Europe heavily relies on imports, often from quasi-monopolistic third country suppliers.” Alongside these goals, the new act will include several domestic actions, like, expediting extraction and processing permits and performing stress tests for large companies, and international advances including strengthening reliable partnerships and engaging in the developing world via the Global Gateway program.
United Kingdom
The British critical minerals strategy, updated last month (March 2023), led by none other than now “Secretary of State for Business, Energy and Industrial Strategy,” Kwasi Kwartang —— a man whose 36-day tenure as Chancellor of the Exchequer narrowly outlasted your author’s concurrent 24-day Chinese quarantine.
The British plan is split into three segments — increase its domestic mining and processing, maintain its role as a commercial mining capital, and geopolitically deleverage from China.
The British plan for rehabilitating the mining industry is a virtual necessity of the post-Brexit Conservative government that preaches British self-reliance and jobs (in fairness the document notes the impossibility of total self-sufficiency on this issue), but in practice, even a British mining industry operating at capacity would have a small impact on the world market. Although given the collapse of battery startup Britishvolt earlier this year, the future of the UK’s domestic manufacturing is shaky. Furthermore, Britain is greening its society and economy at a faster pace than other Western nations, indicating higher future demand for EVs and other green technologies.
Secondly, the plan also argues for the UK, and in particular London, to maintain its hold as one of the world’s mining commercial centers, and continue producing top-notch human capital from schools like the Cambourne School of Mines.
Finally, The UK plan also highlights the need to rely on partner countries noting, “[The United Kingdom]will be pragmatic in our approach, recognising some countries will not share UK values or ambitions for a diverse and transparent system.” This indirect comment is undoubtedly about China, which is mentioned by name several times in the plan. The document calls for increased collaboration with allied countries in forums like the US-led Mineral Security Partnership, de-risking from China.
South-East Asia
Given the focus of this newsletter, the dedicated reader might ask, “what about South-East Asia?” At present, South-East Asia has no recent national critical mineral strategies.
There’s more than one way to skin a cat. Few people following the Indonesian government in the last several years would question whether the government talks enough about the mining industry. However, it would still behoove South-East Asian governments, particularly the Indonesian and Vietnamese governments, to produce a concrete critical minerals strategy. As these countries try and move to higher-tech manufacturing, more metals are going to be needed, and having a clear structure of metal supply can increase business confidence
As we talked about last time, the Indonesian government has been very successful at operating alongside companies over the past several years to facilitate investment into the country. However, as Indonesia looks to move up the value chain into higher-tech manufacturing, it will likely find that not all metals can be sourced from domestic mines. At this point, the Indonesian government is broadly in a strong spot, with the massive inflow of FDI over the last several years, and increasing mineral processing capability, but if it wants to take the next step to manufacture complex products like cathodes, it will likely need to source at least some of the metals from abroad. A formal critical minerals strategy and clear indications of government support could help businesses feel comfortable setting up high-tech factories.
Vietnam is in a somewhat similar spot, although it has taken some steps to engage in offtake agreements. Although Vietnam has fewer mines (but under-discussed rare earth reserves), it has been a major beneficiary of the new “China plus One” strategy, where multinational operations split up their manufacturing to include China and another country like Vietnam or India. As Vietnam looks to move up the value chain, businesses will need more metals to build complex gadgets — plus Vietnam is more vulnerable to supply shocks, given its small domestic mining industry. Getting an iPhone plant is all fun and games for your economy until a global shortage prompts unprepared policymakers to scramble for Praseodymium. It’s best to be prepared.
Conclusion
Given the array of different critical mineral strategies we’ve seen from players across the world, it is clear that countries cannot fully agree on what exactly makes a critical mineral, and how best to incentivize mining it. In circumstances where classification would provide mining companies with a tax credit (like exploration in Canada or R&D in Australia,) neither the financial advantage nor the classification of critical minerals would be guaranteed in another jurisdiction. Uranium is a critical mineral in Canada, where exploration would be given a hefty tax credit, while in Australia it isn’t considered anything of the sort.
There are certain points where having differing classifications makes sense. For example, Canada’s relationship with potash is fundamentally different from other countries given its huge impact on the Canadian economy and its role in global food production. Therefore it makes sense that potash is a Canadian critical mineral, while not being an EU one. Policies will be different between Australia and Japan, as one tries to spur production and the other attempt to reduce risk.
For mineral companies, a consistent set of guidelines and classifications will ease the complexity of doing business throughout different jurisdictions. Legislators should work to balance the targeted specificity of rules and consistency between markets. It is set to become more important as critical mineral export laws will undoubtedly come into place over the next decades.
Secondly, a critical minerals strategy is not an absolute necessity to ensure a stable supply line. There are many ways to skin a cat — China for example has been successful in using an entirely separate approach. However, for countries looking to move up the value chain into higher-tech manufacturing, like Vietnam or Indonesia, a government-endorsed mineral plan could help increase investor confidence and set countries up for success in the medium-long term.