Critical minerals, Western security and the case for US leadership
As the world awaits the US Presidential election debate on 10 September, the two candidates Donald Trump and Kamala Harris might reflect on the words of President Dwight Eisenhower, seventy years ago, when he quipped “I have two kinds of problems, the urgent and the important.
The urgent are not important, and the important are never urgent”.
Eisenhower’s reflection came one year into his presidency. With an armistice ending the Korean War, he faced an economy emerging from recession, Communists occupying Hanoi and an obscure army officer, Gamal Abdel Nasser, seizing power in Egypt.
His quip became part of the lexicon of business and political leaders, seeking to distil long from short-term priorities amidst the blizzard of issues competing for their time.
Today, one strategic imperative for the US (and the West) is becoming increasingly urgent, namely the vulnerability of supply chains, and in particular the critical minerals vital for electric vehicles, battery storage and the wider energy transition.
The International Energy Agency estimates that we need an extra $800 billion of investment in new mining projects by 2040 to meet the 1.5 °C target.
To appreciate the scale of the challenge, compare critical minerals to oil, with its historically fraught impact on international relations.
Whilst no single country has more than a 15% share of oil supply, China has a more than 80% share in gallium, magnesium, tungsten, to take just three critical minerals – and controls almost all the mines in the Democratic Republic of Congo which produces over 70% of cobalt.
The West is 20 years behind China, which avails itself of the subsidies, price control and long-term planning that only a command economy can, creating a massive cost of capital disadvantage for Western investors.
In such a concentrated market, over-production – take nickel – can deflate the price artificially, undermining Western investment despite massive long-term demand. It is now a major geopolitical fault line, exposing Western vulnerability.
What plans do candidates Trump and Harris have to redress the balance?
There is bi-partisan support in the US Congress for the strategic goals of friend-shoring the extraction and refinement of critical minerals to bolster economic resilience.
The Rubio-Warner Global Strategy for Securing Critical Minerals Act 2024 proposes adding to the US government’s financial toolkit to leverage greater investment and expanding diplomatic initiatives to diversify supply chains.
Meanwhile, former President Trump’s vow to repeal the subsidy-funnelling Inflation Reduction Act (IRA) may be tempered by Congressional opposition. Recent analysis found that 80% of IRA investments have landed in Republican states.
My experience chairing, on behalf of Appian Capital Advisory, a group of investors advising US policy-makers via the organisation Securing America’s Future Energy, suggests an effective strategy requires three pillars. First, stronger policy levers to level the playing field.
The current US administration is considering demand-side tools like contracts-for-difference, fixed price floors, and loan guarantees to try to off-set the cost of capital disadvantage Western firms face.
The aim of promoting a race to the top – with the highest ESG standards in mining reflected in investor pricing – is laudable.
It remains to be seen how such a ‘premium’ market would work in practice, and whether it would be attractive to developing countries currently benefiting from China’s Belt and Road investments.
Whatever the mix of grants, loans, guarantees, tariffs, export restrictions and other tools, mitigating CapEx costs is the greatest conundrum.
Second, friend-shoring needs to be more ambitious.
The US, let alone its allies, cannot be individually self-sufficient. We need to forge wider clusters of high-trust partnerships to provide broader, end-to-end supply chains.
The Five Eyes intelligence and security alliance of the US, UK, Canada, Australia and New Zealand could expand its scope to cover critical minerals security – given the breadth of resources and capacities each brings to the table.
Japan too, is a key high trust partner in this space.
Next, the US-lead Mineral Security Partnership (MSP), comprising America’s core transatlantic and Pacific allies, must reach beyond its comfort zone.
The admission of India, a pivotal non-aligned power, brings the number to 15. But can we coax linchpin producers like Brazil, Peru, The Philippines, Saudi Arabia and Indonesia into the MSP?
Finally, we need better public-private partnerships. Businesses can bring investor acumen, technical expertise, innovation and high ESG standards.
For example, Appian Capital Advisory has invested in US Strategic Metals in Missouri, not just to mine and process nickel, lithium, copper and cobalt, but also to introduce state-of-the-art recycling of lithium-ion batteries.
For its part, in addition to financial support, governments need to streamline permitting, and collaborate better to provide diplomatic and security assurances, and deploy aid in ways that support supply chains – for example, financing roads, rail and port infrastructure in developing countries.
As I meet with governments and businesses in the US, Japan and Australia this month, these are the important and urgent challenges we will be discussing – and the next US President will have to overcome.
mining.com
