Critical minerals, clean energy and a US compact

Last weekend the US and Australia entered a Climate, Critical Minerals and Clean Energy Transformation Compact. Prior to that the Federal Government announced funding to help progress development of local processing capabilities for critical minerals and more is expected to emerge when the Government’s critical minerals strategy is released in coming weeks.

Those recent developments have helped increase the attention on our critical minerals, as well as rare earths, and the role they will play in decarbonising economies. Critical minerals and rare earths are essential inputs for a range of clean energy technologies, such as wind turbines, electric vehicles (EVs), battery storage and solar PV.

As a result, critical minerals and rare earths are fast becoming part of our everyday lexicon. As noted recently, five years ago you would never have heard critical minerals mentioned even at a mining conference.

So what are critical minerals and rare earths and how do they fit into the clean energy transition? We take a look below.

What’s Critical?

Minerals are considered critical based on their national security or economic implications or their use in clean energy applications. What’s critical tends to be driven by an individual country’s assessment, rather than pure geology.

Last year the US listed 50 minerals as critical –this was an increase of 13 from the prior year. In its fifth list of critical minerals since 2011 Europe now lists 34 minerals (up from 14 in 2011). Geoscience Australia lists 26 critical minerals while the British Government’s critical minerals strategy, which was updated in March, listed 18 substances, including lithium, cobalt (both ingredients of EV batteries) and rare earths (important for permanent magnets used in EVs and wind turbines).

The International Energy Agency (IEA) predicts that to meet projected energy storage demand required for Net Zero Emissions by 2050, supply of requisite metals will have to increase annually between 26 per cent for manganese to 35 per cent for nickel by 2025, and then a further 5 per cent for manganese to 9 per cent for lithium by 2030. Separately, U.S. officials calculate the global supply of lithium alone needs to increase by 42 times by 2050 to meet the rising demand for electric vehicles.

This increased demand for critical minerals is highlighted in figures 1 and 2 below. Figure 1 shows the dramatic growth in lithium supplies over the past decade in response to rising demand for battery storage in particular, while figure 2 highlights the role of specific minerals and rare earths for newer clean energy technologies in comparison to conventional technologies.

Figure 1: Leading lithium supply sources

Source: WA Battery and Minerals Profile, April 2023

Figure 2: Minerals in selected clean technologies compared to conventional technologies

Source: IEA

While the importance of critical minerals to the energy transition has emerged over time and as a result of these kinds of assessments, it has also been brought into sharper focus by geopolitical factors. Russia’s invasion of Ukraine and that country’s willingness to weaponise energy assets has encouraged importing nations to diversify supply sources to reduce supply chain risks. Australia, along with other countries, don’t want a repeat of the weaponisation of energy-related supplies with China. China is the global leader in rare earths and critical minerals production, as well as industries like batteries, EVs, solar modules and wind turbines. 

According to the IEA, China accounts for over 80 per cent of global production of graphite used in batteries and processes almost two-thirds of rare earth elements, critical to clean energy technologies like wind turbines and EV motors. It is responsible for around 75 per cent of all lithium-ion batteries and produces an estimated 76 per cent of the world’s silicon metal.

The IEA’s Special Report on Solar PV Global Supply Chains illustrated China’s central the role in global solar installations – it is responsible for more than 80 per cent of all manufacturing stages of solar panels, which includes polysilicon, ingots, wafers, cells and modules.  China also controls an estimated 85 per cent of the rare earths neodymium and praseodymium, according to the EU’s latest assessment, while it also currently controls all of the world’s supply of heavy rare earths, such as terbium and dysprosium and other minerals.

The dominance of China in the processing and other stages of the supply chain can be seen in the graphic below. But China is not alone in controlling parts of the critical minerals in demand. The Democratic Republic of Congo (DRC) mines 70 per cent of the world’s cobalt, while Russia is a major producer of battery-grade nickel and platinum.

Figure 3: Indicative Supply Chains of Selected Clean Technologies

Source: IEA

It is these current geographical concentrations that raise major security and physical disruption concerns. It has seen companies and governments everywhere scramble to secure new supplies and develop alternative processing capacity.

The US is busily entering agreements, like that just struck with Australia, with a range of countries. 

Japan has already signed a critical minerals deal with the US, and Europe is negotiating one. The US State Department is pushing a Minerals Security Partnership,” with 13 governments.

Australia has significant reserves of critical minerals and rare earths (see tables and map at bottom of this article).  For example, Australia produced 54 per cent of the world’s lithium last year, produces nine of the 10 minerals used in lithium-ion battery anodes and cathodes, and has projects seeking to develop refineries for the tenth (graphite).  We are also the largest producer of titanium and zirconium and the fourth largest producer of rare earth elements, while it is well placed to supply cobalt, tantalum and tungsten, and many other critical minerals (see tables). So, there is significant interest in our critical minerals.

India is considering Australia’s critical minerals and its National Mineral Development Corporation (NMDC) was in Western Australia last week. Hancock Prospecting and NMDC are already reportedly working together on the undeveloped Mount Bevan magnetite project, north of Kalgoorlie. The partners signed a non-binding agreement on lithium, copper and nickel within the land package last year.

But Australia is not a significant processor.  While Australia accounts for much of the world’s lithium nearly all of this is currently shipped to China for processing.

What’s in the Compact?

The US-Australia compact establishes climate, clean energy, and a shared energy industrial base as a key pillar of the US-Australia Alliance.  With its large reserves of critical minerals (such as copper, lithium, nickel, cobalt and rare earths) and renewable energy capacity, Australia stands to benefit greatly from the compact, according to Clayton Utz.

The compact includes coordinating policies and investments “to support the expansion and diversification of end-to-end clean energy supply chains, accelerating the development of markets for emerging technologies and critical minerals”. It’s not yet clear how it will work in practice but a Clean Energy Industrial Transformation Forum will determine the deliverables, with an agreed action plan expected by the end of the year.

While all renewable energy technologies are targeted, solar, wind, storage and clean hydrogen were expressly referenced in the joint announcement. Removal of barriers to investment between the US and Australia and creating investment incentives are also identified.

Some of the stated aims of the compact are to:

• Accelerate the expansion and diversification of end-to-end clean energy supply chains.
• Promote responsible, sustainable, and stable supply of critical minerals.
• Drive the development of emerging battery technologies.
• Support the development of emerging markets for clean hydrogen and its derivatives.

The US is also seeking to include Australia-based production and manufacturing as a “domestic source” in the US Defense Production Act (DPA), according to a White House statement. To date, only Canada has been considered a "domestic source" under the DPA and if Australia achieves that classification it would remove many barriers for US investment in Australian critical minerals and renewable technologies and manufacturing.

The US has already supported Australian rare earths and critical minerals groups, including Syrah Resources, which in October was given a $US220 million ($325 million) grant to expand the capacity of its Louisiana graphite anode plant. Lynas Resources in June was awarded a $US120 million contract by the US Department of Defence.

Domestic Plans

The Australian Government is developing a new critical minerals strategy which is expected to be released shortly. It will replace the critical minerals strategy previously released by the Morrison Government.  Its stated aim is reflect:

• The important role critical minerals can play in helping Australia and international partners achieve emission reduction targets,
• The imperative to bring local projects online quickly to support diversified critical mineral supply chains and markets.
• Growth of domestic manufacturing and industrial sectors.

The strategy is intended to complement other Government initiatives. such as the $15 billion National Reconstruction Fund (NRF), its Powering Australia policy, which also includes the National Electric Vehicle Strategy and Australia’s emissions reduction target, as well as its plan to have batteries made locally.

There are plans to expand Western Australia’s lithium processing capacity to allow it to move up the value chain and export lithium hydroxide rather than spodumene concentrate. That state is responsible for all of Australia’s lithium supply and has its own Future Battery Industry Strategy. The value of WA’s battery and critical minerals sales are estimated to have risen by 163 per cent to $25.2 billion in 2022.

Earlier this month the Government announced that 13 critical mineral refineries, rare-earths mining and battery-focused projects would receive $50 million in funding. This is in addition to the commitment of $50 million announced in September last year to support six projects

Gold, copper and nickel miner IGO will get $4.6 million to integrate production of precursor materials for lithium batteries at its refinery in Kwinana near Perth. Another battery company, Kwinana-based Australian Energy Storage, will get $5.5 million to set up a pilot plant for similar precursor cathode materials.

This project funding is small compared to the support provided to critical minerals project through the A$2 billion Critical Minerals Facility, managed by Export Finance Australia. To date, the Government has approved three loans under that facility:

• Iluka Resources: A$1.25 billion loan for the development of its Eneabba Rare Earths Refinery Project.
• Renascor Resources: A$185 million loan for its Siviour Graphite Project.
• EcoGraf: US$40 million loan for its Battery Anode Material Facility.

Australia’s Critical Minerals and Rare Earth Resources

Source: Geoscience Australia

The map below shows deposits for critical minerals and operating mines in Australia.

Source: Geoscience Australia