Western nations have agreed to collaborate on expanding export credit agency (ECA) backing and development finance for critical minerals, following concerns over lagging investment in long-term supply and over-reliance on China.

The Minerals Security Partnership, a coalition of 14 countries including all G7 states, Australia, India and South Korea as well as the European Union, this week announced plans to launch a finance network incorporating domestic ECAs and development finance institutions.

The initiative aims to encourage information sharing and co-financing among participants, in order to boost investment in the supply of metals required for the energy transition.

Kurt Campbell, US Deputy Secretary of State, told attendees at a launch event in New York that “financing is the essential, missing and necessary ingredient”.

Demand for critical minerals is expected to far exceed demand over the next decade,driven significantlyby expanded renewable electricity supply and battery production.

In a report published last week, consultancy McKinseyforecasts that by 2035, demand will outstrip supply by as much as 30-40% for lithium, 30-40% for rare earth elements and 10-20% for copper.

However, low metals prices and ESG concerns have causedlagging investmentin bringing new supply online, and there are long-term concerns over westernreliance on Chinaas a hub for both extraction and processing.

Speaking at yesterday’s event, US State Department under-secretary Jose Fernandez said: “Our collective efforts will address financing for critical minerals projects.

“They will send a powerful signal to markets about the importance of securing and diversifying critical mineral supply chains, through projects that adhere to high ESG principles, support the clean energy transition and our climate goals, promote economic growth and prosperity… as we work on projects with producing countries.”


ECAs and critical minerals

The finance network aims to use ECA and development finance institution support to encourage the mobilisation of private sector capital in the production, extraction, processing and recycling of metals.

Such institutions are able to offer guarantees or concessional financing to encourage investment from banks and other lenders, particularly in marketsdeemed higher-risk.

The network “provides a coordinating platform… to finance and collectively de-risk projects, and also crowd in private finance”, Fernandez said.

“Many analysts have told us that the critical mineral industry and the associated supply chains will be a trillion-dollar industry, so we need everyone to roll up their sleeves and actively participate.”

Though ECAs have been involved in mining projects for decades, particularly in Asia, critical mineral supply chains have become agrowing area of focus– particularly because of concerns about the outsized role played by China.

An OECD report last year found its member states are far more dependent on critical mineral imports from China than any other nation, yet Chinese export restrictions have increasedmore than five-foldover the last 10 years.

Efforts to diversify supply are increasingly involving collaboration between ECAs.

In August last year, Australia’s export finance agency revealed it wasin talks with counterpartsin South Korea and the US over potential backing for a lithium extraction project in the western Outback, and governments from Australia, India, Japan and the US havesignalled their intentionto connect extraction and processing facilities without involving China.

This week’s announcement marks the largest collaboration of its type, with ECAs from Australia, France, Germany, Japan, Korea, UK and the US among those to have joined the network.

Development finance institutions participating include British International Investment, the European Bank for Reconstruction and Development and the Africa Finance Corporation.

The project is led by the US government and the Center for Critical Minerals Strategy at SAFE, a Washington, DC-based energy security think tank.

Banks present at yesterday’s summit included Citi, Goldman Sachs and JP Morgan, as well as commodity trading giants Glencore and Trafigura, and mining companies Anglo American, BHP and Rio Tinto.


Price concerns

Speaking at the launch event, US government representatives cited concerns from Australia that price pressures mean dozens of mines in “critical areas… have been forced out of business” over the past year.

“That is to be one of the biggest things that we have to deal with,” Cambell said. “Given the important role of a country like Australia, the fact that much of its capacity is now moving into bankruptcy… is deeply challenging to us.”

Fernandez added that protests from local communities have also hampered the development of extraction projects, saying network participants will seek dialogue with commodity-producing countries and promote ESG principles.

“There are many, many mining projects around the world that are perfectly feasible but aren’t going forward, and they’re not going forward because communities are opposed,” he said.

“They block the roads, they block the projects, so part of what we needed to do was to engage communities and engage countries, and engage them on the basis of a race to the top.”

Campaign group Global Witness has highlighted red flags arising from several critical mineral mining projects in developing markets.

Over the past year, it has warned of corruption risks and environmental hazards arising from lithium mines in DR Congo, Namibia and Zimbabwe, and says projects must be “carefully planned and executed to avoid displacing communities or depriving them of their essential land resources”.

https://www.gtreview.com/news/global/western-governments-launch-financing-network-for-critical-minerals/