Opinion - Picking critical minerals winners requires hard choices
By Patrick Gibbons
If Australia wants to develop a critical minerals industry that moves it from being the largest exporter of raw minerals to a globally significant downstream processor with the high-paying jobs that brings, hard choices need to be made.
Inevitably, it will involve picking winners, not just of the minerals but also the companies that develop them. Call it the need for an industry policy.
Three facts should drive Australian critical minerals policy.
First, all minerals are critical. What governments are really talking about are strategic minerals – commodities that have strategic and political importance beyond the physical needs of the smartphone or car battery they go into. It’s their value in computer chips or advanced fighter jets that really matter.
This is more than what makes it on to the list of critical minerals, something the federal government is again looking at. It is about acknowledging strategic policy, whether in the resources sector or defence, doesn’t come free.
Second, internationally there are alternative sources of supply for many critical minerals Australia wants to target.
Take lithium. A threefold increase in its price has delivered record exports of $19 billion in the past year. This led to the headline-grabbing prediction from the Federal Department of Industry’s latest Resources and Energy Quarterly that export earnings of the two main minerals involved in the energy transition – lithium and copper – would exceed that of thermal coal by 2025.
This may turn out to be the case – or not. But what is clear is that lithium is widely available and easily accessible around the world.
According to the United States Geological Survey, in the six years between 2016 and 2022, known lithium resources have more than doubled from 40 million tonnes to about 98 million tonnes.
In addition, the two countries with the largest lithium resources, Bolivia and Argentina, have barely entered the market. But they will.
As new supplies come online, prices are expected to fall dramatically, leading to price volatility – the enemy of all resource projects.
There is a similar story in other critical minerals and rare earths.
Third, our competitors, like China, Indonesia and other countries that now dominate global critical mineral supplies, are aggressive practitioners of resource nationalism – and they are good at it.
Indonesia’s decision to restrict nickel exports has prompted companies such as Ford, Hyundai and Volkswagen to establish battery factories there. This is being replicated by other countries looking to increase the level of domestic involvement. In turn, this had led to calls for the creation of a critical minerals version of OPEC.
China’s ban on exports of gallium and germanium (used in the production of silicon chips, but also byproducts of zinc production in which China is the world’s largest) is the latest example of trade policy being used to bolster broader strategic aims. And while China is not alone in doing this, its full-spectrum dominance of critical minerals reinforces the risks for the Western bloc.
Australian policymakers face a choice. Do they encourage new mine developments that will probably get overwhelmed by international competition, or support specific projects capable of operating on the global stage?
Even a cursory look at how Australia developed key mineral processing industries such as steel or aluminium shows the central role governments played, especially around the provision of internationally competitive energy supplies and project financing.
Something similar now needs to be considered for the critical/strategic minerals sector.
Realistically, Australia cannot compete with the production subsidy models used in the United States or the EU.
Nor can it be assumed foreign investors, even strategic allies, will always look favourably on Australia as a destination for resource investment. Concerns around the impact of government policies raised by Japanese corporations and its government over the past 12 months highlight the understandable political and commercial sensitivity that comes with $90 billion of investment over the past decade.
However, there are approaches that may better suit Australia’s domestic economic reality.
These include federal and state governments commercially partnering with selected companies to address regulatory risk issues, allowing the development of regulated monopoly processing assets to better position Australian producers in competitive international markets and stepping up with meaningful direct financial packages to bring risky assets into production.
It also means building on existing mineral processing capacity that already has genuine strategic importance – aluminium and copper.
This type of policy requires a clear-headed analytical understanding of the interplay between regulatory and market challenges, and emerging geopolitical trends. It cannot be driven by those with the largest marketing budgets or political sway.
Admittedly, this will be viewed by some as suboptimal; a return to the bad days of protectionism and government picking losers.
But we also need to be honest. Federal and state governments already play a central role in the Australian resources sector – exploration permits, environmental approvals, foreign investment laws, tax structures, labour regulation, energy and climate policy to name just a few. Add in the provision of capital through the Northern Australia Infrastructure Fund, the Clean Energy Finance Corporation and now the National Reconstruction Fund, and government is omnipresent.
If Australia wants to be a market leader in downstream processing of critical/strategic minerals, it can’t get caught up on terminology arguments over policy design. Either Australia wants to develop the industry or not.
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