Concerns regarding potential shortfalls in the availability of critical minerals needed to sustain the global energy transition are spurring greater collaboration between governments and the private sector, Abigail Hunter, the Executive Director of SAFE's Center for Critical Minerals Strategy, told S&P Global Commodity Insights in a recent interview.
SAFE is a US-based non-profit organization dedicated to diversifying fuel sources and supply chains necessary to support the national security and economic competitiveness of the US and its allies. In March, SAFE and the US State Department announced the creation of the Minerals Investment Network for Vital Energy Security and Transition, or MINVEST, a joint initiative aimed at encouraging investment in the sustainable mining, processing, and recycling of critical minerals, both globally and domestically.
Hunter said that the US government views access to sustainable and secure supplies of critical minerals as a matter of both national and economic security, while OEMs -- original equipment manufacturers -- now recognize the operational risks associated with China's monopoly over global minerals processing. "In an industry where production costs are closely aligned with material inputs, OEMs are seeking out secure and diversified supplies of critical minerals that can be scaled to match their growing requirements," she said.
Hunter noted that concerns around the security and transparency of critical mineral supply chains have prompted OEMs to seek mineral offtake agreements and channel investments directly into projects focused on upstream mineral extraction, processing, and battery recycling. She added that sourcing critical minerals directly from upstream projects ensures compliance with environmental and ethical standards, which are essential criteria for OEM materials procurement.
"Standards without transparency lack impact, while transparency without standards lacks consequence," she said, noting that such moves come at a high cost and currently lack an associated price premium. SAFE is also working closely with the Minerals Security Partnership, a collaboration of 14 countries and the European Union aimed at accelerating investment in global critical minerals supply chains.
The MSP Finance Network
In September, SAFE and the MSP announced the creation of the MSP Finance Network, aimed at addressing financing shortfalls for critical minerals projects while "signalling the importance of securing and diversifying critical minerals supply chains through projects that adhere to high ESG principles."
Weak metal prices, sustainability concerns, and other global macroeconomic pressures have eroded traditional debt financing and equity investment in mining projects in recent years. While alternative finance in the form of prepaid offtake agreements, private equity and royalty financing has been used to help bridge funding gaps, government export credit agencies have also started providing financing directly to new projects as a means of increasing supply chain transparency and securing offtake agreements.
Hunter said that the MSP Finance Network was born out of the need to strengthen information sharing and collaboration between export credit agencies and finance organizations to facilitate commercial bank financing and private sector capital in new projects. "If you really want to put a dent in this problem, government and the associated export credit agencies need to engage with development finance institutions and the private sector to facilitate meaningful connections in a way that enhances the ability of these projects to draw on capital," she said.
According to Hunter, the involvement of export credit agencies is critical for derisking these projects against challenges such as permitting, infrastructure deficits and political instability, which can discourage potential investors. "This isn't purely about connecting companies with projects that have already been subject to the proper due diligence," she said. "It's also about the government stepping up and providing some manner of derisking to help draw in private sector capital."
US Under Secretary of State for Economic Growth, Energy, and the Environment Jose Fernandez said in June that the MSP has "helped several projects to the finish line on every continent of the world," noting that the group has a pipeline of 30 mining, refining, and recycling projects that it is supporting through to commercial production.
Support for MSP forum members
Hunter said that the first convening of MINVEST on the sidelines of the UN General Assembly in New York on Sept. 23 drew strong attendance from MSP credit agencies, development finance institutions, major stakeholders from the global mining industry, and private investors representing over $30 trillion in assets under management. In addition to the 15 MSP members, the group has also granted MSP Forum member status to leading producers and exporters of critical minerals, including the Democratic Republic of the Congo, the Dominican Republic, Ecuador, the Philippines, Serbia, Turkey, Zambia, Argentina, Greenland, Kazakhstan, Mexico, Namibia, Peru, Ukraine and Uzbekistan.
According to Hunter, MSP Forum members must agree to adhere to MSP principles on the sustainable production of minerals and associated ESG standards, consistent with US and European supply chain standards. Under this arrangement, the MSP will market these countries as potential avenues for investment across its finance network, allowing them to diversify their existing pools of export markets and potential sources of investment.
Hunter noted that most of these suppliers, particularly those in Africa, remain heavily reliant on China as a willing offtake partner and sole source of investment. "When you have no other buyer and no other investor, then you have to take whatever deal you can get," she said, adding that bringing these countries into the MSP framework is expected to provide new sources of investment and new offtake agreements.
Hunter emphasized that supporting beneficiation, whereby countries seek to capitalize on their resource wealth by moving further up the value chain through investment in domestic mineral processing capacity, is a key priority for the MSP. "The message we are delivering is that the MSP is prepared to help you as a producer to develop a secure and sustainable supply of critical minerals in a way that supports value creation and local beneficiation."
Platts, part of S&P Global Commodity Insights, assessed US battery-grade lithium carbonate at $11,400/mt on Nov. 19, down $500 from the previous week.
