Let’s look at filling the gaps in Australia’s domestic critical minerals supply chain. Countries around the world have been talking about how to secure supply of these key transition metals. Where do you see Australia standing within this race to secure these key metals?
Alex Biggs: I’m going to start by talking about Canada. It’s a place where I spent a lot of last year, and when I look at what Ontario is doing with mining investment, understanding their projects, and downstream, they’re inviting a lot of manufacturers into the country. We are seeing companies establish themselves there, which makes sense with America going through this second manufacturing boom. But where does that leave Australia? I guess we’re somewhat isolated, but Asia is still on our doorstep. I think that we need to see that downstream investment.
If we look at Western Australia, we’re a minerals dependent economy. So, there needs to be more of a downstream industry. The same way that Geelong was a car manufacturing dependent economy, we can’t go on just digging stuff out of the ground. We need to look at the next stage.
Adam Best: I think that the Australian government is getting quite active with the national battery strategy being developed. The consultation phase for that closed in mid-March, and they’re now currently writing the policy which is due for release later this year. They’ve also just released the Powering Australia Growth Centre expression of interest. The fact that the battery strategy will be run out of the department of industry science resources and Minister Husic’s office, is a strong sign that they’re very keen to see more downstream activity.
At CSIRO, we are very passionate about that downstream activity. We would like to see the nation move to cathode and anode active manufacture. With those materials, you can ship them nearly anywhere in the world, and under the IRA with our free trade agreement with the US, we are considered domestic supply. So, there are significant opportunities for Australia, it’s whether we can put the right incentives, and the right structures in place, that companies want to take advantage of.
Laura Hubbard: While Australia is uniquely placed with the full suite of resources to produce cathode active material in particular, as well as anode-active material (AAM), getting to a place where we’re able to get into the downstream sector will be what is a challenge for Australia. We will need to overcome this to make use of the opportunity to add value to Australia’s raw materials.
James Gurry: Australia used to produce a lot of steel, and there were steel mills and modern steel proposed in WA. If we can get absolute policy commitment and funding into these processing elements, there can be a real opportunity to grab more of the value chain and maybe boost our population in bringing in a few more workers to activate these projects and make it easier for companies to get into that processing stage.
Adam Best: I’d just like to add one point to Laura’s comment. If we make cathode and anode active materials the same way the Chinese do, we’ll lose. We must innovate these processes. We need to think about how we can be less energy-intensive, less labor-intensive, how we can automate these processes, and bring renewable energy to these processes to take energy intensity out. We have to change the game to suit ourselves.
We have new regulations such as Australia’s national battery strategy and the Inflation Reduction Act (IRA) in the US. How are these government initiatives creating opportunities in the mining investment space, and how do you see these policies likely to change the market in the long term?
Laura Hubbard: I think we are beginning to see the shift with the new policies from the US in development, and from Europe. Wood Mackenzie forecasts EV demand to grow sixfold in the US and double in Europe by 2030. And so, the importance of these policies and the volume of raw materials that we’ll need to comply with them will be growing over the next decade. The IRA will have a big impact on where battery makers will be sourcing raw materials from, and begin to shift which projects and producers have oversubscribed demand in order to get ahold of those products.
Adam Best: Interestingly for Australia, I think part of our challenges will be regulatory compliance, particularly if the Europeans apply carbon adjustment taxes at the border, we will need to be producing low carbon mineral products. If we don’t do that, there’ll be adjustments made which may make our products uncompetitive. Again, innovation will come to the fore.
Alex Biggs: The US is currently going through its second manufacturing boom and decoupling from China. So how do we become part of that when China is obviously a very close ally of ours, particularly when it comes to the resources space? I guess with the US, they have Canada on their border, so they have that supply opportunity. All these policies are fantastic, but we need to see action. We need to see the flow-on effect not just at one point in the chain but at multiple points. I would like to see the Australian government being a bit more aggressive in looking at innovation.
James Gurry: I think it’s in the news that we’re going to have a department of the federal government engaged with the department of the US government to help companies coordinate this. And it sounded very indirect and a little confusing, compared to companies that you can see in other jurisdictions that are going straight ahead and repositioning themselves. You can see all these battery manufacturers absolutely pivoting to the US, Canada, Brazil, or Mexico, where they think, “Right, I’m going to be able to take advantage of this straight away. I’m going to set up my plant here.” Often, we’ve got to be located where the resources are, so it’s going to be a bit more of a challenge and a second derivative. We need that to be addressed through loans maybe, even if we’re not paying taxes in the US.
There have been a lot of announcements out of the Australian government about critical materials programmes to help encourage the industry. What sort of follow-through have you seen after those announcements?
Adam Best: CSIRO, together with Geoscience Australia, announced recently that we’re a part of the Virtual Critical Minerals Research Hub, led by my colleague, Chris Vernon, which is specifically looking at critical minerals processing. The Critical Minerals Office has just been given additional funding through this current budget round. I think the money needs to be in downstream projects and this is where the money is going in the IRA, to actually build these downstream production facilities. I don’t think we have a challenge in terms of mining, we can do that well. It’s what happens in that downstream processing, how we open those opportunities, how we build and grow companies in that space. I think that is where the opportunities lie and where a bit more activity needs to happen.
Alex Biggs: We also need to see support on the ground. When we were working in Ontario, the geological survey was actually sent to our site, not costing us anything as a business. They were mandated by the government to go out, look at the projects, and rank the projects as likelihood of being developed etc. The government could then work out what the infrastructure would look like in certain regions. I’d like to see that happening here in Australia – the government being directly involved in supporting that development. But even before that, we need to understand what those infrastructure requirements might be moving forward. Because ultimately that’s going to be the thing that’s going to hold all this up.
James Gurry: You can see the best example is probably Iluka’s rare earth refinery in Eneabba. They’ve got over a $1B loan from the government. Iluka’s is a big company already; they’ve got a lot of financial resources. It would be terrific just to see more support for medium- and smaller-sized companies with perhaps bigger ambitions relative to their current size.
Laura Hubbard: In Finland, there is a government funded organization, FMG, that is working and partnering with private organizations to set up precursor and CAM facilities to establish those value chains domestically. I can see that government support is very important. But another way to channel that funding is to invest directly, and work with companies from overseas with experience in these sectors to establish downstream manufacturing.
What are your thoughts on the de-globalization trend we’re seeing in terms of regionalizing of supply chains?
James Gurry: We have seen companies that have asked certain shareholders to divest themselves of the shareholdings. It’s also happened in Canada, but in Australia, you see it if you’re trying to sign up a battery customer who is adamantly outside of China. We have seen those that are at the crunch point who are trying to either sign up customers or put their project finance in place, they have had to make significant moves or compromises to readjust the way they’re set up from a corporate point of view to cater to this new critical minerals supply chain channeling.
Alex Biggs: I think we’re seeing a lot of protectionist type policies in various countries. And I thought we were a free market economy globally. Globalization now might be a problem for a lot of countries individually, and that comes down to underinvestment in these industries. There’s a comment that you can’t really make change in a democracy, and if we look at China, we see obviously the antithesis of that. I don’t necessarily believe in either, but I don’t think that these protectionist policies help the thematic long-term, unless of course you’ve got a solution which you can roll out very quickly.
James Gurry: When you do your model, economics wins most of the time. Unless you have some big tax incentives up front that change the economics for a corporate to look at a particular project or plant. And it does get a little bit awkward when you start subsidizing certain industries if you are trying to be fair trade, and have a global equal playing field. Europe most recently has been looking at the need to diversify from a security point of view, the sources of supply.
Adam Best: From my perspective, localization has benefited us as an organization. I see a lot more research being done with us. People are asking us to help them with mining activities, to help them with things that they would not have looked at previously. It may not have made economic sense, but because of the localization approach, all of a sudden, they’re saying, “Well maybe this makes sense now, maybe we can do things here which may not have made economic sense previously.” And this is all around that, making sure you have national resources.
This is where things like DLE, direct lithium extraction, is becoming a red-hot topic. In some places, there are DLE activities going on in lithium resources, which five years ago you wouldn’t have even looked at twice. In some instances, the technology’s still not there to develop those products. There’s still a lot more work that’s going to have to be done to make sure that those can be efficiently recovered.
There’s been a lot of discussion about downstream development of the supply chain. There are a lot of barriers to overcome, and there’s a lot of money coming from the federal government to project fund throughout the supply chain. Is the best placement of that funding into pre-feasibility studies for projects that are a long way from hitting the market? Is it better to look at ways to subsidize some of those key barriers, whether it’s labor costs or energy costs, which really are what’s stopping any major downstream development? Or should we focus on what we’re good at, which is mining and initial processing, and benefit from some of these new policy drivers such as the IRA and the CRMA in Europe?
Alex Biggs: I had some this exact discussion in Perth with people in the Liberal Party. If you asked a lot of people, they would say the barriers to entry are labor costs and power costs. Okay, fine. Subsidize that with manufacturers who want to come here, that then drives the government to solve the problem long term. Now, we’re looking at green energy as a solution, you’re investing in the thing that’s going to solve your power problem long term. Labor costs are always going to be an issue, but I think that’s where it needs to be looked at. Because I think if you can provide that downstream here, then we are innovators and manufacturers. I believe that’s where the government should be looking.
Adam Best: I’d agree with the challenges that you’ve addressed. Are we maximizing the level of investment we have in education? Are there things we can do to start to leverage that and develop downstream? We won’t get lucky four times. We’ve had oil and gas, and we’ve had iron ore and battery materials. I don’t see what comes after that. We have to put in place policies and plans that allow us to maximize the opportunity that we’ve got here.
Laura Hubbard: I think to take advantage of the friendshoring trend, Australia will need to either do some refining to battery chemicals, or partner with ex-China operators such as those in Korea to create value chains that pass the IRA threshold, which has got to be 50% of the product value. Either processing that bit further as we’re beginning to see here in Australia or managing that through those partnerships will be needed to produce products which meet IRA and European ESG standards.
Let’s look specifically at different battery metals (copper, nickel, lithium, etc.) Where do you see the smart investment money going right now?
Alex Biggs: Lithium, as we said at the start, is a thematic that’s going to outlive us all. If, as a company, you said, “We’ve got support from the Australian government or the US government,” what’s going to happen to your share price? It’s only going to go one way, but that’s the situation we’re all in. I think anything related to these green mandates and green targets (and I think Australia’s targets are 2070) is strong. This thematic is here to stay, there’s a lot of opportunity in it, and it’s backed by all the major players and governments.
James Gurry: I think sometimes you must tread carefully, because China does dominate the production of many critical minerals. If you shout from the rooftops, there’s always the chance that you get a knee-jerk reaction from China in terms of restricting exports. But quietly, I think we have seen a huge amount of recent appetite for rare earths exploration and discoveries. Lithium has obviously been in the sweet spot now for three or four years. I think graphite has still got a way ahead, it’s not particularly scarce but there’s some terrific orebodies being uncovered right now in other countries. Some of the smart money is edging ahead in other commodities as well as the overwhelming amount of lithium that we still do need, we can supply it from this country and others.
Laura Hubbard: Across all these critical minerals, we are expecting to see long term, structural supply deficits. One thing that we are seeing and expect to continue to see, is this volatility as these markets double or triple in size. So, I think it’s important to keep in mind that we expect this to continue, but the demand is expected to be there. Riding that out, and thinking about these smartly, whether they are in or out of fashion that month or year will be the way to get through this successfully.
James Gurry: I think you need to see the customer and the miner come closer together, because it is very hard to plan projects through the price volatility or often price discovery in commodities. There’s a small amount of customers who are often downstream processors who actually turn it into specific things that you need, and there’s only a handful of those processing plants in the world. So, there’s condensing of the whole value chain. Because you don’t know where inflation is going to end up in the cost of production, but if you have a sponsor customer as well as government support, I think you need a cohesive approach to it.
There’s been a lot in the news about the auto OEMs getting directly involved with the mining companies. How do you see this shift impacting the market overall?
Alex Biggs: I think that vertical integration is, (as far as the OEMs go,) their fantasy, but it’s not their reality. If you go back to the industrial revolution. You had a coal mine, you had a power station, you had everything close, and they think that’s still viable. We may see it in specific areas. But I do believe that the vertical integration across discovering, developing and mining projects all the way through, is not efficient. They like it because they believe it secures their supply at a certain price, but if they can’t mine it as efficiently as a free market can, like we can, and we’re judged by our shareholders, then I think that potentially runs away with itself very quickly.
Adam Best: There’s been a number of meetings I’ve been to recently, where Tesla has said it’s going to become a nickel refiner, it wants to be a lithium miner, it wants to be everything at the moment. I don’t think that’s their business. I think they’re an automaker at the end of the day. It’s going to be very difficult for them to be able to make the innovation effective for themselves. They’re very good at driving manufacturing, but mining is a whole different game. I don’t think they’ll appreciate the challenge, to be honest.
Laura Hubbard: Most OEMs are remaining focused on their area of expertise as operating BRM extraction or refining operations requires a very different skillset. But there has been a lot of interest in either strategically sourcing over the long term and setting up off-take agreements, or making investments. I think that investment will continue. Obviously last year it was a bit of a gold rush to get ahold of those assets and that supply. I think we will see it continue in a calmer fashion, there is so much interest from that downstream sector as well as other parties.
What’s your understanding of the impact of the IRA over the next five years?
Laura Hubbard: We’ve been looking at that at Wood Mackenzie. Policy information is still quite incomplete and developing. There was a release from Treasury at the end of April that provided a bit more information about how the calculation of critical mineral qualification might work with a 50% threshold of value-add for material to be compliant. However, the policy will be refined over time. Now, only 40% of critical minerals need to pass in order for an EV to get the critical minerals sourcing half of the tax credit.
There’s also this other element which is not yet in play of Foreign Entities of Concern, which has not yet been released, but we can speculate about which countries might be on that list. And obviously when that element comes into play considering where global refining capacity is currently located, potentially you could have not many EVs qualifying. I think there’s a lot of evolution still to come in this policy and it is pushing battery makers and OEMs to plan differently. This is a US$7,500 tax credit. Under the previous EV tax credit, Tesla grew its market share rapidly, even after exceeding the sales cap for the credit. So, this is an important policy, and everybody is taking notice, but it is not the be all and end all.
Adam Best: There are some big loopholes. I was in the US in April, and at that point when the first advice came out, there was also an announcement by Ford that they had made an investment in Indonesia, and everyone’s scratching their head, “Why are you doing that?” Well, it turns out if Ford sells the vehicle to Ford Credit as a lease vehicle, then the lease vehicle can get that tax credit. Whereas if you are Joe average, turn up at the dealer, and buy a car with Indonesian nickel in it, you won’t get the tax credit. So, there are all sorts of weird and wonderful holes in this policy that they can’t undo either, because of the split between the House of Representatives in Congress. And so, the automakers will find ways to get around this, I’m almost certain of it.
Laura Hubbard: In addition, we are still seeing countries doing critical mineral specific deals with the US. Japan has established such a deal this year, and there is discussion that the EU and possibly Indonesia could develop their own agreements. So this might open the range of countries that do qualify.
What are some of the moves that the industry is making to enable the energy transition, whether it’s looking at recycling or moves to net-zero mining? What are some ways that the industry is really pushing ahead?
Adam Best: We don’t call it a transition at CSIRO, we call it a transformation. This is the single biggest energy change we’ve seen, and this has to be done in the next five, 10, 15 years. And if you think about how energy has evolved over the last 50 or 100 years, this is a massive change in what we are trying to do globally. The pace of change is going to be rapid. Many companies are extraordinarily active. I think it was really the change of government here in Australia that has seen a major change in how they’re responding in terms of some of the policy developments.
This is the single biggest energy change we’ve seen, and this has to be done in the next five, 10, 15 years
I think companies already recognized that consumers want to see higher levels of ESG in their products. They want to see greater levels of sustainability. Customers are savvy. I think you’ll see people being really aware of where their minerals come from, the people probably want to even see how much recycled content will be in their batteries in the future, people want to know that they can charge their car using renewable energy.
If anything, it’s going to be how do we ensure that there’s equity in all of this, because there are going to be people left behind. And there was an article last week, First Nations people, already saying, “How do we access renewable energy? How do we make sure we can take advantage of the opportunities in the clean energy economy?” I think companies are aware of it, but there are things we can do better to be able to make sure that we can all access the opportunities that a clean energy future has for us.
Alex Biggs: The irony of the transition is that we’re still digging holes in the ground. And there is a sustainable way of doing that too. If you look at all the big miners, they all have a focus on ESG. A lot of my friends who work in the industry on the operational side are looking at electric trucks on-site. These are being trialed. We’ve got remote operating centers now for haulage up in Pilbara. Those vehicles are operated from Perth. There’s an E and an S just in that alone. I agree with your comment that they were somewhat ahead of the government, and I think that was generally down to the poor image that mining has. Even in Perth, where we’re so mining heavy. I think that sentiment has driven people to do the right thing, but there is still a lot of change to come for sure.
Australia is uniquely placed in terms of resources supply, but despite government initiatives, there’s still the community backlash. A lot of general population don’t want mining in their backyard. What do you think the government or others could do, to try and get the general population understanding that we will need to mine these battery raw materials to enable the energy transitional revolution in the future?
Adam Best: From CSIRO’s perspective, we have a couple of programmes to address some of these social licence opportunities. One of them is called the Responsible Innovation Future Science Platform. And we have teams of people now looking at how we engage communities better to understand the challenges of mining. Particularly First Nations people, because they generally have the land where a lot of these minerals are. So how do we engage with people to understand the cultural sensitivities around mining on their land? Now, this is a similar problem globally. This is a really evolving area, particularly with the amount of mining we’re going to need to do in the future.
What are the issues and how are we going to address them? Because everyone wants renewable energy, but no one wants it in their backyard. There will be groups of people who will be far more influenced than others. People in Melbourne aren’t going to suffer from mining, versus people who live out in a community in regional and remote areas. These are questions that still need a lot of work.
James Gurry: Can I highlight, I’ve been amazed actually, in these critical minerals often we used to mine them back 100 or 50 years ago, but due to economics, the whole thing just went over to one jurisdiction, and they now dominate 90 or 80%. So, there is some low-hanging fruit out there in quite a number of instances where you’re seeing the reactivation of a mine that shut in the 1980s or the 1990s. And often, there is a town next to that mine that exists because the mine was operating from 1900 through to 1980. You can see that on King Island, you can see it in some places in Queensland. I’ve seen it in Brazil, where they’ve been doing small scale lithium mining for years and years, and so they’re just expanding existing operations.
So, I think from a community relations perspective, there’s no doubt it’s one of the biggest challenges, particularly if you’ve got a greenfield operation. But in these critical minerals, sometimes there is a lot of opportunity to redevelop something that used to be there. And you’ve got a community there. Their dad used to work there, or their uncle used to work there, and they welcome the reactivation of mining in their community. I think that’s a great thing to perhaps tap into more and more, if we can.
Panellists:
Adam Best, Principal Research Scientist, CSIRO
Alex Biggs, Chief Executive Officer, Lightning Minerals
James Gurry, Research Analyst, PAC Partners
Laura Hubbard, Managing Consultant, APAC, Wood Mackenzie
