Last time we spoke, the Inflation Reduction Act (IRA) had just been announced and it was still relatively unclear as to what the effects were going to be. What are some of the impacts that you’ve seen so far on the industries, particularly in the US?
We have certainly seen a lot more interest in mid and upstream mining from the automakers, which I think was part of the plan to get them to join the discussion around minerals. Several different investments have happened across the industry. On the upstream side though, not much has changed. There are things like the DOE loan programme, which has been moving forward giving out loans. They’re more on the midstream side as they don’t really provide those loans to mines directly. There are continuous discussions and interest in different critical mineral issues, but we haven’t seen many mines move forward or get to a point of production.
One of the things that I found most enlightening was, in February, when the Jervois Global (ASX: JRV | TSXV: JRV | OTC: JRVMF) cobalt mine in Idaho got close to opening, but then said, “Actually, we’re not going to open. Prices are too low.” From a political perspective, I think it’s hard to understate how big of a decision that was. That’s a critical mineral mine in the US that had been given loans for feasibility studies and grants. But operationally, it wasn’t profitable.
What that says to me is that these domestic-creation subsidies on the electric vehicle (EV) side are not enough. If you’re within Jervois, you know the whole story, but clearly no one was signing an offtake agreement to guarantee a price for them, or strategic behaviour amongst other producers might have limited the ability of domestic downstream firms to sign an offtake agreement. I will say maybe that hasn’t been a positive aspect so far because it seems to be that operationally, these mines might not be profitable. You can give them the capital to be ready, but they must be operationally profitable for the firms to go through. And there’s nothing in the IRA that would top up an offtake agreement, or provide a subsidy to keep operating costs below the price of the minerals. That’s kind of a big deal.
Now, cobalt is a special case. It’s listed as a critical mineral and people believe that cobalt demand will increase considerably. Many of the studies about cobalt demand happened before there was this shift to have less cobalt in a battery and more nickel. So, from that example, are we seeing that cobalt is not what we thought it was? Or is that more indicative of the wider minerals markets? It’s hard to believe that something like that could happen on the lithium side. That market is still extremely hot and there have been movements on a number of lithium projects in the US, and also investment from downstream auto firms. So, that certainly seems to have been one aspect that’s changed since the IRA has become operationalized.
Grid storage batteries also require vast amounts of minerals. New rules have recently been finalized by the IRS, where grid storage batteries must have a similar domestic content adder to them. What I understand is, it is really difficult to meet the domestic content adder for grid storage batteries that will be in place in 2024, 2025, and 2026. There’s a race to get battery construction started this year before the domestic content requirements really pick up for the adder on the subsidy. It would be interesting to see what impacts this will have. In the short term, we have a huge demand for grid storage batteries and getting these projects started. However, that may decrease given the difficulty in finding batteries and the components that meet the domestic content requirements going forward.
Let’s look broadly at the global impact of the IRA. Looking at these partnerships and agreements between the US and various other countries, is this the best way forward for these evolving metals value chains?
Many people are excited about the domestic content and the subsidies that come with EVs and grid storage batteries. That’s creating pressure to sign free trade agreements (FTAs) or consider other countries as domestic content. Generally, in the discussions that I’m hearing, it’s not clear that signing FTAs is going to solve the issue of manufacturing batteries that have enough domestic content to qualify. There’s still some concern that things aren’t going to ramp up quickly enough to meet those requirements, even if you bring in more countries.
The other thing that the IRA has done globally, is lead to a similar policy from the European Union, who now have their own domestic content goals. In some sense, among the OECD or Western-friendly nations, there’s competition for markets to bring in these critical metals. I think that’s also contributing to this concern that no matter how many friendly countries you have, it’s going to be hard to meet these domestic content requirements. It takes a while to ramp up production, and for new mines to come online and to get to scale.
There’s a growing focus on critical minerals, both in the US and globally. Is this going to get attention from investors and governments in the right places, or are there areas where we’re missing the mark?
One of the things we might be missing in the push for domestic minerals in the US is on the capital side, whether it be the Defense Production Act or these DOE loan programme offices loans. They’re more focused on providing the capital to get these projects up and running, but there is nothing to help them get there. Like we saw with the Jervois plant, there is still an open question of whether these domestic content rules will be big enough for downstream firms to then sign an offtake agreement, add a price that’s high enough to get these projects operationally profitable, or at least to limit the ability of Chinese producers to use their market power to say: “We can cut costs if you don’t use another country’s minerals. So don’t worry, just stay with us and we’ll lower your costs a little bit.”
China’s recent gallium and germanium actions are worrying people that more could follow if you rely on Chinese suppliers. But there’s still competing concerns that you have a large market in China that can supply these minerals, and probably at a lower cost than the US can supply them. Why would a downstream user of minerals forego the cheaper alternative for a more expensive one?
Amongst professionals in the policy space, I have heard some discussion of, “we really want these technologies. Why do we care where the minerals are coming from? If it’s going to be more expensive to do it in the US and to get off of the Chinese supply chain. Let’s just use Chinese metals and proliferate EVs, solar panels, and all clean energy technologies.” I don’t think that sentiment has risen high enough that it’s going to outpace national security concerns, and again, things like the gallium and germanium decision probably muted that kind of discussion. But there are discussions basically looking at what’s more important, which is — to get these technologies, you need lower prices.
Last time we talked about the issues with permitting as one of the big barriers to growth in the domestic mining sector. Has this new push towards critical minerals helped that process?
Well, it’s hard to say definitively on either side, but from my experience, not much has really moved forward yet. A number of these permitting issues end up coming down to court cases where they might be given their permit, but then there’s a lawsuit saying that it was given improperly, or things like that. That won’t stop without extremely substantial changes to the laws around permitting. There is some move forward in terms of trying to get these things done faster at the federal level, coordinating better between agencies, making sure that those agencies are staffed up, etc.
Nevertheless, one of the reasons why this is a tough issue is that there are also state and local permits that the federal government cannot override.
What is your outlook for EV uptake in the US? What are some areas where the mining and downstream industries can continue to work together to accelerate this adoption?
I think sales are growing, both in the US and around the world. But, there are certainly also a number of investments in downstream manufacturing and gigafactories. I think the DOE calls it the Battery Belt throughout Appalachia. And so, there’s lots of things happening there.
Also, in the last eight months, we’ve seen automakers really diving in, thinking a lot about their mineral strategy and procurement. There seems to have been a lot of coordination, and it’s definitely on people’s minds now in the auto industry. They are relatively all in on EVs, building a lot of production facilities, thinking about where they’re getting minerals from, whether it be joint ventures or other similar things. Very little seems to be slowing down that train.
Obviously, their main competitor would be internal combustion engines. We’ve seen OPEC+ really trying to tighten oil supplies to keep prices up in tandem. One way you might slow down EV sales would be with low gasoline or petrol prices, but that doesn’t seem to be happening. With the way OPEC+ is acting, they believe that there’s an imbalance so that gasoline demand is going to come back. That’s really keeping pressure on the EV market because people can just say, “Okay, I can see the cost per mile of an EV. I can see the expectation of a cost per mile from internal combustion engines given my gas prices.” There’s a belief that the spigot’s going to totally open at OPEC+ to drive gasoline prices down. This is what is keeping the pedal to the metal on EV sales, where a relaxation of oil prices could ease up there a little.
