The most impactful policy regarding critical minerals has been the US’ Inflation Reduction Act (IRA). Let’s talk about a few lessons learned from the launch of this policy and where you think it has driven the most change both in the US and globally. Is it enough to meet the current industry needs in terms of metals exploration?
Amanda van Dyke: I just got back from a round table with the US Department of Energy (DOE) and a number of other actors, including Vale and Rio Tinto, on decarbonizing critical mineral supply chains. The fact is there isn’t a sufficient supply chain of next-generation critical minerals and chemicals in the pipeline.
The players that were there, including some OEMs, want the critical minerals, but they’re also searching for a way to get the risk capital into the first stages. Right now, with the IRA and the DOE, if you can demonstrate that you have a sustainable plan for building your project and you can get it into Western markets, there’s definitely debt financing available with export guarantees from both the European Union and the US. The issue is sufficiently de-risking the projects with things like demonstration plants and the risk capital required to get it there. And that’s where they’re struggling – to find someone to get the projects to the point where they are financeable.
The frustration I’m hearing from a lot of people is that the OEMs are really having trouble. They’re not signing the offtakes because they don’t really know the spec they need, which makes it difficult for the upstream guys as well as the downstream guys because you can’t really get a project ahead until you know exactly what spec you need to build it to and the chemical.
Cormac O’Laoire: The IRA is almost two years old and we’ve seen very little development in terms of critical minerals coming from the US onto the market. So, as you asked, “What were the lessons learned?” I think there’s a lot of lessons to be learned here, particularly for the UK, which still has to really set its policy out in terms of securing materials, and Europe to a certain extent – a few things have worked in the IRA and a few other things haven’t.
A big problem with the OEMs is they don’t know what they need. You can go down the supply chain but nobody will tell you what spec they want because they are constantly changing.
But we’ve seen the investments they’ve made in the IRA, basically with a lot of startups who have no experience. We need some larger players. I think Vale, Glencore, or Rio Tinto should put serious capital into producing battery-grade metals or chemicals. I think the US has an appetite for that. There would be less interest here though because it requires a lot of investment and it’s highly risky. Unless you have the US government backing you on some of those investments, they’re very risky, especially with the new players stepping into the space.
Robert Bayless: One thing you notice with the IRA, is that the grant funding has gone to projects where the technology is coming from elsewhere. What you haven’t really seen is an update of those projects on how they’ve been coping with raising the private capital to be able to unlock the grant funding. So, that’s one side of it. I think very little of that capital has gone to the upstream, particularly for the mining side. One reason for that is the controversy around mining. Politically, it’s not a very good industry to fund because often that mining side comes with a lot of social pushback. It’s the same in Canada and in Europe.
The policy and the funding are not going to the very start of the value chain in those projects. I don’t think the IRA, in isolation, is necessarily the only one that has its faults in that area. At the same time, both for Canada and Europe, a lot of the capital has been already available to midstream and downstream projects that have largely been industrialization efforts of existing technology. The question is now with a potential change in the US presidency, what will happen to that? Will it stall? Will there be some renewed efforts to get moving on the mining side? I think when you get projects to the de-risk phase, there is capital available. If you can get to FID and your project has been well-developed, then yes, you can get funding.
Amanda van Dyke: I think you’re correct in that funding is only available to projects who are at FID. For anything battery chemicals related in the critical minerals supply chain, you need a demonstration plant, you need a proof of concept. Nobody’s willing to invest in new technology and the only people actually ready and capable of signing offtakes are still China, Japan, and South Korea, who have the only commercialized technology for building that battery supply chain.
If you want access to funding out of Europe or Washington, you really need to be at FID on a fully de-risked project. And there’s still a dearth of risk capital as I see it, and knowledgeable risk capital to invest in the development stage guys to get them ready for that. I mean it’s partially what we do, but we wish we weren’t some of the only ones doing it.
There is a silver lining to all of this though. One of the only subjects both parties seem to agree on in the US is that redomiciling manufacturing, combating China’s industrial strength, and developing and financing an internal critical minerals strategy is very important to the future of US industry. So, I don’t know if they’ll still call it the IRA should the administration change, but I think that one way or another the support for it will be there. But, while the government and the policies might be supporting it, the generalist investing that makes something truly work, the money flows into it, are still not there.
Robert Bayless: One of the key drivers for us launching this new fund was to address the shortfall of capital for that phase of development. You mentioned that when projects get to FID, they can be funded and that there’s debt, there’s strategic equity, and there’s capital out there, but it’s this bit in the middle that is really struggling.
We’ve seen some national efforts in Europe to fund some of those projects now, which is good, but the private side is still lacking. And that’s the area we look at. InnoEnergy is focused on very early stage pre-seed and seed stage companies. When you map it out, you can see there are very few people operating in the middle space. And despite the tailwinds of the IRA, other US policies, the loan programmes, now the section 302 import duties, European Critical Raw Materials Act, Net-zero Industry Act, they’re all political and somewhat semi-quasi or full financial tools, but yet not in the space where things are needed to get moving.
Cormac O’Laoire: You were talking about demonstration plants. When’s the last time you heard of a Chinese company building a demonstration plant or a pilot line? They don’t do it.
Amanda van Dyke: China started investing in critical minerals battery and full battery supply chains 20 years ago. And 70% of the world’s batteries are still made there, they mine it, they own the off-takes, they own the chemicals, and all of the cathode and anode materials.
I’ve actually seen companies build pilot plants in China for DLE technology and stuff like that. But the point is, they have the technology already, so they know it works, they can just test the material in their existing plant. But if you want to build a plant, the only way you get Western funding is if you’re willing to build some part of the plant outside of China, it must be less than 25 or 30% owned by a Chinese entity. It’s quite protectionist. And the Chinese are willing to licence their technology because they have it, it’s commercialized, and it works. So, that’s why they don’t need a demonstration plan. But if you want to get hundreds of millions of dollars to build something on new technology, you need to know it works before you do it. And the reason the Chinese don’t is because they’ve already done it. They’ve commercialized the tech.
Partnering with the Chinese and their experience is just smart business. You have to be careful, but from an investment perspective, investing in guys who have commercialized this and done it for 20 years, execution risk is everything in the mining sector. That is the safer bet than experimenting with new technology. The companies that want to maintain their ability to sell to Western markets are happy to consider building plants outside of China.
Looking at the two sides of the Atlantic, who decides which are the critical minerals? Is there a defined list? Is uranium getting onto anybody’s list at the moment?
Amanda van Dyke: There are 68 minerals on the US list. It’s quite extensive and there are 28 minerals with another smaller list of strategic minerals on the European list. They’ve all published official lists of what is critical to them, which means a supply chain at risk.
Tungsten is another good example, like nickel, which has been in the doldrums for quite some time. So, why is tungsten so critical?
Amanda van Dyke: It’s critical because they don’t have direct access to it in the US. It’s on their list because close to 100% of tungsten used in US industry is imported. And if you look at the global supply of tungsten, the offtake agreements are sitting with China. So, China controls those supply chains. The risk is will America continue to be able to get the tungsten they need for their industry? It has nothing to do with whether or not tungsten is sufficiently supplied. All of the information I’ve seen from Wood Mackenzie and Macquarie is that the nickel market is in oversupply until at least 2027, probably till 2030.
Critical minerals are defined simply by ‘do we need it for our industry and do we have access to it?’ Tungsten and nickel are in great supply, just America doesn’t control enough of that supply, which is why it’s on their critical minerals list. It’s really about risk to supply chains.
Robert Bayless: When you look at critical materials, you’re not going to see any incentives that directly provide a premium that makes projects in countries where that material is needed. What you see is other policies that incentivize that asset that either provide low-cost capital or where there are some protectionist measures on the industry that benefit the value chain and therefore can absorb a higher-cost operation.
Cormac O’Laoire: There could be a premium on it like in Europe, where there’s going to be the domestic supply of nickel that will have to end up in the batteries, starting in 2027.
Are they going to ease permitting? If you want American production, a bit of help on the permitting side might be a good way of getting into production.
Amanda van Dyke: Policy makers have realized how important supply chains that lead to the West and domestic production are. They’ve tried to streamline processes, but social opposition in both Europe and North America to mining projects is still incredibly high. So, even though you have federal support and federal money, the permitting is a huge barrier. I saw recent research by Capital IQ, the average time to develop a nickel project right now globally is 16 to 18 years. And that 16 to 18 years is the average, not including the fact that they get projects up in Indonesia in less than eight. So, they’ve averaged it. It’s probably 20 years to get a Western project going.
Robert Bayless: The EU, through the Critical Material Act, introduced this fast track permitting process. It doesn’t skip any of the requirements in terms of what you have to do to get your permits, but it almost puts you at the top of the list to get priority treatment in terms of the government resource to get those projects going. The problem is, especially in Europe, there is still the opportunity for people to effectively take that to court to challenge it, so it doesn’t override the ability for those projects to get caught up in such cases.
Amanda van Dyke: I helped consult on the development of the Critical Raw Materials Act and it does exactly what you say. They’ve passed it at the European level, but forcing it on European member states is a lot easier said than done. They’ve basically said, “You have six months, one year to approve a project and review a project.” Because what used to happen is they were just stuck in the local permitting process forever. Some individual communities block and fight it because they don’t want mining in their backyard.
Why is the industry not getting the eco-green groups educated in the necessity of mining development for the green transition?
Robert Bayless: That’s starting to happen now. I think you see a lot of more education-driven outreach by companies and governments to say, “Look, if you want to green transition then you have to have mining. You can’t just replace oil and gas with nothing. Would you rather have high CO2, bad environments, or would you want to mine somewhere up the road in your back garden that can be CO2-free and generates industry?” That’s a huge challenge anywhere to move people’s opinion.
Amanda van Dyke: The understanding for the high-level green movement and at the government level that critical minerals are absolutely essential to the energy transition is there. But the actual green groups, as we would call them, are extremely local, their anti-mining sentiment is irrational, and they have incredible pull with local governments.
Cormac O’Laoire: That’s why they’re developing new tech like DLE with Vulcan Resources. They could be producing lithium in your backyard, and you’ll never know because it’s extracting brines, pumping them back in, in a very small footprint. And that’s why it might be a big problem for any transition, it’s not in our backyard and for years it’s been done elsewhere. People in Europe and US are happy with that.
What new technologies are coming along that will disrupt existing technologies?
Robert Bayless: I think the more interesting aspect is on the mining side, what is going to change the way that materials are extracted from the ground? We see a lot of innovative technology in that area, but the question is how much of it is practical?
I guess where you see developments, which is largely driven by decarbonization of the downstream side, is towards processes and products that are less carbon intensive to produce. There’s a lot of innovative development across the board. You see it for steel, for example, one of the highest emitters. You see it for various steps of the battery value chain and even high-tech materials, pattern metallurgy, direct metal production without chemical or pyrometallurgical routes. So, that’s coming, but I don’t expect any of it to be really disruptive in the very short term.
Amanda van Dyke: What I would say is that technology is changing and that’s what’s going to be dominant. It’s like VHS versus Betamax back in the day, which one was going to win? I do think that there’s going to be a lot of different battery chemistries. It’s going to be horses for courses in terms of batteries, but the largest electric vehicle (EV) market in the world is China and over 50% of their sales are LFP. And increasingly they’re using, with Tesla, something called LMFP. They’re adding manganese to the LFP formulation. It’s a cheaper car made with more reasonably available material, cheaper lithium iron and phosphate with some manganese in it.
You’re going to see it’s a better value car for the value market. Additionally, LFP is going to be at least 50% of the global EV market, in my opinion. Also, when it comes to grid scale batteries, sodium-ion is really looking like it’s going to be dominant, it’s also made with a cheaper material for grid scale storage. And you’ll see some other technologies like a zinc air battery which could be quite interesting. There’s a misnomer in the green steel market, everyone thinks its steel made with hydrogen. Steel doesn’t get made with hydrogen particularly easily.
There are a lot of issues with hydrogen. If you reinforce steel with vanadium the way the Chinese have been doing for the last 10 years, you can knock the carbon footprint off because it requires 30% less steel. So a 70% width does the same job as a 100% width of regular steel, therefore it’s a greener steel. So, I think you’re going to see a lot of material science and battery technologies geared towards cheaper materials.
Cormac O’Laoire: The batteries aren’t going to change anytime soon. Lithium-ion-phosphate, phosphate, and NMC is what we’re going to have.
We’ve had the same batteries for 40 years. They’re throwing everything at it. So the big factor when I talk to mining companies, they’re going to invest in nickel a bit, but then we’re reading next week there’s new chemistry coming and nickel is not in it. But realistically they’ll never be able to remove NMC from the chain, or LFP. NMC is still a dominant battery outside China.
Amanda van Dyke: NMC has a big role to play, but we’re talking about slowly but surely up to 2050, taking the mix of seven to 10% EV sales up to 50%. That’s still a huge role. Even if it’s 50/50 NMC, that’s still five times more electric batteries and materials that we need for all of it. The question is can we produce enough nickel for 50% of the market to be NMC batteries? I’m not sure we can.
Cormac O’Laoire: But the thing is sodium—sodium is not a hype train. China produced 600Kw of sodium batteries last month, that’s 10 EV packs. There’s nothing happening in sodium there. Now sodium’s not been discussed much because lithium is in a sweet spot for the Chinese, but I agree with you, it doesn’t make sense for energy storage. But, you have to build a whole new supply chain for that. There’s not a sodium-cattle material of choice. There’s no electric. They don’t really know how sodium intercalates into the hard carbon? What kind of reaction? There’s a lot of unknowns about sodium.
