Critical demand

The strategy paper points out that the world’s demand for minerals necessary for the development of clean energy technologies is expected to double or even quadruple by 2040. Critical minerals are metallic or non-metallic materials that are used in electric vehicles (EVs), batteries, wind turbines and solar photovoltaics (PV). Demand for cobalt and graphite could rise by twenty times by 2040 according to IEA figures.

The paper highlights the opportunities for global investors who the paper says are beginning to mobile in response to national policy commitments to reach net zero by 2050. The paper points to the United States’ Inflation Reduction Act, the European Union’s Critical Raw Materials Act and Japan’s Economic Act, all “frameworks which seem to incentivise local or regional supply chains through tax credits, government investment, regulation, project facilitation and strategic reserves.”

The paper warns that the timeframe for taking investment decisions is short, stating that in the next six to twelve months, industry “will be locking in investment decisions that will set their direction for many years to come”.

The strategy paper sets out priorities across six focus areas, working with communities, industry, investors, the research and innovation sector, states and territories and international partners.

Opportunities for Australia

The strategy paper points out that Australia has some of the world’s largest recoverable resources of critical minerals, including cobalt, lithium, manganese, rare earth elements, tungsten and vanadium.  As much as 80 per cent of the Australian continent remains underexplored.

Australia had 81 major critical minerals projects in the pipeline as of December 2022, with an estimated value of between AU$30 billion and AU$42 billion, up from 71 projects and AU$22 billion to AU$36 billion in 2021.  The paper points to a need to “create and maintain an environment that attracts investment and encourages competitive projects.”

The strategy points to Australia’s location, free trade agreements and reputation as a trusted partner, strengths which Australia can use to take advantage of the green trade opportunities this transition offers.

In launching the strategy, Resources Minister Madeleine King noted that Australia is the world’s largest producer of lithium, the third largest producer of cobalt and fourth largest producer of rare earths.

Priority technologies

Australia’s Critical Minerals List currently consists of 26 minerals that can be used in a wide array of technologies. The government says it will review this list in an effort to bolster energy security and to decrease reliance on the import of key products such as lithium.  

The paper notes that priority technologies for critical minerals are identified by their contribution to emissions reduction or Australia’s security, energy and industrial priorities, as well as capacity to underpin strategy partnerships.

The initial priority technologies for critical minerals include:

• Batteries and battery components
• Rare earth permanent magnets
• Catalysts for hydrogen production
• Semiconductors for microchips and solar PV
• Defence technologies
• High-performance alloys and metals (eg. magnesium silicon, tungsten and titanium).

The paper says that immediate actions include an analysis of the value chain for each priority technology in an effort to identify where Australia can be most competitive and prioritise policy support.

Focus areas

The paper reports that a public consultation identified six areas for early focus:

1. Developing strategically important projects, proving targeted and proportionate support
2. Attracting investment and building international partnerships
3. First Nations engagement and benefit sharing
4. Promoting Australia as a world leader in ESG performance
5. Unlocking investment in enabling infrastructure and services
6. Growing a skilled workforce

Key actions

The paper highlights the earmarking by the NAIF, the Northern Australia Infrastructure Facility (NAIF) of AU$500 million to support projects that align with the strategy and the establishment of a National Reconstruction Fund, including AU$1 billion for value-add in resources and AU$3 billion for renewables and low emissions technologies. It is reported the move could help kickstart a critical minerals processing industry which could lead to AU$133.5 billion in new economic activity as well as 262,600 new jobs by 2040. This is in spite of concerns that building and operating such facilities would be too expensive.

The government says it will work with likeminded partners to attract and leverage foreign investment and diversity supply chains. It will track and monitor foreign investment in Australian critical minerals projects to ensure it does not run counter to Australia’s national interest, a clear reference to concerns over the security of supply chains in a world of increasing geopolitical tensions. The paper also includes a clear commitment to reach net zero by 2050 and promote Australia as a world leader in ESG performance.

The government will also seek to unlock investment in enabling infrastructure and services, working with the industry, community and state and territory governments to identify and consider infrastructure projects that could unlock large-scale investment and growth.

Staking the ground or missed opportunity?

The strategy comes as Australian developers of mines complain about the difficulty of securing finance given huge costs and perceived risks on the part of lenders about new industries without a track record, particularly given fluctuating commodity prices.

The small amount of direct funding has disappointed some particularly when compared with the sizeable incentives given by the United States in the Inflation Reduction Act (see Hogan Lovells webinar How is U.S. Federal policy driving the energy transition?).

Chris Ellison, Managing Director of Mineral Resources Ltd which mines iron ore and lithium in Western Australia, described the strategy as a “missed opportunity” that would “keep Australia handicapped in the global race to capture more value from our battery minerals”. Mr Ellison called for “real action” such as “tax incentives, fast-tracked approvals and financial assistance” if the government was serious about competing with the incentives on offer in the United States.

Other industry bodies such as the Australian Aluminium Council and the Mineral Resources Council have complained that materials such as alumina, nickel, tin, copper, aluminium and bauxite were not already added to the list of 26 critical minerals.  

The government does however plan to set up a new programme to attract investment from the U.S., United Kingdom, India, the EU, Japan and Korea. Ms. King has said she wants to lead a new Australia-U.S. taskforce to “fast-track critical minerals supply chain development between our two countries”, the aim of which would be to ensure Australian resources companies could access U.S. capital and benefit from the Inflation Reduction Act.

The move follows in the wake of Australia and the U.S. announcing the establishment of a Clean Energy Industrial Transformation Forum which will identify actions over the next twelve months in relation to the acceleration and expansion of clean energy supply chains (see Hogan Lovells alert U.S. and Australia alliance – closer collaboration and new opportunities). The steps also open the door to enhanced U.S. strategic investment in the Australian critical minerals sector.

The strategy paper is available here.

Authored by Nigel Sharman.