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Policy and Diplomacy in the Critical Mineral Era

Critical minerals are essential for a successful energy transition. But can the US and its Western allies secure resources of these materials while avoiding the governance issues that have plagued fossil fuel production?

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Published March 22, 2023 | 3 min watch
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Key Points

  • We are in the midst of a shift that will reconstruct the global economy, from a fossil-fuel-based economy to one that has to take account of all sorts of different power sources.
  • China’s competitive edge in critical mineral resources and manufacturing capabilities have led some commentators to wonder if it will be an OPEC-of-one in the future.
  • For mining companies and governments, the challenge is in reconstructing the economy away from fossil fuels, without repeating the political and environmental mistakes of the past.

To achieve anywhere near the scale and ambition of the Paris climate goals requires a complete revamp of the global economy, transitioning away from fossil fuels and towards renewable and other power sources. But that shift is going to require intensive use of other finite resources. From copper to cobalt to lithium, so-called critical minerals will see an enormous demand boost.

Unfortunately, that demand cannot easily be met. The resources themselves are highly concentrated, often in regions with poor governance and widespread poverty. Manufacturing of these resources is also concentrated, mainly in China, where some of these resources are also located.

“The challenge is that we're going from using 25 million tonnes of copper a year to about 50 million tonnes of copper a year in the next 20 years, that's going to have to come from somewhere. And it's not just copper, it's all sorts of different minerals and metals,” said Tyler Broda, Head of EU Metals and Mining Research at RBC Capital Markets.

“The mining companies are very challenged in in trying to increase production very rapidly, and trying to manage environmental concerns, population concerns, water concerns and more. It also takes a long time to be able to build new capacity. So this is going to be a challenge that’s with us for some time.”

“The challenge is that we're going from using 25 million tonnes of copper a year to about 50 million tonnes of copper a year in the next 20 years, that's going to have to come from somewhere. And it's not just copper, it's all sorts of different minerals and metals.”

TYLER BRODA, HEAD OF EUROPEAN MINING AND ENERGY TRANSITION MATERIALS RESEARCH

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An OPEC of one?

At RBC’s Energy, Power and Infrastructure (EPIC) conference, Amos Hochstein, the US Presidential Coordinator for Energy Security, said that the world was potentially in an OPEC-of-One situation in terms of China's control of the critical minerals value chain. China has become the dominant force in critical metals and the mining processing side as a result of 40 years of the world moving its heavy industry to Asia and its own reserves of these materials.

In today’s febrile atmosphere between the US and China, that is a significant concern. Efforts are underway to reshore some of this processing and manufacturing capability back to Western nations, but that’s going to require materials resources, skills and investments. In the mean time, the currently difficult relationship could pose real problems.

“I'm deeply concerned that the rivalry over access to critical minerals, processing of critical minerals, particularly something like graphite, could be a source of even greater competition between the United States and China. And we're already so deeply concerned about the US-China rivalry over issues like Taiwan, that this could just be another potential irritant in the US-China relationship that could eventually impact markets,” said Helima Croft, Head of Commodities and MENA Research at RBC Capital Markets.

“I'm deeply concerned that the rivalry over critical minerals could be a source of even greater competition between the United States and China. This could be another potential irritant in the US-China relationship that could eventually impact markets.”

HELIMA CROFT, HEAD OF GLOBAL COMMODITY STRATEGY AND MENA RESEARCH, RBC CAPITAL MARKETS

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Avoiding the problems of the past

Gaining access to critical mining materials and processing is key to a successful energy transition. But that access needs careful management to avoid policymaking that ignores political, social or environmental concerns.

“Mining companies now have to go to regions where these metals are, in places that are not part of the mainstream economic framework and that leads to lower legal regulations and it leads to a challenging environment. One thing I would say is that these companies do recognise the importance of of ESG and the importance of managing their operations in as fair and and balanced a way as possible,” said Broda.

When Croft formerly worked in the US government, she spent time in the Democratic Republic of Congo (DRC), a key location for critical minerals.

“I spent time in the DRC in 2002 and 2003, when it was in the midst of one of the worst wars on the planet, 5 million people died as a result of that war – and there were all sorts of issues around governance, around corruption, around violence, around child labour.

“And I think the question will be, as we think about DRC being such an important source of cobalt, will the West take real efforts to address those issues, and make sure that we don't have the same type of issues around governance that has bedevilled traditional fossil fuel producers, particularly in places like Sub-Saharan Africa,” she said.

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