27 October 2021
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Ian Zhou
Economic Policy Section
Executive summary
Following a meeting of the Quadrilateral Security Dialogue
at
which critical mineral supply chains were discussed, the Australian Government
announced
a $2 billion loan facility to help finance critical minerals projects
in Australia.
Access to critical minerals is vital to the development of
renewable energy industries and other sectors. However, the production of some
critical minerals is concentrated in a small number of countries outside
Australia, making their supply vulnerable to trade disruption associated with potential
geopolitical risks. At the same time, given its rich ore reserves in some
critical minerals, Australia has the potential to become a leading producer and
exporter of these critical minerals.
What are critical minerals?
Geoscience
Australia defines critical minerals as:
metals and non-metals that are considered vital for the
economic well-being of the world's major and emerging economies, yet whose
supply may be at risk due to geological scarcity, geopolitical issues, trade
policy or other factors.
The Geoscience
Australia website provides a list of minerals considered to be critical
minerals. These include rare-earth
elements[1] magnesium, cobalt, lithium and gallium.
What are the uses of critical
minerals?
Rare-earth elements are used to manufacture a wide array of
products, ranging from wind turbines to satellites and some fighter jets. Other
critical minerals such as cobalt and lithium are used in batteries—including for
electric vehicles—while gallium is used in the production of smart phones.
Which countries are major suppliers
of critical minerals?
According to data from the United
States (US) Government’s Geological Survey, China is the world’s leading
supplier of rare-earth elements and accounts for approximately 63% of global
rare-earth production in 2019 (p. 133).[2]
Other countries such as Brazil, Vietnam, Russia, India and Australia also possess
large mineable reserves of rare-earth elements (p. 133).
The Democratic Republic of Congo holds around 70% of the
world’s reserves of cobalt and is also the largest producer (p. 51). Australia
is the world’s leading producer and exporter of lithium
(p. 99).
According to Geoscience
Australia, Australia has ore reserves for many of these critical minerals
(pp. 4–6). Figure 1 below shows major critical mineral projects in Australia.
Figure 1: major critical mineral
operating and developing mines in Australia
Source: Department of Industry, Science, Energy and Resources
(DISER), Australia’s Critical Minerals
Strategy, DISER, Canberra, March 2019, p. 5.
What are the potential economic opportunities for Australia’s critical
minerals sector?
The Australian Government’s 2021
Outlook for Selected Critical Minerals
report forecasts that the global rare-earth elements market is expected
to grow to around US$12 billion by 2030 and that the broad market outlook for
critical minerals is promising.
The Outlook concludes ‘Australia is well placed to provide
raw materials, and potentially refined product to the world, given appropriate
market conditions’. Similarly, the 2019
Australia’s Critical Minerals Strategy discusses Australia’s ability
to become a key producer of critical minerals:
Australia also has world-leading expertise in resource
extraction and processing, high-tech engineering and renewables research.
Australia is a highly attractive destination for investment, with competitive
advantages across the full spectrum of technical, capital allocation, and risk
considerations, including political and economic stability, technology,
training, research and development, environmental and labour standards, and legal
and regulatory certainty.
The CSIRO notes that the increasing interest in
renewable technologies will lead to the demand for critical minerals becoming
greater than current supplies, ‘creating bottlenecks and straining increasingly
fragile supply chains’.
In March 2020 Australia and the US agreed
to progress a joint action plan ‘to improve the resilience and diversity of
global critical minerals supply chains’. At the time, Trade Minister Simon
Birmingham stated
‘Australia has a strong reputation as a reliable and stable supplier of
resources to the world, and as our largest investor, we have a natural
partnership of cooperation in critical minerals with the US’.
The Critical
Minerals Mapping Initiative between Australia, Canada and the US is not
only aiming to capture a greater share of a rapidly growing market but is also
widely seen as a
measure to ‘cut reliance’ on China for the supply of certain critical
minerals.
Why is the Government announcing a $2
billion loan facility for the critical minerals sector?
The Australian Government’s announcement of a loan
facility for the critical minerals sector is viewed
by the industry as a boost[3]
for Australia’s critical minerals sector. Australian companies that wish to
invest in critical minerals projects may be eligible to receive loans or financing
from the public sector in addition to the existing possibility of private
sector financing (for example, loans from commercial banks).
Australia’s 2019 Critical
Minerals Strategy emphasised that the Government is ‘consistently in
favour of foreign investment where proposals are not contrary to the national interest’
(p. 7). The loan facility, along with the increased
scrutiny by the Foreign Investment Review Board in the critical minerals sector,
may signify a shift in the Government’s strategy from attracting foreign
investment in critical minerals projects to promoting domestic investment.
How will the loan facility work?
The $2 billion loan facility will be managed by Export
Finance Australia (EFA), the Australian Government’s primary export credit
agency. EFA provides finance to support Australian exporting businesses and overseas
infrastructure projects that are likely to result in an Australian benefit.
According to the Government, the loan facility will operate
on the EFA’s National Interest Account for 10 years or until finance equivalent
to $2 billion has been provided by EFA.
Australian businesses that wish to invest in critical
minerals projects may be eligible to receive financing or loans from EFA,
subject to a range of national interest criteria under Part 5 of the Export Finance and
Insurance Corporation Act 1991.
Under EFA’s National Interest Account, EFA may be directed
by the minister (currently the Minister for Trade, Tourism and Investment) to
provide financing to businesses if the minister is satisfied that it is in
Australia’s national interest to do so.
According to EFA’s mandate, the agency fills a ‘market
gap’ by providing loans and services to businesses only when private sector
financing is unavailable. In other words, businesses are eligible to receive loans
or financing from EFA only if they cannot secure private sector financing.
The EFA periodically reports on
the types and volumes of financial solutions it provides to businesses. Some
stakeholders such as the
Australian Greens have criticised the EFA for providing loans to what they
perceive as environmentally polluting and commercially unviable projects.
Further information
[1]
The name ‘rare-earth elements’ is a misnomer because the elements are fairly
abundant in many mineable deposits throughout the world. However, when
rare-earth elements were first discovered in the 18th century they were thought
to be scarce and difficult to extract.
[2]
China is the world’s largest producer of rare-earth elements and the country’s
production typically accounts for between 60% and 90% of the global production,
depending on the year.
[3]
See also: the Sydney Morning Herald ‘BHP
backs ‘future-facing’ minerals projects in regions as Nationals seek climate
guarantees for bush’ and Investor Intel ‘Australian
Government extends a $2 Billion loan facility for the critical materials
industry’
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