The United States and European Union nations must form alliances, reform regulations, streamline permitting, recycle materials, sift existing mines for discarded byproducts, and curry “social acceptance” for mining if they are to survive a “Cold War” over access to critical minerals that many say China has been waging for decades.
“I think we have been in a cold war for a long time,” said Professor Par Weihed, the pro vice chancellor in ore geology at the Lulea University of Technology in Sweden, during a Feb. 15 seminar presented by the Washington-based Peterson Institute for International Economics (PIIE).
Recalling how China flooded the global market with tungsten in the 1980s, causing its price to tumble so low it forced three European mines to close, Weihed said China is now in a “market-cornering” position for many critical minerals, including since 2008 in rare earth minerals.
“This is what China has been doing for a long time,” he said. “What we are talking about [with rare earth minerals] already happened 15, 20 years ago.”
The discussion, which included author Cullen Hendrix, a PIIE Senior Fellow and professor at the Korbel School of International Studies at the University of Denver, and moderator Cecilia Malmstrom, a PIIE Senior Fellow, determined political clarity is needed, especially in Europe, where mining is difficult to permit and not viewed positively by voters.
Clarity is also needed in the United States with mounting divisions between the Biden administration’s green emphasis on “decarbonizing the grid” and House Republicans’ call for a regulatory rollback that “unleashes” the nation’s energy production while building a secure domestic supply chain for critical materials.
Cullen said, “Domestic sourcing policies” in the Bipartisan Infrastructure Law and Inflation Reduction Act (IRA) “signal [the U.S.] really wants to bring home refining and processing as part of the domestic economy” as a “broad consensus” in concept, but when it comes to permitting and siting smelters and refineries, acceptance “will be more difficult.”
“The U.S. is at a starting point in terms of elaborating coherent strategic priorities,” he said. “That doesn’t sound like a great achievement” but amid “partisan gridlock and polarization” it is a “really substantial win in terms of elaborating a coherent vision of what the future needs to look like.”
Address Regulatory Issues
Tax incentives and other inducements offered for critical mineral development under U.S. laws are “heavily slanted toward the end-user and high value-added assembly,” and as such are “not going to substantially move the needle forward without also addressing the regulatory issues” and permitting paralysis, Cullen said.
“The United States notionally has some ideas on how to do this but I think it would be a striking achievement for the United States to get their permitting processing in line” with what Canada and Australia do, he said, noting it takes three to four years to get a mining permit in Canada while it takes seven to 10 years in the United States, and even longer in most EU countries.
The U.S. House of Representatives as early as late March is expected to consider a proposed‘Securing America’s Critical Minerals Supply Act, which seeks to secure a domestic critical minerals’ supply chain “all the way back to the mine.”
The act is among proposals dealing with critical minerals introduced by Republicans since January, and part of a 17-bill package discussed in hearings before the House Energy and Commerce Committee on Feb. 7, Natural Resource Committee on Feb. 8, the Natural Resources Committee’s Oversight and Investigations Subcommittee on Feb. 9, and in three Texas field hearings, Feb. 13–16.
He said China adopted a “suite of industrial policies” that included “building out energy capacity for refining. [China made] a lot of early investment in infrastructure in terms of coming to dominate these supply chains” and that is where they now have the biggest advantages.
That foresight has proven providential for Beijing because “China itself is import-dependent” for many raw materials, such as lithium from Australia, copper from Chile, and cobalt from the Congo, Cullen said.
“China has a head start in having a national strategy in building the trade ties, the investment ties to the mines themselves, as well as the refining capacity,” he said, that will take years for the United States and EU nations to challenge.
A “cold war” for energy resources will be asymmetrical, unlike the Cold War between the United States and the Soviet Union when both antagonists had their own secure energy sources, Weihed said, “with China and the United States, scouring the world to find counterparties” as partners.
Small Market Volatility
Forming alliances will be among the ways to influence the critical minerals market, especially if partners only want to deal with countries and entities that also “believed in free trade, share a common belief in democracy.”
Africa, with its abundant resources, presents an opportunity for “a win-win situation in these negotiations” but Weihed said, no matter how smoothly agreements go, “the next 10-15 years, there will be a lot of volatility in the markets for critical raw materials” because of increasing demands and relatively small output.
“The global market is not large” for many critical minerals, he said. “One mine coming online can affect the entire market.”
Cullen said on average 1 million interest futures contracts are bid on each day for West Texas medium crude oil, whereas on the London Metals Exchange there are only 13 open interest futures contracts being offered for cobalt.
These “much smaller, much less developed markets for each of these materials” are “much more susceptible to market-cornering,” he said, citing recent actions by the London Metals Exchange to cease trading nickel “because one single trader was able to develop a corner-marketing position in a few hours.
These rare earth materials are not ready for prime time. The small amounts of these commodities ... creates a lot of kinks in the supply chain that ought to be fortified.”
No Social Acceptance of Mining
Cullen doubted alliances alone would solve supply line issues when “the practical challenges are related to developing energy infrastructure, to catalyzing investment in regions with a high level of political risk, and to the decadal time” in seeing returns on investment (ROI).
That long, and uncertain return is the reason why “how little global investment is coming in” to mining in Europe and the United States, Weihed said.
“There is no trust in investing money in a project you will not get the permits for, or not for 10 to 50 years, and at the end of the day, you may not get it” for a range of uncontrollable reasons.
In Sweden, he said, mining “is dropping off” because of the “unpredictable process with permitting and social acceptance.”
“Europe is more dependent on imports than the United States. We are living in the part of the world where we have the poorest self-sufficiency” in critical minerals, he said.
“We have the potential in the ground” of resolving some of those needs but it will take a public relations campaign about mining.
“Social acceptance of mining, I think, is a big issue in many parts of Europe. There is simply no social acceptance of mines,” Weihed said, adding Europeans need to discuss the effects of that sentiment, “especially in areas where there is potential for mining.”
Listen to the Hard Rockers
He said a mining company recently discovered a deposit of an estimated 1 million tons of rare earth oxides in northern Sweden.
While analyses of the quality or grade of the material await, it appears to be a “substantial discovery” that “may be even larger potentially, probably enough to sustain Europe for decades.”
Unfortunately, “it is still in the ground” and is likely to stay there “potentially for a long time” because in Sweden, as elsewhere in Europe, mining is unpopular and highly regulated.
Cullen noted that mining companies seeking to tap into a find of rare earth minerals in Maine face similar obstacles.
“It is quite a process” to secure needed permits, Weihed said. At best, “it takes a couple of years to extract from that deposit,” a timeline Western nations must shorten and simplify.
“We need some kind of framework which encourages exploration, encourages extraction” and builds the infrastructure to refine and process domestically, he said.
Western leaders must listen more to their hard earth scientists and less to their political scientists, Weihed said.
To build a secure critical minerals supply line, “Some people say it starts with mine,” he said, “I say it starts with a geologist.”
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