US-Australia compact aims to unlock battery metals investment Down Under

A US-Australia statement of intent on critical minerals signed May 20 is expected to unlock further investment in battery metals Down Under, smoothing the way for private investment from the US and potentially opening the door to taxpayer funding under the US Defense Production Act.

US President Joe Biden and Australian Prime Minister Anthony Albanese signed the Australia-US Climate, Critical Minerals, and Clean Energy Transformation Compact on the sidelines of the G-7 summit in Hiroshima, Japan, with a ministerial-level Australia-US Taskforce on Critical Minerals established to increase collaboration on critical minerals and materials needed for clean energy and defense supply chains.

Biden will ask Congress to add Australia as a "domestic source" within the meaning of Title III of the US Defense Production Act to allow the president to funnel US dollars to Australian miners of critical minerals and to "accelerate and strengthen" implementation of the 2021 AUKUS trilateral security partnership signed by the US, Australia and UK.

Biden and Albanese also pledged to try to increase US investment in Australian production of critical minerals and energy technologies, according to a May 20 joint statement.

"Under the compact, Australia and the United States intend for our private sectors, resources, and industrial strength to drive innovation and accelerate the establishment of a responsible, secure, and inclusive global clean energy economy," the two leaders said. "We intend to coordinate to spur the diversification and expansion of clean energy supply chains, address the growing energy demands of the Indo-Pacific, and enhance the Indo-Pacific's role as a primary driver of global prosperity."

Aligning domestic priorities

The compact will help Biden and Albanese confront some of the criticism that their energy supply chain policies have faced at home.

Speaking at a press conference May 21, Biden highlighted a need to reduce reliance on China for critical minerals. The current dependence on China for key energy transition materials like rare earths has been a focus of Republican efforts to change US project permitting laws, which they say the Biden administration is not doing enough to accelerate.

"We're not looking to decouple from China, we're looking to de-risk and diversify our relationship with China," Biden said. "That means taking steps to diversify our supply chains and so we're not dependent on any one country for necessary product."

Albanese wants more domestic manufacturing of batteries and solar panels amid other efforts to add value to Australia's critical mineral resources. But Australia's industry, already struggling with inflationary cost pressures, wanted more action from his government to level the playing field in the face of the US Inflation Reduction Act's incentives for clean energy metals and processing.

Biden has already flagged opening US electric vehicle tax credits to automobiles incorporating European critical minerals to assuage these concerns among EU members, and this agreement could do the same for Australia, a longtime US ally.

Chris Ellison, managing director for Australian miner Mineral Resources Ltd., called the deal "a welcome step in helping to make the battery chemicals supply chain in Australia more cost competitive."

Ellison had called for tax breaks in February to help attract major partners to make downstream investments.

"Mineral Resources has been calling for IRA incentives to be available for battery chemicals facilities built in Australia, and Prime Minister Albanese should be congratulated for this agreement and his commitment to add value to our resources," Ellison told S&P Global Commodity Insights.

Bill Johnston, mines and petroleum minister of Western Australia, the world's largest lithium-producing jurisdiction, expects further critical minerals investments to flow in, he said in an email interview.

"I expect further investments in [Western Australia] to be made on the back of the compact and general acknowledgement of the state's attractiveness as a stable, well-governed jurisdiction with world-best governance, regulatory, environmental, health, safety and social standards," Johnston said.

Bolstering Australia's lithium role

The new deal will help "silence some of the skeptics" on Australia's competitiveness in global clean energy supply chains, said Shannon O'Rourke, CEO of Future Battery Industries CRC, a partnership between business, government and researchers focused on Australian battery industries.

"This agreement is a game changer for Australia and helps both countries to achieve their respective ambitions. Together, Australia and the US can be more competitive," O'Rourke said in an email interview. "By accessing low-cost Australian refined products and advanced materials, US industry can manufacture competitive products. This deal means more Australian and US manufacturing, [and] both countries will win."

Albanese said at the signing that "Australia is back around the table."

Ministers from countries in the G-7, which does not include Australia, had agreed to a joint plan for critical minerals security April 16.

O'Rourke sees clear momentum building for a larger role for metals and related downstream products for the global clean energy transition to be provided by Australia, which is already the world's largest lithium producer and is where BHP Group Ltd. holds the globe's second-largest nickel sulfide resource.

O'Rourke highlighted Albemarle Corp.'s announcement earlier in May of two additional lithium refining trains at Kemerton in Western Australia, as well as the Allkem Ltd.-Livent Corp. merger that is "building a new class of modern mining and mineral processing giants," plus the development of two giga-factory scale battery plants. "Australia is at the center of this global shift, and the opportunities before us are truly once in a century," O'Rourke said.

Albemarle's expansion will make Kemerton the biggest and most advanced lithium hydroxide processing facility outside of China, Johnston said.

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