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Banking, mining experts urge collaboration amid critical minerals 'tech war'

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Perth USAsia Centre's Gordon Flake, left, Singapore Exchange's Chong Lek Foong, center, and ANZ Banking Group's Grant Nicholas, right, on a Critical Minerals conference panel in Perth, Australia, on Oct. 8, 2019.
Source: Perth USAsia Centre

Experts from the banking and mining sectors in Asia and Australia have urged collaboration with governments and supply chain players to develop innovative financing solutions to secure the critical minerals expected to be needed for the future, amid rising geopolitical tensions.

Speakers from Asian and Australian governments, miners, research and financial institutions addressed geopolitical and supply chain challenges on Oct. 8 at the Critical Minerals conference in Perth, Australia, run by strategic think tank Perth USAsia Centre.

Australia & New Zealand Banking Group Ltd. natural resources director Grant Nicholas said the critical minerals industry "lends itself to a joint approach" more than other commodities.

Multiple speakers lauded China for incentivizing entire supply chains across the critical minerals spectrum to create the lead time to get up and running, and Nicholas urged the private, corporate and financial sectors to work together to create a "structured solution," a key part of which is financing.

Collaboration with players throughout the intricate supply chains for the dozens of critical minerals, which each have their own unique end uses, is needed, he said, otherwise banks will merely assess mines independently on a project-by-project basis, and "some of them just won't stack up."

Even auto manufacturers with electric vehicles in their future have approached ANZ Banking, he said.

Tech risk

Nicholas' division has been studying battery minerals for the past 18 months, and said critical minerals carry a "technology risk" with much complexity in the supply chains and processes around rare earths, for example, that do not exist in bulk commodities. Price volatility such as that seen in lithium is also a concern.

Yet for ANZ Banking, the due diligence fundamentals — like cost curve, all-in sustaining costs and capital expenditure — are the same as for bulk commodities and base metals, and Nicholas said commercial banks would be "very happy" to work with the likes of the Northern Australia Infrastructure Facility and Export Finance Australia and other export credit agencies to come up with a joint solution.

Meanwhile, West Australian lithium producer Pilbara Minerals Ltd. CEO Ken Brinsden told a panel at the conference that banks are not interested in critical minerals greenfields projects.

He lauded the "entrepreneurial bent" of the Australian government's Clean Energy Finance Corp. in participating in his company's US$100 million Nordic bond issue in 2017 — which entailed "very, very expensive" interest — without which there would be no Pilgangoora operation.

Rare earths producer Northern Minerals Ltd.'s CFO Mark Tory agreed financing was one of the biggest hurdles, with the Australian rare earths company having spent A$230 million on its Browns Range project thus far, as working out the processes to get the mineralization correct for customers is a costly process.

"I wouldn't be sitting here today," Tory said, if Chinese investment had not arrived earlier in the year when the company had "serious cash flow issues."

Similarly, Neometals Ltd. COO Mike Tamlin said he would still be trying to fund the Mount Marion lithium mine if not for the equity partnership with China's Ganfeng Lithium Co. Ltd. and Australian diversified miner Mineral Resources Ltd., which created an independent company out of a Neometals subsidiary to run the mine.

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Daniel McGroarty.
Source: Daniel McGroarty

Geopolitical plays

Washington, D.C.-based Carmot Strategic Group principal Daniel McGroarty, who has testified to the U.S. House and Senate on critical minerals issues, told delegates industry's language needs to change from referring to such metals as "coproducts" rather than "byproducts."

As an example, McGroarty said the Australian- and U.S.-backed Round Top project in Texas — which contains lithium, uranium, beryllium and gallium, the latter used in super-computing chips — suggests "byproducts" is not appropriate.

"Industry should consider how it can extract all of the useful metals and minerals from each deposit," he said.

Yet some critical minerals' markets may be so small as to be "commercially uninteresting" to the private sector, which McGroarty said further underlines the need for government-industry collaboration to incentivize investment.

He said a "tech metal age" is emerging amid a "tech war" where state-controlled and free market economies vie for control of critical mineral supply chains, which will redefine geopolitics into "haves" and "have-nots," adding that Australia and the U.S. would fall into the former category.

In this context, McGroarty said he "can't overstate the impact" of the Presidential Defense Production Act Title III determination in regard to encouraging rare earth production.

He said the determination gives the secretary of defense power to make direct investments to support development of the material in question with loan guarantees for purchases for the Defense Stockpile, and even "commitments to purchase," which are effectively what industry would call "off-takes."

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Tadashi Maeda, governor of the Japan Bank for International Cooperation, addresses the Critical Minerals conference in Perth, Australia, on Oct. 8, 2019.
Source: Perth USAsia Centre

Tadashi Maeda, governor of Japanese government-owned Japan Bank for International Cooperation, told delegates it was important to boost the country's private sector competitiveness to secure parts of critical mineral supply chains amid Chinese dominance.

He cited Sumitomo Metal Mining Co. Ltd. establishing technologies to capture nickel and cobalt from used batteries and to recycle them.

Yet he emphasized that "our hope is not to contain China but include China as partners, [while] demonstrating our strong partnerships with the U.S. and Australia, not just on infrastructure but mining, particularly critical minerals."

Maeda cited a memorandum of understanding signed in late 2018 with China Development Bank which could lead to cooperation on project investments across Asia.