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Greenland knew what it was doing when it warned that if US and European miners would not help it exploit its minerals, it would turn to China. Geopolitical and trade tensions have spotlit China’s dominance of critical elements. Markets alone will not reverse this.
Minerals such as copper, lithium, cobalt and rare earths, which are essential for grids and batteries but also phones and missiles, are overwhelmingly mined and refined in China, which benefits from supportive policy, scale and efficient production. The country refines about 70 per cent of all but one of the 20 minerals analysed by the International Energy Agency.
Mining the stuff elsewhere is expensive. Capital costs for projects in countries that are not already global leaders are typically 50 per cent higher, the IEA reckons. Lithium refining, for example, costs $60 per kilogramme in the top three countries versus $103 in the rest of the world. Investors must also contend with rising energy costs and royalties, regulation and price volatility.
There are three potential fixes. The first is for governments to step in. Subsidies are no longer a no-go area. Both the US and EU have mobilised tens of billions of dollars for chips, for example. Australia has ponied up loans for a rare earths refinery to be developed by Iluka Resources, supplementing initial funding when construction costs over-ran.
Those who balk at financial infusions can opt for other mechanisms. Contracts for difference, which provide a guaranteed price over a set period, could help entice investors. They have already been adopted by the UK and others to support low-carbon electricity generation.
The second potential fix is to find new, cheaper ways of extracting minerals. Direct lithium extraction from geothermal brines — using membranes to filter out the desired element, for example — can be more cost-effective than traditional methods. Recycling boosts supply, when paucity of feedstock or the release of toxic gases can be managed.
Artificial intelligence may also help. The IEA reckons that using it for geological exploration could cut drilling costs by as much as 60 per cent and — best-case scenario — increase discovery success rates fourfold.
And last: find alternatives. Cobalt-rich batteries are still duking it out with lithium iron phosphate batteries, which are winning in China. But manganese-rich versions, such as those under way at Europe’s Umicore chemicals, are gaining traction.
Adherents of market principles may gripe that a liberal use of planning and subsidies is suspiciously similar to China’s playbook. In an ideal world, such tactics would not be necessary. But in the real world, supply security has a cost. It is just a matter of making it as small as it can be.
