The 50 minerals critical to US security
As we move towards a multipolar world, the potential for weaponising commodity supply is enhanced. At a minimum, we are entering an era of heightened competition for already scarce resources globally. A newly updated list of minerals deemed critical to US security and future decarbonization plans, features commodities that society heavily relies upon for renewable energy, national security, development and infrastructure. Among the essential minerals listed are aluminium, zinc, lithium, nickel and tungsten, many of which Appian is targeting for investment and development.
Figure 1: Periodic table of critical minerals/elements
Source: US Department of the Interior, US Geological Survey
Mining is truly going mainstream, with society realising that energy transition doesn’t happen without mining. However, with global demand rapidly rising from each country, securing supply is becoming a prime focus for policy makers. Select commodities are also set to experience rapid demand growth by 2040 to achieve COP 21’s Paris Accord objective of keeping global warming below 2° C. Specifically, Appian believes that select minerals such as copper, nickel, aluminium, graphite and lithium are the most likely to experience exponential growth fueled by the ongoing energy transition.
The downside of Europe’s dependence on Russian oil and gas has made its way into the consciousness of many people only recently, as a result of the invasion of Ukraine, but it shows the potential weaponization of commodities and the more concerning fact that seemingly whomever controls core commodities, controls policy. It is highly likely that we will see nations seeking to control and use critical minerals required for defence, micro-processors and even energy transition much like Russia uses its relative dominance in Oil and Gas. It highlights the importance of securing safe and local sources of supply for these commodities. As evidenced by the recent addition of many purely energy transition-related commodities to the US Government list, policy makers are increasingly focused on winning the battle for securing these minerals today in order to avoid being forced into a kinetic battle for them tomorrow.
Renewable energy sources like wind and solar, as well as the electrification of transportation, will be at the heart of the American green economy. However, raw materials required to manufacture these technologies, such as solar panels, wind turbines and electric vehicles (EV), are not generally available locally, placing the understanding of supply chain at the forefront of corporate and government strategy.
Definition of a critical mineral?
According to the Energy Act of 2020, a “critical mineral” is a non-fuel mineral or mineral material that plays a critical role in the economic or national security of the US and has a fragile supply chain. This can be disrupted by geological scarcity, geopolitical issues, trade policy or other factors. Understanding mineral dependency across economic sectors, forecasting possible disruptions to mineral commodity supply, evaluating their impacts and understanding how to make supply chains sustainable is essential.
In 2018, the US Department of the Interior published a list of 35 critical minerals and the most recently released list from February 2022 contains 15 more commodities. The additions represent improvements to the methodology used to identify potential critical minerals as they don’t remain static, but rather change over time as supply and demand dynamics change and import reliance shifts. For example, rare earth elements and platinum group elements have become individual entries rather than being included in “mineral groups” on the updated list. Meanwhile, helium, potash, rhenium and strontium have been removed, although Appian would argue that any food and fertilizer commodity should remain, given close linkages to inflation and potential social discontent.
Critical list newcomers
Nickel: Included based on the single point of failure criterion. This single point of failure is due to the operation of a single refinery in the US that produced crystalline nickel sulphate
Zinc: Added because of the increasing concentrations of mines and smelters throughout the world and the continuous development and refinement of quantitative evaluation criteria
The US produces very little of these raw materials, as a result of the deterioration of manufacturing capabilities across the country and in other countries, resulting in a focus on economic efficiency over diversity and sustainability of supply. In 2021, the only operating nickel mine in the country was the Eagle Mine in Michigan, which ships its concentrates abroad for refining and is scheduled to close in 2025. Likewise, Nevada is only home to one lithium mine, the Silver Peak Mine. If the US is to fully benefit from this new era, it must also consider the sustainability of its strategic and critical materials supply chains and likely make permitting new mines easier.
Drivers of supply chain vulnerability
The US inter-agency assessment identified the following supply chain risks: insufficient US manufacturing capacity, misaligned incentives and short-termism in capital markets, geographic concentration in global sourcing and industrial policies adopted by allied partner and competitor nations.
President Joe Biden invoked the Defence Production Act of 1950 to call for the inclusion of critical minerals used in the clean energy transition and the defence sector be considered as fundamental to national security. Approximately US$750m of initial government funding is potentially available under the act, which would allow firms to develop lithium projects and other critical minerals. The announcement contained insightful commentary that read more as a call to action than a policy document: “To promote national defense, the United States must secure a reliable and sustainable supply of such strategic and critical minerals. The approaching minerals demand wave is set to strain every sector of the economy and requires an urgency in action from governments.”
Europe faces similar challenges, as laid out in a recent white paper by Eurometeaux, an industry group which represents some of the industry’s biggest metal producers. This move follows the EU’s goal to be carbon neutral by 2050, reduce its reliance on Russian energy and make a faster switch to renewables. According to the report, Europe will require 35 times more lithium and between 7 to 26 times as much rare earth metals in 2050 than it does today to meet its clean energy goals. Further, the report paints an optimistic picture for recycling, predicting that 75 percent of the region’s clean energy requirements could eventually be met through recycling, but warns that the next 15 years will be extremely challenging.
Dominance in the minerals industry
Many critical minerals are not processed and refined in the US because of a lack of processing capacity, meaning these materials have to be shipped to another country, like China, for processing and recovery. Globally, China controlled 60% of rare earths mining capacity in 2020 and 85% of rare earths refining, for example. Cobalt is more pronounced with no production originating in China, but over 60% of processing taking place there.
Figure 2: Extraction (top 3 countries’ market share)
Processing (top 3 countries’ market share)
Despite the name, rare earth elements are abundant on the Earth’s crust and make up the majority of listed critical minerals. They are essential for a variety of products like EVs, advanced ceramics, computers, smartphones, wind turbines, monitors and fiber optics.
Next to China, Canada was the largest supplier of mineral commodities to the US in 2021, supplying 16 different elements. As the US seeks to remain competitive in manufacturing and defence, it must secure reliable and sustainable supplies of critical minerals and metals. When it comes to identifying pressure points, it is not sufficient to look at mining dominance alone, but at all points along the chain, including downstream refining.
The world needs increasingly more critical minerals
With the world’s clean energy transition moving forward, the demand for critical minerals is expected to rise quickly. The transition to a sustainable economy is crucial, and therefore, securing the critical minerals necessary for it is equally important.
The energy transition has become a central focus for governments and society. Current forecasts expect over 50% of global power output in 2040 to be produced by zero-carbon sources and over 50% of vehicles to be electric. Increasing societal and political pressure to preserve the environment has been supported by massive government stimulus programs aimed at green infrastructure and other sustainable initiatives. Additionally, technological leaps have enabled our energy transformation since the cost of green energy technologies has decreased and is now competitive.
The long-term positive macroeconomic trends are further amplified and accelerated by the profoundly disruptive green energy transition pushing both developed and developing economies towards net-zero emissions. This can only be accomplished through ambitious electrification and decarbonization objectives, implemented on a massive scale and at an unprecedented pace.
Driven by a confluence of macroeconomic, political, societal, and technological factors, Appian believes that the current global energy transition already underway is underpinned by 3 distinct pillars which directly drive positive long-term decarbonization benefits:
1. Environmental, Social and Governance focus: ESG has rapidly become an increasingly central topic of concern for the public in most developed and emerging economies across the world. As a result, this level of concern from end-consumers has made the general theme particularly relevant to businesses focused on consumer behaviours. Governments are also responding to public pressure, placing ESG as one of the top priorities on many countries’ political and public policy agendas.
2. Government support: The US Government, working in partnership with the private sector and other stakeholders, should encourage the development of new sustainability standards for designated strategic and critical materials to conduct due diligence, eliminate sources of unsustainable production and accelerate Federal and commercial purchasing of sustainable products. A recognized sustainability standard, potentially backed by legislation and coordinated with trading partners, would encourage private sector investment in sustainable sources and increase supply chain resilience. Appian has had discussions with several governments, at their prompting, to provide more of a framework as to how they can be more constructive in terms of policy and financing.
3. Technology and innovation: Recent technological advancements have facilitated and therefore accelerated the process of transformation of our economies towards environmentally friendlier energy consumption and mobility solutions. The direct and indirect costs of green energy technologies have also reduced materially and are now competitively positioned relative to traditional technologies, leading to increased green energy technology adoption. As the market continues to grow and mature, the trend is likely to continue to accelerate, benefiting from a virtuous circle of increased investment driving further cost reductions and therefore increased adoption.
US companies foreign sourcing for ingredients for semiconductors differs from Europe’s energy dependency, but both share the same fact that each became overly reliant on external sources and in effect handed over leverage and reliance to others. Electronics are critical to US national security – communications, defence, surveillance, transport and other critical sectors relies on it. How did the US and Europe get into this position? Europe allowed its energy dependence to increase due to its naïve pursuit of all things green without a study of the long term and secondary impacts. The US became obsessed with the pursuit on finished goods from overseas to remain as low cost as possible and to deliver greater profits.
Energy transition commodities are the next battleground.
Strong projected growth in renewable energy generation capacity and electric vehicles sales
The energy transition is specifically driving strong growth around green energy enabling technologies, with renewable energy generation capacity conservatively projected to increase at a CAGR of ~7% to 2030, having already grown at a consistent 8.4% CAGR over the last decade.
Similarly, electric vehicle sales are projected to increase at a ~18-20% CAGR to 2040, depending on varying adoption pace assumptions. This represents an increase from ~2 million electric vehicles sold in 2020 to 52 million to 70 million electric vehicles expected to be sold annually by 2040.
Figure 3: Projected increase in EV sales
Source: Goldman Sachs
Increased demand for minerals enabling the energy transition
Commodities are prevalent in technologies used to facilitate the energy transition, as shown below:
Wind turbines: copper demand from wind energy is expected to account for 20% of green demand, with copper intensity expected to grow as offshore projects that require twice as much copper become more prevalent. A 3 megawatts (MW) wind turbine contains up to 4.7 tonnes of copper mainly in the cables, generator and transformers, and most offshore wind turbines have permanent magnets that contain rare earth elements such as neodymium and dysprosium.
Solar panels: solar panel frames consist of aluminum, while silicon is the dominant source for the semiconductors in photo-voltaic (PV) cells, with silver used in the cells as well. Copper is key for PV panel efficiency and performance and is utilized in the wiring of panels and certain types of PV cells. Some PV technology also uses zinc to achieve higher PV cell efficiency.
Electric vehicles: electric vehicles rely heavily on copper for the motor coil that drives the engine and cabling for the charging stations. Electric vehicle batteries contain nickel in combination with lithium, graphite, cobalt, aluminium, iron or manganese.
Energy transition driving increases demand for minerals through higher intensity
The energy transition involves technologies requiring increasing levels of mineral intensity compared with more traditional technologies, both as related to mobility and power generation solutions. Such higher levels of mineral intensity across green energy technologies are mechanically driving a rapidly expanding demand for various minerals, to support and facilitate the energy transition.
Figure 4: Everything that is not grown, is extracted
Source: Appian Capital Advisory LLP, Wood Mackenzie, European Commission, Goldman Sachs
Energy transition will drive exponential growth for select minerals
As a result, industry experts estimate that by 2040, ~30% to ~50% of both copper and nickel demand levels will be expected to be attributed to the energy transition.
Nickel represents 1.5 to 3.1 million tonnes of incremental demand globally for nickel by 2040, a 20 times to 40 times increase in nickel demand compared to 2020 levels. This is largely driven by the fact that nickel is a core commodity input for EVs and battery storage primarily, compounded by the fact that developed markets are gradually shifting to high-nickel-use batteries because of the prioritization of energy density systems.
Industry experts forecast usage of renewable nickel systems (e.g. NMC811 battery chemistry is composed of 80% nickel) to grow 4 to 5-fold between 2020 and 2030 as a result.
Minerals and materials play an important role in the construction of products relied upon every day in the US and other nations. Many of these metals will be in high demand over the next two decades, especially as the world works to eliminate net-carbon emissions by 2050. As an example, the global demand for lithium and graphite, two of the most important materials for electric vehicle batteries,
is projected to grow by more than 400% by 2040 under a scenario where the planet meets its climate goals.
Addressing the issue
Green energy sources in general and electrification are already driving exponentially higher demand levels for core commodities linked to the manufacturing of wind turbines, solar panels and EVs. This includes copper, silver, nickel, zinc, and other technology-linked commodities. Achieving global net-zero is inextricably linked to increased base metal supply, as base metals are essential to the technology that will be used in the generation, transmission, storage and consumption of low-carbon electrical energy.
An integrated value-based policy approach, including continuous research, primary production and downstream manufacturing can support the development of reliable and durable supply chains for clean technologies in the US. Focusing on R&D, recycling and more efficient technology will ease some of the short-term pain.
Greenflation continues to be an issue, impacting the fulfillment of strategic commodity goals, and until governments balance out the unwillingness to permit and finance development with low-cost ECA debt, the same supply chain challenges will remain.
The impact of greenflation was most evident in Serbia, where a prominent lithium mine, which would have been pivotal to Europe’s self-sufficiency, was placed under ‘care and maintenance’ due to social opposition. This lack of additional supply leads to lithium prices increasing and leads to the cost of EVs for all consumers increasing also.
Creating new smelting arrangements to capture a share of the end-markets regardless of the source of raw material would be an option, but it is costly, requires large financing arrangements and is also extremely energy intensive.
Listen to …
Former Assistant Secretary of State and Appian’s Senior Geostrategy Advisor Frank Fannon talks to Gabrielle Sierra on the Council on Foreign Relations podcast, Why It Matters.
The world is moving toward electric vehicles and clean energy, but a green future doesn’t depend on wind turbines, solar panels, and Teslas alone. It will also require a vast supply of advanced batteries. As a result, global demand for lithium — an essential battery ingredient — is outpacing supply, with the gap expected to grow in the years to come.
The challenge is also geological in that many of the critical minerals on the list simply don’t exist in the countries which need them, forcing a more globalised sourcing strategy. This isn’t fatal, however, as governments could utilise a similar structure to what commodity offtakers have, which is to provide financing in exchange for long-term offtake agreements. This would involve a support structure of localised refiners and end-users in close collaboration with global miners with a government financing agency in between.
There are many benefits to private mining funds partnering with governments, including in Appian’s case, a global sourcing network across all major mining destinations. Appian’s diligence and operational capabilities also allow us to see through the promotion of the industry and determine which projects are actually viable and will be built, which is an important distinction.
Desiring to bring a rare earth project into production given expected supply squeezes, we benchmarked Peak Rare Earths as one of the most attractive light rare earth projects on the planet.
The Peak team at Ngualla
As a result of our involvement, the company released a bankable Tier 1 feasibility study, which concluded that locating a downstream processing facility in Teesside, UK would not only be the most economically attractive option, but would also garner financing and political support in the UK and Europe. The facility and mine would have ended up costing a manageable US$365m and would have provided a significant level of support for multiple critical commodities. However, no financing or political support was forthcoming from either government, with management even finding meetings difficult to secure in Brussels and London, and the mine was eventually forced to sell a large portion to a Chinese producer. Despite all the ambitious talk about supply shortages and lengthy white papers produced, if the talk isn’t backed up by action, private industry will remain skeptical of a government’s ability to deliver.