Critical minerals are, as the name suggests, vital to many aspects of creating clean energy. OIC states are facing the need to shore up supplies of minerals such as lithium, nickel and rare earth. Financing critical minerals’ extraction and refinement will be vital in, for instance, key sectors such as electric vehicle batteries. OIC states such as Indonesia are already moving on apace in financing projects that rely on critical minerals for their energy transition. How are export credit agencies, development banks and organisations such as ICIEC leading the evolving role in this important space?
As energy prices soar and countries return to carbon to meet demand, it would be easy to assume that the commodity finance industry is as fixated on oil and gas as ever. The war in Ukraine has underlined the challenging reality of the world’s progress towards a green energy transition. However, it was not oil and gas that topped the list of most active sectors for commodity finance in the first half of 2022. According to TXF Intelligence’s data report, metals and mining investment deal volumes increased $11.9 billion in the year to end of H1 2022.
The reason? In a world that is looking to electrify all aspects of its supply chains, the precious metals required to make batteries become vital. Renewable energy sources, electric vehicles, and other forms of carbon-free infrastructure require battery storage. In this sense, global ambitions for sustainability rely upon the distribution of a finite resource of critical minerals.
Many ICIEC member states are still developing nations. It often appears that sustainability stands in opposition to prosperity when so many member states possess fossil fuel wealth, but the challenge for ICIEC is to mitigate the risks to its members on a pathway to sustainability. It has shown initiative in this regard. Oussama Kaissi, ICIEC’s CEO, has written for the Berne Union underlining the group’s commitment to ‘helping to drive investment for climate-resilient infrastructure in its member states. The benefits of this commitment have already been seen in a number of renewable projects. Around $68 million in coverage was provided to the Benban Solar Complex in Egypt, one of the largest photovoltaic plants in the world, and ICIEC was also heavily involved in the Sharjah waste-to-energy project, which aided the UAE’s efforts to divert 75% of solid waste away from landfill. However, for most OIC states, the physical infrastructure for an electrified society is still stranded in the future.
What is a critical mineral?
The definition of a critical mineral is not precise, and different countries have produced their own priority lists. Lithium, cobalt, nickel, graphite, and copper are among the best-known examples. It is unsurprising that governments around the world have put together strategy reports on their access to minerals and future opportunities to maximise supply. In 2018, the United States defined a critical mineral as a non-fuel mineral material that is essential to manufacturing and is vulnerable to disruptions in supply. A list of 35 was produced, 31 of which were minerals the US is more than 50% reliant upon importing. The Us objective now is to reduce that figure, or at least to ensure that supply chains are diversified among ‘allies and partners. That specific emphasis entails the global race for mineral security has become increasingly geopolitical.
At present, the dominant player in the critical minerals market is China. The strategy employed by the Chinese government is twofold: it has the most comprehensive domestic infrastructure for the processing of materials, and it invests heavily in extraction sites across the world to secure its own supply. Statistics from the International Energy Agency (IEA) show that China refines around 35% of nickel supplies, between 50% and 70% of cobalt and lithium, and as much as 90% of rare earth metals. Many members of the OIC will have received investment from Chinese companies, notably Indonesia, which has benefitted from close to $30 billion towards its nickel value chain alone. The most recent data from Benchmark Mineral Intelligence shows that Chinese cathode production quadrupled between 2018 and 2022, with as much as 87% market share predicted by 2030. If the political relationship between the US and China continues to suffer, the global trade in minerals could snarl up.
Conflicts between major international powers in the last decade have revealed the ways in which commodities can be ‘weaponised’. From Europe’s recent attempts to wean itself off Russian gas to the China-US trade war under the administration of President Trump, there are many ways to demonstrate the consequences of commodity dependency. ‘Optionality’ is, therefore, the watchword for states looking to secure their supply of critical minerals. In this light, it is important for industry players to be aware of both the key sites for mineral extraction and the financing tools that different institutions have used to gain access to them.
Strategic priorities and challenges
One problem with creating optionality is that, unlike oil and gas, mineral production tends to be highly concentrated in specific areas. According to the IEA, the DRC extracts roughly 70% of the world’s cobalt resources, Australia has around 50% of lithium, and Indonesia has around 30% of nickel. There are many areas of untapped mineral wealth, notably around the Arabian Peninsula. In May, leading OIC member, Saudi Arabia announced $32 billion in funding for mineral projects as part of an ambitious attempt to make mining a pillar of its industrial base by 2030. However, the discovery of new sources would not quickly ameliorate the problem. The process from the first discovery to the first concentration is arduous. OZ Minerals has recently taken a final investment decision on a $1.7 billion copper and nickel project called West Musgrave in Western Australia, but it does not expect the first concentrate until the second half of 2025. The initial scoping study took place in 2016. This is comparatively rapid when placed next to the IEA’s estimate of a 16-year average wait for mining projects to reach the first production.
The conundrum that must be solved by every country is how to secure a supply of limited minerals when demand is so high. Increasingly, state bodies, export credit agencies (ECAs) and development finance institutions are looking to, or are being called to, be more involved in this regard.
ICIEC has been supporting the Indonesian nickel mining sector through July’s PRI insurance for SIDRA Capital Financing. This will lengthen and deepen the amount covered in Shariah-compliant financing for SMEs to Indonesia’s PT MCT (Asia Trading). The $80 million one-year cover to SIDRA will help secure its Shariah-compliant loan facility to PT MCT, which will use the financing to fund transactions for suppliers and operators in the mining and nickel trading sectors.
As critical minerals continue to be a subject of international concern, increasing involvement from government institutions will be called upon. ECAs are already evolving to secure supply as part of a broader mandate to support domestic industries. Evidently, a sector that is so fundamental to the electrification process cannot be ignored. The immense difficulties involved in extracting and processing metals will necessitate change if the world is truly committed to the green energy transition. In this, ICIEC will continue to look to support member states in their financing through insurance support of institutions to help secure investment for climate-resilient infrastructure and clean energy generation, a key element of which will be access to critical minerals to underpin this demand.
