Critical minerals are crucial for the global energy transition, with the International Energy Agency projecting a 250 per cent increase in demand by 2030. Thus, securing the supply chain is key to avoiding price fluctuations, geopolitical tensions and environmental issues. To this end, three strategies are vital – first, boosting primary supply by extracting raw minerals; second, enhancing secondary supply by recovering minerals from waste and end-of-life products; and third, reducing demand for critical minerals by minimising or substituting them in end-use applications. Meeting primary supply demands will require significant investment, estimated at $300 billion-$400 billion annually for mining, refining and smelting, according to McKinsey. Secondary supply alone cannot meet the short-term demand due to limited end-of-life materials.
The World Economic Forum, in collaboration with McKinsey & Company, has recently released a white paper titled “Securing Minerals for the Energy Transition: Unlocking the Value Chain through Policy, Investment and Innovation”. It discusses the key barriers to securing the supply of critical minerals, and provides solutions and strategies to address these challenges. This article provides an extract of the report…
Key barriers
Despite the pressing need for increased supply, several barriers hinder investment and innovation in critical mineral supply chains. Early-stage mining projects face significant financial risks, as capital expenditures are high and unpredictable. The majority of costs are incurred during the construction phase, increasing the risk of budget overruns. Additionally, elevated interest rates further raise the cost of borrowing for mining projects, discouraging investment.
The mining industry has been slow to embrace new technologies, and successful innovations are not being deployed quickly enough to meet anticipated demands. While advancements in water usage and carbon reduction have clear environmental benefits, mining companies are often hesitant to implement them due to concerns about profitability. Furthermore, early-stage innovation comes with high risks, as research and development (R&D) investments may not yield scalable solutions, and price volatility in minerals markets further complicates
investment decisions.
Extended development timelines often exceed venture capital return expectations, limiting the innovation landscape. These prolonged lead times increase the risk of investment disruption, leading to a cautious, wait-and-see approach to innovation funding.
While permitting procedures protect stakeholder interests and ensure responsible mine development, they contribute to an average 16-year delay from deposit discovery to first production. Bureaucratic inefficiencies, limited regulatory capacity and a lack of coordination among government bodies further contribute to delays, which can raise costs and create uncertainty, thereby reducing investment appeal. Community concerns over land rights, relocations and environmental or social impacts can create distrust in mining projects. Many feel companies neglect environmental, social and governance (ESG) practices as well.
In addition, infrastructure constraints pose significant challenges for the mining industry. For instance, areas lacking railroads or roads can be hard to reach, while unreliable electricity and water shortages, particularly without desalination facilities, can hinder production and reduce profitability.
The mining sector also faces labour shortage, particularly in countries such as Canada and Australia, where the number of mining graduates is declining. This trend may drive up recruitment costs and make it difficult to retain skilled workers for mine operations. Over 70 per cent of mining leaders surveyed in 2022 reported that talent shortages are impacting mine performance, which could further reduce returns on investment.
During mine development, uncertainty about long-term demand can reduce confidence in future revenue, limiting profitability and access to capital. Demand-side technology risks, such as the increased adoption of sodium-ion batteries, may decrease the need for lithium, impacting returns for lithium miners despite strong electric vehicle (EV) demand projections. This uncertainty about supply-demand imbalances can lead stakeholders to underestimate the need for innovation, discouraging investment in research and scaling efforts.
Key solutions
Addressing the supply-demand imbalance and the key barriers requires supportive policies and collaboration among stakeholders to facilitate investment and drive innovation. The key solutions are
as follows:
Direct and indirect financial support
Financial support involves directly providing capital to stakeholders and attracting further investment by reducing risks. Offering low-interest loans or equity can improve the financial health of upstream companies, making them more attractive to investors. Various countries are adopting measures to lower capital expenditure. For instance, Canada offers a tax credit covering 30 per cent of mine exploration costs, while Sweden provides credit guarantees to banks lending against long-term offtake contracts, reducing risk and improving interest rates. In the US, enhanced mapping is being planned to reduce exploration costs, while Australia’s Northern Territory offers free geoscience data and grants for exploration. The European Union’s (EU) Global Gateway initiative also aims to attract investment in critical minerals projects.
Public sector initiatives can help mitigate financial risks linked to scaling innovations. For instance, the US has allocated $800 million in tax credits for projects focused on recycling, processing and refining critical materials. The UK’s Accelerate-to-Demonstrate Facility offers £65.5 million in grants for clean energy pilot projects in developing nations. Germany offers subsidies to offset low-carbon production costs, supporting methods that are not yet competitive.
Innovation-friendly policies and stable regulatory environments are vital for fostering private investment, especially considering the long timelines and high risks of new technologies. Supporting R&D can drive groundbreaking innovations in both the public and private sectors. For instance, Australia’s Commonwealth Scientific and Industrial Research Organisation has developed technology for efficient high-throughput ore sensing and sorting, while the US has invested $167 million in an energy and minerals research facility to promote collaboration between scientists and academics. The UK’s climate fund promotes rare piles of earth circularity and attracts private capital by financing R&D.
Improvements to the enabling environment
Streamlining permitting processes by reducing administrative delays can accelerate mine development while still meeting ESG expectations. Clear timelines for evaluations, well-defined roles for government bodies, and better coordination among agencies can simplify approval processes.
Investing in infrastructure can reduce mine development costs and ease mineral transport, particularly in remote areas. Such investment can also support local economic development. For instance, China has pledged $7 billion for infrastructure in Congo as part of the Sicomines joint venture, and Angola has partnered with a consortium to manage and invest in the Lobito Atlantic railway.
More consistent demand signals can enhance investor confidence by reducing volatility and clarifying future revenue potential. Legislated targets, such as California’s goal for zero-emissions vehicles to make up 100 per cent of new car sales by 2035, and funding initiatives, such as the EV tax credits in the US Inflation Reduction Act of 2022, can provide these signals. Additionally, policies like the EU’s battery regulation, which mandates minimum recycled content, can create demand for secondary supplies and recycling innovations. Support for critical metal-efficient technologies, such as hydrogen infrastructure and fuel cell vehicles, can further boost demand for minerals like platinum group metals.
The way forward
The white paper recommends a way forward for different stakeholders. Public entities and regulatory bodies must engage stakeholders across the value chain to understand their needs, address barriers to investment and innovation, and tailor incentives for greater effectiveness. They must collaborate with public entities to improve resilience, enhance information sharing and tackle trade barriers that cause supply chain bottlenecks. Simplifying permitting processes to accelerate industry growth and value chain development is another key responsibility for them.
Going forward, international and multilateral organisations must collaborate with peers and public sector actors to create knowledge banks, including data on critical minerals investment and skill gaps in mining jobs. They must promote cooperation among countries and companies to share information and develop solutions, such as performance metrics and incentives for best practices in social and environmental responsibility.
Meanwhile, private players must elevate ESG standards by collaborating with local communities to enhance social and economic outcomes for upstream producers and improve capacity and traceability with suppliers for downstream manufacturers. In addition, they must form strategic partnerships across the value chain by securing offtake agreements, collaborating with universities on R&D, or investing in innovative companies. Further, companies must pursue joint initiatives to reduce upstream capital risks, such as shared investments or advance payment agreements, while leveraging public sector support like tax credits for junior mining companies.
Financial stakeholders should collaborate with peers and industry players to encourage mining investments by developing risk-mitigation financial tools. In addition, they should strengthen ESG standards by clearly communicating expectations to industry players and enhancing due diligence, driven by initiatives like Climate Action 100+, which aims at reducing greenhouse gas emissions.
In conclusion, critical minerals are essential for the global energy transition. However, supply chain constraints pose significant risks. To meet future demand, boosting primary and secondary supplies, while reducing critical mineral usage, is crucial. Barriers such as financial risks, lengthy permitting processes and infrastructure limitations hinder progress. Addressing these challenges requires investment in innovation, supportive policies and international cooperation. By streamlining regulatory processes, improving ESG practices and fostering collaboration across the value chain, stakeholders can secure a stable and sustainable supply of critical minerals, driving forward the global transition to clean energy.
