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Editorial comment

These are exciting times for the mining industry, as a consensus emerges that critical minerals are essential to the energy transition. From automotive companies to financial institutions that had previously moved away from financing mining, a diverse group of actors is keen to join the global race for critical minerals and contribute to emissions reduction. While critical minerals have been mined for decades, the scale required to supply the projected demand poses unique development challenges. This comment discusses four of the challenges facing these ventures and explores how they are being addressed: market uncertainty, potentially increased environmental and social risk, insufficient processing capacity, and limited experience.

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Current demand projections for critical minerals, such as lithium and cobalt, are understandably promising given the significant governmental and market incentives motivating the investment of huge sums of capital into the energy transition. However, those projections are themselves contingent on substantial growth projections in other markets that have not yet materialised, such as the market for electric vehicles. One common market mitigant, firm offtake contracts with creditworthy counterparties, is proving challenging to obtain. Purchasers are seeking optionality in their contracts that protects them against market swings but leaves the project and its investors exposed, often requiring rights to amend the quantity of material they must purchase under these agreements. Investors and financiers must be flexible enough to assume some market risk and/or require other creative mitigants.

Extraction of natural resources at speed also poses real and perceived environmental and social risks. As access to critical minerals is increasingly framed as a national security issue, less scrupulous actors and nations may be enticed to overlook important environmental and social concerns in favour of securing these in-demand minerals. Moreover, some of the technology proposed to be used in the extraction and processing of critical minerals is untested at scale, and the potential environmental, social, and health impacts of these technologies remain unknown. Parties are seeking to mitigate this risk with more robust technical advice and enhanced due diligence.

Furthermore, there is insufficient processing capacity for critical minerals and a geographical concentration of existing processing facilities. For example, most of the world’s processing facilities for lithium are in China, posing geopolitical concerns. While there is no immediate solution, and processing facilities for critical minerals are often uniquely designed for a particular mine resource, efforts to tackle these challenges include the development of several large lithium processing facilities in the US, as well as written commitments to shift processing out of China once capacity has ramped up in other countries.

Junior mining companies can often mitigate investor and financier concerns regarding risk management and execution risk by bringing on experienced and knowledgeable personnel. With critical minerals, there is a dearth of such experience and a concentration of existing experience in certain jurisdictions (i.e. China). Mine developers are tasked with convincing investors and financiers that they can handle these new challenges – despite a necessarily limited track record – and must look to other minerals and processes to translate them onto these new mineral resources.

The four issues reviewed here are a key subset of the challenges facing critical mineral projects. However, risk is inherent in all natural resource investment. While critical minerals present some additional unique challenges, creative solutions to these challenges are emerging. The increase in global awareness that critical minerals will play a key role in the energy transition presents an enormous opportunity for the mining industry stakeholders that can effectively manage these unique challenges.