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Friendshoring critical minerals: Overcoming economic and strategic challenges in the West

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The demand for critical minerals

The accelerating transition to electric vehicles (EVs) and other mineral-intensive technologies is driving an unprecedented demand for critical minerals such as lithium, cobalt, nickel and rare earth elements. Western countries, aiming to secure supply chains and reduce dependence on geopolitical adversaries like China, are exploring policies like “friendshoring.” This approach involves sourcing minerals from allied nations to ensure a stable supply of essential raw materials.

The current landscape of mineral reserves

Despite the collective reserves held by Western countries within the Mineral Security Partnership (MSP), which includes nations like the United States, Australia, Canada and several European Union members, there are significant challenges to developing new, profitable mining operations in these regions:

  1. Depletion of high-quality deposits: Many Western countries have already exploited their most accessible and high-grade mineral deposits. For example, in the copper sector, large-scale high-grade discoveries are increasingly rare in the West, with recent major discoveries being concentrated in regions like Latin America and Africa.
  2. Economic viability: The profitability of mining operations is heavily influenced by the scale and grade of the deposits, as well as the associated costs of extraction. Western countries face challenges in this regard, as remaining deposits tend to be of lower grade and require more expensive underground mining operations, making them less economically viable compared to open-pit mines found in other regions .

Economic challenges

  1. Higher costs of operation: Mines in Western countries, especially those that are underground, face higher operating and capital costs. These higher expenses make such mines more sensitive to fluctuations in global mineral prices. For instance, when cobalt prices fell, Jervois suspended its Idaho cobalt mine, illustrating the economic vulnerability of Western mines during price downturns.
  2. Competition with low-cost producers: Western mines must compete with more cost-effective operations in countries like China and the Democratic Republic of the Congo, which often have lower labor costs and less stringent environmental regulations.

Governmental support and policy Interventions

To mitigate these economic challenges and make friendshoring a viable strategy, Western governments can employ several measures:

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  1. Incentives for exploration and development: Increasing funding and incentives for mineral exploration can help discover new deposits, which may otherwise remain untapped. For example, offering tax credits and development loans can reduce the financial risk for companies investing in new mining projects.
  2. Subsidies and tariffs: Governments can implement subsidies to lower the operating costs of domestic mining operations. Additionally, tariffs on mineral imports from non-allied countries could increase the competitiveness of domestically sourced minerals.
  3. Support for technological innovation: Investing in new technologies for mineral extraction and processing can reduce costs and increase the feasibility of developing lower-grade deposits. Enhanced recovery techniques and advanced mining technologies can play a crucial role in making Western mines more competitive.

The role of higher mineral prices

The prospect of higher mineral prices due to policies like the US Inflation Reduction Act can incentivize the development of less profitable deposits. If electric vehicle manufacturers are willing to pay a premium for minerals that qualify for tax credits, this can create a market for higher-cost, domestically produced minerals. This price bifurcation could make it feasible to operate mines in the West that would otherwise be uneconomical.

Long-term outlook and strategic implications

While Western countries face significant challenges in establishing economically viable mining operations for critical minerals, a combination of strategic government support and favorable market conditions could make friendshoring a feasible policy. Increased exploration incentives, technological advancements, and protective tariffs can help bridge the gap between current costs and potential profits. This approach will not only secure supply chains but also promote sustainable and resilient economic growth within allied nations.

In conclusion, while the profitability of new mining operations in the West remains uncertain, coordinated efforts between governments and the private sector can potentially unlock the economic viability of domestic mineral production, ensuring a secure and stable supply of critical minerals for the future.

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