MSP’s emphasis on ESG principles reflects a global commitment to transforming and “greening” economic activity and fighting climate change, despite political anti-ESG backlash in the U.S.

To support and advance President Biden’s policies on critical minerals and secure supply chains the U.S. Department of State has created the Minerals Security Partnership (MSP). The program, under the aegis of Under Secretary of State for Economic Growth, Energy and the Environment Jose Fernandez, the MSP “aims to accelerate the development of diverse and sustainable critical energy minerals supply chains through working with host governments and industry to facilitate targeted financial and diplomatic support for strategic projects along the supply chain.”

MSP partner States include Australia, Canada, Finland, France, Germany, India, Italy, Japan, Norway, South Korea, Sweden, the United Kingdom, the United States, the European Union (represented by the European Commission) and Estonia (the most recent country to join the MSP, officially welcomed into the fold at the March 2024 PDAC meetings). The member States will coordinate their work through the MSP Forum, established March 3 at PDAC in Toronto. The Forum will promote diverse and resilient supply chains, local value-addition, and beneficiation.

The MSP is focused on addressing four major critical minerals challenges:

1. Diversifying and stabilizing global supply chains;
2. Investment in those supply chains;
3. Promoting high environmental, social, and governance (ESG) standards in the mining, processing, and recycling sectors; and
4. Increasing recycling of critical materials

The MSP operates on the basis of several Principles under which member States strive to elevate environmental, social, and governance (ESG) standards across the global minerals sector. The MSP only will support projects that meet high, internationally recognized ESG standards throughout the life of the project.

Companies interested in participating in the MSP program and funding opportunities must:

• Demonstrate responsible stewardship of the natural environment;
• Engage in consultative and participatory processes regarding land access and acquisition;
• Commit to meaningful, ongoing consultation with communities;
• Ensure safe, fair, inclusive, and ethical conditions in the community and the workplace;
• Provide economic benefits for workers and local communities; and
• Ensure transparent, ethical business operations

These principles strongly suggest that adherence to programs such as Prior Informed Consent (PIC) (governing consultations between companies, governments, and indigenous populations), the Extractive Industries Transparency Initiative (EITI), and human rights laws prohibiting child labor and protecting the rights of artisanal miners will be required for companies taking part in the MSP. (Note that not every country is fully implementing PIC or EITI and therefore presumably there could be exceptions on a case-by-case basis while maintaining a focus on fulfilling the intention of those programs.)

A large potential complication for the MSP could be the current absence of an internationally agreed standard on ESG implementation and reporting. The EU is considered to have the most rigorous framework, while currently the US does not have an overarching legal standard (the SEC recently postponed announcing its framework, although it is still expected to do so by the end of 2024 after almost 3 years delay). In the absence of a cohesive standard, it is possible that national law will prevail, meaning that companies will have to be fully compliant with whatever ESG laws are in place where their project will be located. Companies applying for MSP funding/participation may find it useful to follow the standards of organizations such as the Global Reporting Initiative (GRI), the IFRS Sustainability Reporting Standards developed by the International Sustainability Standards Board (ISSB) or to become members of ESG-related organizations such as the Institute for Responsible Mining Assurance (IRMA). Likewise, depending on the mineral in question, there are agreed industry standards such as Copper Mark or the International Council on Mining and Metals Principal on ESG. As the MSP grapples with the question of a universal ESG standard they no doubt will be considering the existing principles already developed by institutions and organizations such as those mentioned above.

There currently are 23 projects in the MSP, 16 of which involve mining and mineral extraction, 7 in processing, and 7 in recycling and secondary recovery. These projects involve cobalt, copper, gallium, germanium, graphite, lithium, manganese, nickel and rare earth elements. Six projects are sited in the Americas, 5 in Europe, 13 in Africa and 3 in the Asia-Pacific region.

The State Department and officials in other participating government agencies are actively looking for additional projects meeting the above standards for production of the identified critical minerals. US Embassies overseas can be a useful resource for companies interested in learning if their projects might qualify for the MSP.

The MSP’s emphasis on ESG principles is an important reminder that despite some political anti-ESG backlash in the U.S., the world – and the USG – remains committed to transforming and “greening” global economic activity and fighting to slow climate change, and is increasingly working together to mobilize resources and capabilities to achieve these vitally important goals.

Every few years the Democratic Republic of the Congo rises to international attention. Often this is due to a new round of fighting in the eastern regions of the country, with associated human rights violations. This time, however, Congo’s resources are in the spotlight as nations scramble to secure access to some of the world’s largest and richest deposits of critical minerals ranging from battery metals to rare earths, gallium, germanium, and others vital to “green” economies, national defense, and slowing climate change.

The major “bidders” at the moment include China, Saudi Arabia, and the United Arab Emirates. China of course has been present in the DRC for decades in the mining industry with activities ranging from blatently illegal to merely controversial, as is the case with Tenke Fungurume, one of the world’s largest copper and cobalt mines. In 2006 China entered into an “infrastructure for minerals” agreement with the then-government of Joseph Kabila. Under the terms of this agreement, China built some roads, repaired some airport tarmacs and some government buildings – mostly in the eastern part of the country and in the mineral rich Katanga province. The Congolese people were unhappy with these arrangements as few jobs were created and those which were, involved menial labor. Due to the cheap materials used several projects were of short duration: perhaps the most famous was the road connecting the Bukavu airport with the city, which began eroding and collapsing in places even before the entire project was completed. In exchange, China received some of the richest copper concessions in the Katanga province and rights to other mineral holdings throughout DRC. In 2022 China’s Zijin Mining Group launched a bid to take over the Manono lithium/tin concession being developed by an Australian company and in 2023 was awarded development rights when the DRC government said the Australians had been moving too slowly. The award was revoked, however, and China now is contesting that decision.

In 2021 Saudi Arabia signed a general cooperation agreement with the Tshisekedi government and in January 2024, at the Future Minerals Forum in Riyadh, the two countries signed an MOU governing cooperation in developing Congo’s mineral wealth. Through its Private Investment Fund (PIF) Saudi has established a new vehicle, Manera Minerals, 50% owned by PIF and 50% by the state-owned mining company Ma’aden to actively work on sourcing critical minerals outside of Saudi to support the Saudi 2030 transformative development vision. Manera is charged with taking equity positions in existing companies thereby accelerating Saudi’s access to critical minerals. Unlike the Chinese, the Saudis enjoy a positive public perception. Saudi is seen as a role model and teacher for utilizing natural resources to enrich and develop countries – a major goal for African nations – and also has the resources to invest even during market downturns when commodity companies tend to pull back, thereby ensuring that projects continue to be developed regardless of external pricing constraints. Saudi’s recent agreement with the DRC envisions up to $2 billion in investments in the mining, transportation and infrastructure sectors. Crucially, the MOU envisions investment in processing and refinement of mined products, supporting a long-desired value-add for Congolese mining.

In 2023 the UAE signed a $2 billion deal with one of the DRC’s state mining companies, Sakima, to develop up to 4 mines in South Kivu and Maniema provinces. Sakima has mining concessions for tin, tantalum, tungsten and gold in those areas: another state-owned company, Gecamines, controls copper in Katanga. This broader agreement followed an initial partnership for Primera Group, a UAE firm, to export at preferential rates artisanally-mined gold, coltan, tin, tantalum and tungsten. This agreement supports the DRC Government’s desire to professionalize artisanal mining and ensure miners are getting a better return for their efforts. The DRC also hopes the deal will help strangle access by the militias to the area and cut-off their access to funds supporting continued violence in Eastern Congo.

Russia also is stepping up its interest in the DRC. Russians, like Chinese, have been in the Congo for decades mostly smuggling arms into, and minerals out of, Eastern DRC. Elements of the Wagner Group reportedly had trained and partnered with some of the militias in the area to more directly (albeit still illegally) exploit Congo’s mineral wealth.  In the last six months, following the death of Wagner Group leader Yevgeny Prigozhin, Russian military activities have increased and Russian political influence is emerging. The recent civil unrest in DRC’s capital, Kinshasa, which saw several days of sometimes violent demonstrations in front of the US and European Embassies as well as the UN offices, is believed to have been spurred by Russia. During the Cold War in the 1960’s the DRC had been a strategic site for both the US and Russia: as a bid to keep Russia from increasing its influence in DRC the US supported the rise of then-Sargent Mobutu. It appears that access to critical minerals in the DRC may be fueling another Cold War-style intervention in Africa by Russia – which has offered its military support to several African countries to enable governments to “suppress unrest.”

Meanwhile, what are the US and European countries doing? Very little. Even though by some estimates approximately 70% of the crucial critical minerals are in an arc spanning Central Asia to Africa, and even though in many countries the US remains the preferred partner (when possible) there, so far has been little apparent effort to support US businesses to develop and secure the resources needed for economic transformation and national defense.

ESG, does the bell toll for thee?

Given the recent hullabaloo around the decision of three major US financial institutions – JPMorgan, State Street and Pimco – to withdraw from Climate Action 100+ (CA+), one might think so. In addition, Blackrock announced it would remain engaged, but through its European-based offices. It appears the three financiers who have withdrawn are bowing to pressure from some Republican politicians claiming that CA+ activities are in violation of US antitrust and securities laws. But before we accept the perception that this is a death-knell for global ESG efforts, let’s take a look at a few important factors about this group, its activities and relative effectiveness, as well as broader ESG “infrastructure.”

CA+, the world’s largest climate investor group with over 700 members (important factor number one) works with high-emitting companies across the global supply chain to help them transition to a low-carbon economy. Its efforts are coordinated by five investor networks including the UN-backed Principles for Responsible Investment (PRI) whose “green” standards underpin several industry initiatives such as Copper Mark and Responsible Steel (important factor number two). CA+ “clients” include Grupo Mexico (mining), PEMEX (Mexico’s largest state-owned oil company), Aramco (Saudi Arabia’s oil company), and UltraTech Cement (Indian construction materials), illustrating its expansive reach (important factor number three). So, while of course disappointing and dismaying, the withdrawal of the three US financial institutions should not crush CA+ efforts.

Turning to the broader ESG situation, the above-mentioned industry initiatives (Copper Mark and Responsible Steel) are examples of how particularly the extractive industries have acknowledged the importance of fully integrating sustainable and ethical practices into their operations. The International Council on Mining and Metals (ICMM), a voluntary membership mining group founded by several of the industry’s largest companies including Rio Tinto Group (NYSE: RIO | LSE: RIO), Freeport-McMoRan Inc. (NYSE: FCX) and BHP Group (ASX: BHP | NYSE: BHP) among others, also has developed a series of Principles to help guide companies in sustainable extraction activities from mine inception to closure. While the initial impetus for many of these actions came from NGO scrutiny of end-user products and subsequent pressure from those companies on their suppliers to ensure “clean” and ethical extraction, the extractive companies have gone beyond that starting point to collectively develop measures whose costs and benefits make sense to the industry. (One example of early pressures would be smelters who began to insist to their mine suppliers that they needed to be able to certify their product as child-labor free, or the famous “blood diamonds” campaign.) While some companies are choosing to place their ESG procedures under safety and security in their internal organizations, they nonetheless are adhering to sustainable practices and most companies now have sustainability reports on their websites and for their Boards and investors.

These are pragmatic decisions by companies facing intensified scrutiny by governments and societies. Regulatory measures related to ESG standards continue to multiply, sometimes in a confusing fashion, a point which needs to be addressed. For instance, the European Union recently enacted a law imposing financial penalties on companies found to be “greenwashing,” usually defined as a company making bold statements without any substantiating operational or financial evidence that the claimed activities are real.

Perhaps most importantly, so-called real people are seized with the core of ESG, i.e. that environments should be protected and benefits shared. Over the past few years, several notable examples include protests in Greenland which forced a government transition and a rewrite of a proposed mining project; Serbia, where again a government fell amid accusations that the proposed mining contract did not adequately compensate the country, and most recently Panama, where a company was forced to cease operations with potentially disastrous financial results. This heightened activism is unlikely to disappear, providing a cautionary tale that the social license to operate will continue to become more costly for companies who are perceived to not be doing enough in the ESG realm.

Bottom line? ESG is not on the ropes, despite the hype, and companies who want to thrive are adapting to survive.

Sometimes when the wind changes direction we notice, especially if the change is sudden or sharp. More subtle changes often go unnoticed.

The same can be said for the winds of global politics. Sometimes the shift is unmissable – Arch Dukes are assassinated, countries are invaded, atomic bombs are dropped – but sometimes it largely goes unnoticed save by the savvy.

The late 1960s and early 1970s were tumultuous in the Middle East, with conflicts ranging from the 6 Day War to the Yom Kippur War drawing the US ever closer to Israel while seeking ways to broker a cessation or at least diminution of hostilities. During this period the Kingdom of Saudia Arabia began increasing its hold over Aramco (a joint US-Saudi oil extraction company) and by 1976 Saudi was the sole owner of one of the world’s largest oil companies. Among other consequential developments that ensued was the establishment of OPIC and the rise of the so-called petrodollar. Taken together, a significant change to the global winds of power which elevated Saudi Arabia’s economic standing and changed its future.

A similar global shift appears to be happening now, in the area of critical materials vital to “greening” various (largely Western) economies, especially the US. And once again, the Kingdom of Saudi Arabia, this time under the skillful direction of Crown Prince Mohammed bin Salman, is causing the winds of change to blow and challenge not only the West but the East as well.

Recently (January 25, 2024), Saudi Arabia joined the so-called BRICS, an organization founded by China and Brazil in 2006 with fellow members Russia and India. South Africa joined in 2010, and in 2023 Egypt, Ethiopia, Iran, the United Arab Emirates (UAE), and Saudi Arabia were invited to join with membership effective in January 2024. The group’s purpose as defined at its founding is to bring together the world’s most important developing countries to challenge the political and economic power of the wealthier nations of North America and Western Europe. The inclusion of Iran evidently gave Saudi pause but the Kingdom appears to have agreed to join, reportedly at the urging of China.

Adroitly balancing that decision, the Prince recently signed an agreement expanding long-standing cooperation with Japan’s Sumitomo Corp. to develop the Kingdom’s critical minerals resources from mining to processing, working together with Aramco, which is gradually transforming from petroleum to a mining company, in accordance with the Prince’s Saudi Vision 2030. Sumitomo already was working with various elements of the Saudi political and business community on projects ranging from reducing the “heat island” effect in Saudi’s financial district to building “smart cities” of the future. The latest MOU also provides for cooperation in developing new industries in Saudi, including steel, semiconductors, and AI-enabled technologies.

The Public Investment Fund (PIF) overseen by the Crown Prince is the financial vehicle for realizing the Saudi Vision 2030. Per its website, it already has created 93 portfolio companies across 13 key sectors and has over $700 billion in assets under management. The most recent example of a PIF-funded company is “Alat,” announced on February 1 by Crown Prince Mohammed bin Salman who will personally lead its efforts within seven main strategic business units – advanced industries, semiconductors, smart appliances, smart health, smart devices, smart building and next-generation infrastructure – to support development of Saudi Arabia as a worldwide center for sustainable technology manufacturing with an emphasis on electronics. 

Such an ambitious agenda will demand more resources than Saudi itself can provide as critical minerals feedstock, and therefore the Kingdom is emerging as a key player in the latest “scramble for Africa,” particularly in the DRC (Democratic Republic of the Congo), where its ambitions may run afoul of China’s.

Saudi Arabia has signed two agreements recently with the DRC, one an MOU covering general economic cooperation and development, the other specific to the mining industry with a special emphasis on critical minerals, which the DRC has in abundance, ranging from lithium, nickel, and cobalt to copper and rare earths. Among other things, Saudi has said it will build processing capacity in Congo and also assist in developing national infrastructure.

In short, while the US and other Western nations continue debating how to secure the necessary elements to transform their economies, the Crown Prince of Saudi Arabia appears to be leading his nation boldly into a future in which Saudi could be a dominant player – perhaps even more as China’s resources begin to be depleted after decades of mining, opening the door for a new Middle Eastern hegemon.

The Gaza War, interwoven as it is with the chaotic international tapestry, hints at even deeper and more dangerous implications. The motivations of players outside Israel and Palestine could, if realized, global shift structures profoundly, as happened in 1973.

Reverberations of 9/11 in Gaza

The heart-wrenching images emanating from Gaza have compelled many to draw parallels with the horror of 9/11, calling the recent surge in violence Israel’s 9/11. As the world comes to grips with such impactful events, Sanderson urges a thoughtful and informed response, emphasizing the dangers of laying blame prematurely.

Dissecting the Dynamics: Who’s Pulling the Strings?

Beyond the immediate players, the Gaza conflict reveals the machinations of larger global powers. Sanderson identifies two significant influencers:

1. Iran: With its strategic interests intertwined with regional politics, Iran’s involvement in influencing Hamas, especially in the context of ongoing diplomatic discussions involving the U.S., Israel, and Saudi Arabia, becomes crucial.

2. Russia: The recent tactics employed in the conflict, such as the sophisticated use of drones, hint at a Russian influence, suggesting a broader geopolitical game at play. Likewise, the grotesque human rights abuses, designed to provoke overreaction, are pages from Russia’s playbook.

Historical Echoes and Contemporary Implications

Historical echoes suggest yet more possible involvement by others.

The world does not operate in a vacuum. Sanderson points to the 1973 Palestinian attack on Israel as an important historical marker. The aftermath of that event, notably the U.S. allowing Saudi Arabia to acquire Aramco, had lasting geopolitical consequences.

Fast forward to the present, and Saudi Arabia’s ambitions to diversify its economic interests, underscored by discussions with the U.S. about rare earths in the Congo, hint at shifting sands in global geopolitics.

Conclusion: A World Interconnected

The events in Gaza are not isolated incidents but deeply connected strands in the vast tapestry of global geopolitics. As Sanderson’s insights reveal, understanding these connections is vital. It is the responsibility of world leaders and informed citizens alike to approach such conflicts with empathy, understanding, and a commitment to peace.

A consequential battle is shaping up in a place you may not know (Thunder Bay, Canada) over an issue you may never have heard of – Free, Prior, Informed Consent. (FPIC for short). The parties to the conflict are 10 of the Treaty 9 First Nations on one side and the Canadian Government on the other.

Why should you care? Here’s what’s at stake: $95 billion dollars that the indigenous nations say they will claim as compensation for past wrongs – and potentially much, much more because the argument essentially is about how mines will be approved in Canada going forward.

This fight has been brewing for a long time but now, with the urgent necessity of producing more critical minerals to transform economies and hopefully slow the current environmental decline, the outcome of this case could have consequences reaching far beyond Canada’s Great North.

Common understanding of the terms of an agreement is fundamental to its successful implementation. Shared values, when they exist, make for a stronger and more durable agreement that can be implemented consensually.

From its adoption in 2007 by the United Nations General Assembly the Declaration on the Rights of Indigenous Peoples, in which the concept of Free, Prior, Informed Consent (FPIC) is embedded, has been fraught with differing interpretations leading to misunderstandings. The Declaration itself is a statement of principles identifying and supporting fundamental human rights, with particular reference to Indigenous groups, and does not carry the force of law. Even so, it took decades for many States to acknowledge and accept the Declaration in their national context: for instance, only in 2016 did Canada announce its “full and unqualified support” for the Declaration and its commitment to implement it domestically.

What does FPIC really mean? Is it really so unclear? The FPIC’s comparatively vague definitions embody the difficulties in trying to achieve a document that could be accepted by the Member States of the UN.

“Free” – The consent is free, given voluntarily and without coercion, intimidation or manipulation. A process that is self-directed by the community from whom consent is being sought, unencumbered by coercion, expectations or timelines that are externally imposed.

“Prior” – The consent is sought sufficiently in advance of any authorization or commencement of activities.

“Informed” – The engagement and type of information that should be provided prior to seeking consent and also as part of the ongoing consent process.

“Consent” – A collective decision made by the right holders and reached through a customary decision-making process of the communities.

Implementation also has a wide range of possible interpretations and related actions. Nations can adopt the fundamental elements into their constitutions (as was done in Peru and Chile), national laws, structures or behaviors, with decreasing weight of law in that scale. This wide variation – and the basic unenforceability of FPIC – underscores the fundamental differences in interpretation of the concept.

In 2017, the Canadian Government established “Principles Respecting Canada’s Relationship with Indigenous Peoples.” The implementing commentary around Principle 6 includes the following language:

“The importance of free, prior and informed consent as identified in the United Nations Declaration, extends beyond title lands (author’s emphasis). To this end, the Government of Canada will look for opportunities to build processes and approaches aimed at securing consent, as well as creative and innovative mechanisms that will help build deeper collaboration, consensus, and new ways of working together. It will ensure that indigenous peoples and their governments have a role in public decision-making as part of Canada’s constitutional framework and ensure that indigenous rights, interests and aspirations are recognized in decision-making.” *

In contrast, the Australian Government position is that “Australia notes, however, that the FPIC is a concept unique to the Declaration. As FPIC is not defined in the Declaration, its scope and content remains unsettled.” (authors’ emphasis) The Australian submission goes on to say that “The Australian Government is of the view that legal frameworks, policies and practices in Australia are consistent with the aims of the Declaration.”*

The United States likewise notes in its 2010 statement adopting the Declaration that as regards FPIC “there is no universally accepted definition of Free, Prior and Informed Consent.”  (authors’ emphasis) The US goes on to say: The United States recognizes the significance of the Declaration’s provisions on free, prior and informed consent, which the United States understands to call for a process of meaningful consultation with tribal leaders, but not necessarily the agreement of those leaders, before the actions addressed in those consultations are taken.” (authors’ emphasis)*

Even those Nations where the Principles have been constitutionally enshrined have grappled with the actual implementation on the ground of trying to facilitate dialog between Indigenous communities, mining companies and the government itself. Some of that difficulty lies in time: the majority of Indigenous communities have a consensual model of governance, and reaching a consensus agreement on complex issues is a time-consuming process which by its nature is too unwieldy for modern business practices.

A potentially very important thing in terms of FPIC and mining projects happened yesterday, April 26. Although press articles quote tribal leaders as saying the 1905 governing Treaty with the federal government of Canada is the basis for the legal challenge to mining permits granted by local and national governments, the lawsuit is fundamentally connected to the principles of FPIC. The 10 Treaty 9 First Nations party to the suit say they will be claiming $95 billion in damages from projects authorized by the Canadian government in their lands but without their consent. They will also be seeking injunctions prohibiting the government from regulating or enforcing regulations in treaty lands without their consent – aimed at blocking issuance of new mining permits or continuation of mines already in development.

As is the case with FIPC, the fundamental issue is the absence of a shared understanding of a document, in this case the Treaty. The plaintiffs in the lawsuit argue they never agreed to cede, release, surrender or yield up their jurisdiction to govern and care for the lands, as it says in the Treaty, entered into in 1905. Consequently, their demand is there must be co-jurisdiction where the province and Ottawa cannot move forward on land development without their consent.**

Here is the essence of the problem – the word ‘consent.’ From the inception of the FPIC, Indigenous peoples have interpreted the word to mean that they can say ‘no’ to a mining project and that project cannot proceed. This absolute rejection is not-withstanding any economic compensation offered, which conflicts with the interpretation of most mining companies, who believe that ‘no’ is the beginning of a negotiation to ensure the Indigenous communities affected benefit financially from the mines’ operations. It also conflicts with the interpretation of governments such as Australia and the US, whose emphasis is on the right of the Indigenous to be informed and consulted – but not to prevent the project from taking place.

Treaty 9 First Nations have decided to push for full implementation of FPIC principles in Canada, with sweeping implications for the mining industry. Everyone should pay close attention to how this legal action evolves, particularly given the urgency of developing new critical minerals projects not only in Canada but around the world.

Sources cited:

• * August 10, 2018, report by the Expert Mechanism on the Rights of Indigenous Peoples
• ** CBC article on Thunder Bay legal suit

Recent press reports suggest that China might ban export to the US of rare earth-related products and technologies, particularly magnets, in response to the US decision to restrict exports of chipmaking technology to China. Japan and the Netherlands have signed on to these restrictions, but so far. the EU has not. Perhaps part of the EU delegation visit to Beijing is designed to cool tempers and avert a broader “trade war.”

I suspect they must be smiling in Beijing today at the degree of alarm these articles have produced. But let’s take a collective breath and look at the potential consequences from a couple of angles and see if it makes geopolitical sense. After all, the Chinese are nothing if not pragmatic.

Rare earth magnets

Let’s begin with magnets, the single most important product. China does not have a monopoly on production and arguably is not even making the best quality magnets. Bonded neodymium (neodymium, iron, and boron or “NdFeB”) magnets are made in Japan, Korea, the Philippines, Thailand, Germany, the UK, and the US (albeit in small quantities) in addition to China. Rare earths (“RE”) oxides are converted to metals in Vietnam and Thailand, as well as the UK. NdFeB alloys are made in Vietnam, Thailand, Japan, Germany, and the UK. The highest-performance sintered magnets in the world are made by Shin-Etsu in Japan. Hitachi is a close second. TDK Corporation is close behind. The Chinese magnet producers always try to close the gap in performance with the Japanese. 

All of this suggests that, from this angle at least, global sourcing could work around a Chinese product ban.

Rare earths refining

What about refining? Rare earths currently are refined in Malaysia by Lynas Rare Earths Ltd. (ASX: LYC) (although some recent political difficulties there for Lynas suggest that might change in the near future), in Estonia by Neo Performance Materials Inc. (TSX: NEO), in France by Solvay SA (ENXTBR: SOLB) and in Japan by Shin-Etsu (TSE: 4063) and Mitsui (TSE: 8031) subsidiaries.

The technology to refine both light and heavy rare earths is well known outside of China. The organic extractants to separate REEs were all imported into China for decades and are still produced by non-Chinese companies (Solvay, Albright & Wilson, and a collection of Japanese).

So, alternative sources also exist for refining, although China does remain the processing giant by output, accounting for approximately 85% of refining activity.

Returning to Chinese pragmatism, and its history of avoiding making the second mistake twice: the rare earth embargo China imposed in 2010 against Japan led to an important defeat for China in 2015 at the WTO, an organization China continues to view as useful to its strategic ends. Having a ruling already in place that export quotas violate trade rules imposes a significant constraint on history repeating itself.

US perspective

From a purely US perspective, however, the refining question is troublesome and Washington knows it. The sole rare earth mining company operating in the US, MP Materials Corp. (NYSE: MP), currently sends its output to China for processing. That issue will change in a couple of years, since MP, with partial funding from the Department of Defense, has begun work on a processing facility near its operations. Australia’s Lynas Corp is building two new processing facilities in Texas, one for Light Rare Earths and another for Heavy Rare Earths, also with US Government (“USG”) funding assistance. Two other processing facilities reportedly are under consideration, one in Arkansas and yet another in Texas.

Thus, the processing issue is a real vulnerability for the US, as MP could not swiftly pivot to send its output to one or more of the existing processing facilities cited above, even if those would have space to accommodate additional flow on an urgent basis, which they might not.

From this perspective, China still has a means by which to “strike” the US if that truly were its intention – and perhaps it is. Interestingly, Presidents Xi and Putin met recently: one can wonder what sort of “economic penalties” against the US that Mr. Putin might have floated to a Chinese leader potentially irked by various recent US moves, including luring Taiwan SemiConductor to establish a huge factory in Arizona (visited by President Biden in March) or the potential ban of TikTok currently being bandied about in DC. Or – most irritatingly of all – the USG funding the growth of rare earths processing capability in the US.  I would add that Washington needs to feel an equal sense of urgency and commitment to building more rare earth mines in the US to ensure secure sourcing of the minerals needed to transform the economy.

Rare earths and the automotive industry

Finally, let’s look at a concrete example of an industry whose future seems irrevocably tied to access to rare earths – the automotive industry. Pat Ryan, Chairman and Chief Executive Officer of Ucore Rare Metals Inc. (TSXV: UCU) contributed:

“In the automotive world there are three primary markets, Europe, North America and the Far East. Risk mitigation in each of these markets is more important now than ever before, including the sourcing of critical metals, as supply chains must be independent of each other and shift from high dependency to diversified, sustainable, circular and innovative solutions.

This is absolutely necessary so that individual markets, including North America, are secure, costs can be understood and managed by OEM’s and jobs created in the market where products are sold. Threats or posturing are just that, and never forget that decade after decade North America has been successful because of its innovation, openness and entrepreneurial ideas. That is a point of reference and confidence and with a global energy transition upon us, the sense of urgency is more paramount than ever.“

Final thoughts

So generally speaking, I can’t share the current alarm. Not while so many other more subtle and effective means remain available to China if it really wants to make problems for the US economy. After all, the problem with a ‘nuclear bomb’ is that once used, it’s impossible to contain the fallout.

Timing might not be everything but it certainly matters in the world of geopolitical messaging. President Joe Biden sent several important messages on March 24 when he addressed the assembled Canadian Parliament, together with Canadian PM Trudeau.

And what messages! The political and visual juxtaposition of Biden and Trudeau with body language telegraphing genuine liking and appreciation, versus Russian President Putin and Chinese President Xi, telegraphing stiff formality and duty. Laugher and spontaneous applause in Canada, versus choreographed expressions of dutiful support in Russia.

US and Canadian “Shared Values”

Substantive declarations of mutual support for shared values – the phrase ‘shared values’ repeated several times for emphasis. One particularly evocative phrase: “To relentlessly pursue the possibilities of tomorrow.” Among the shared values called out by President Biden: climate action, better lives for working people, and support for Ukrainian identity, self-governance, and democracy. Whereas in Russia, no discussion of shared values or broad policy objectives, with Xi once again maintaining a stolid silence on Ukraine.

Biden maintained an emphasis on the US-Canada partnership, citing several examples, including that the US Inflation Reduction Act provisions include tax credits for Americans buying electric vehicles assembled in Canada (an example of the ‘national provisions’ in that legislation). Along the same line, he noted the coordination on EV standards extending to charging stations, to ensure seamless cross-border access. This matters because, in the past, countries have used different electric outlets as a way to exclude others from utilizing the systems without in some way paying an extra charge.

North American Supply Chain for Critical Minerals Development

Perhaps most notably, President Biden’s important, albeit brief, reference to what could be cast as mutual support for the ongoing effort to develop a cohesive North American supply chain for critical minerals development. Noting Canada’s vast natural resources, including major critical materials deposits, Biden opened the coffers of the US Government to Canadian mining companies, putting potentially millions in play under the authorities of the Defense Production Act to accelerate the development of new mines and materials processing. As is sometimes the case with Biden’s statements there is some ambiguity: some Canadians interpreted Biden as saying that the materials should be mined in Canada but would be processed (or value-added) in the US.

What about that? Well, it seems like a justifiable interpretation given US Government’s spending patterns to date. Most of the monies released in the US so far have focused sharply on developing crucial processing capabilities for rare earths. Australia’s Lynas is building both light and heavy processors in Texas, while the sole US rare earth miner currently operating, MP Materials, also received financial assistance from the US Government to build its processing facility. The emphasis on processing is laudable, as MP Materials’ current output still is being sent to China for processing, underscoring an important supply chain vulnerability.

Critical Minerals Mining in the US

On the other hand, there has been a noticeable lack of enthusiasm for providing funding to help jump-start new critical materials mines in the US. Without in any way diminishing the scope and value of Canada’s rare earth deposits, and with all respect Mr. President, the US also has some very significant untapped critical materials deposits which are crucial to ensuring US national security and economic transformation.

It is simply unrealistic to suppose that the US is somehow going to be able to source everything needed for a national stockpile (which DoD already is mandated to develop) and growing key industries such as EVs and semiconductors (specifically mentioned by Biden) without new primary mines in the US.

Major Hurdles – Capital and Permitting

There are two major hurdles to achieving new primary critical materials mines in the US: access to capital and permitting. Official US Government seed funding encourages private capital to invest in early-stage miners, effectively accelerating the actual build-out of mines.

Most importantly, however, the US needs to address its broken permitting system. When there are no reasonable limits on how long the array of government agencies can take to consider whether to permit mine development at various stages, there is no certainty for either investors or miners that a mine ever can be built. It’s that simple. There are ways to fix this problem without (as critics claim) gutting the environmental protections needed in today’s climate crisis more than ever.

The Canadian Mining Association has called for the Canadian government to reexamine the permitting regime in that country, especially in light of Biden’s visit and the possibilities embodied in true cross-border cooperation. Given that Canada’s governing authorities at both the national and provincial levels already are far more forward-leaning in funding actual mining, I would be willing to bet that Canada will achieve a new permitting regime long before the US does.

Final Thoughts

If I’m right on that, it’s a problem on all sorts of levels – for US-Canada cooperation and also for US self-sufficiency, a stated goal of the Biden Administration. After all, at the end of the day, there is no shorter or more secure supply chain, Mr. President, than mined and made in America.

Dear Readers, let me begin by saying that I lived and worked for almost 8 years in DRC, initially at the US Embassy and later with a major US company developing one of the world’s largest copper-cobalt mines. I actually love the Congo, and I definitely love the US – but in neither case does that love blind me to sad realities.

The December 13, 2022 US-DRC-Zambia Memorandum of Understanding recently published is unfortunately another example of the US desperately trying to solve the looming disaster confronting the electric vehicle, green energy and defense industries caused by a current and growing global shortage of vital inputs such as lithium and rare earths. Caught between dueling national defense and political priorities, the Administration continues thrashing about to find reliable sources of the above-mentioned materials without having to actually permit new mines in the US.

Sadly, DRC does not meet the definition of a reliable source – and neither does Zambia, but I will focus here on the DRC, the much larger and more richly endowed of the two countries, and the one where I can speak from experience.

The MOU says the USG will provide consultation and encouragement for the stated goal of developing within and between DRC and Zambia a battery chain from mine to pre-production. Reference also is made to helping the two countries ensure transparency and enforce anti-corruption measures with the aim of attracting support for the effort from private sector investors.

Let’s talk brass tacks.

Vital infrastructure in the DRC, especially but not only transportation and energy, destroyed during the war which ended in 2003, remains mostly in shambles. Sporadic and poorly coordinated efforts by both the Kabila and Tshikedi presidencies, undercut by pervasive corruption, have not made a dent at the national level, albeit that road transportation has improved in some regions. What this means is that the always expensive and time consuming process of building a new mine is vastly increased. Mining companies frequently have to build new roads or rebuild stretches of the national highway; construct bridges and build or rebuild electrical transmission lines and regional power plants. These efforts require cooperation with the national electrical company, various national and provincial governmental agencies and, of course, navigating the DRC’s often mysterious import regime to get the necessary equipment into the country.

The best infrastructure is in the copper-cobalt provinces in the Southeastern quadrant of Congo. However, much of the disclosed lithium and rare earth deposits (which is what we really are discussing although the document mentions only copper and cobalt) are located in the troublesome East and North of Congo, areas beset by militia groups such as M23 (recently in the news) and others running rampant. Human rights abuses continue at a sadly broad scale, and some alleged para-statal military elements have reportedly staked out some of the most lucrative potential mining sites and, if their demands to be somehow included in commercial deals are not met, could become disruptive saboteurs.

So why does Washington see Congo as a potential silver bullet? Because despite all the above, a large company with deep pockets can still build a mine 3 times more quickly than currently is possible in the US. And because Congo is stuffed with mineral riches.

Once a company has a mine, successfully exporting from these zones is complicated. DRC has one sea access, the port of Matadi in Western Congo – but commercial rail service across DRC is not reliable. A new rail connection between Southeastern Congo and Luanda in Angola could be an option when finally completed, but meanwhile, most mining products go out via Zambia and across to South Africa’s ports via road and rail. The illicit mine production, of course, tends to go out via boat or small airplane through neighboring Rwanda or Uganda.

And far from least, the Congolese government has a history of stopping companies from exporting products when there is a disagreement over monies the government believes it is owed.

Two more important points: presidential elections are coming. Historically a new president changes everything, and the incumbent currently is not favored to be reelected.

And very importantly: the end-users for Congolese minerals face rigorous certification responsibilities which they pass on to the mines operating in country. This means that mining companies need to work with specialized companies who can examine their operations and certify that the mineral production does not involve any human rights violations, especially child labor, has respected tribal rights, including full and fair prior consultation, and that all financial transactions are open and above-board. No easy task in Eastern Congo, as the history of coltan shows.

If the USG actually wants to lay the groundwork for US companies to invest and succeed in DRC, sourcing and producing the rare earths and lithium needed in the United States, then it should consider taking a page out of China’s book and making serious and durable investments in building Congo’s infrastructure. This at least might give US mines and investors a fighting chance of succeeding.

But the MOU specifically notes that none of its aspirations are tied to funding.

Washington should drop the hypocrisy and permit more mines to be built more quickly in the USA. There never will be a shorter or more secure supply chain than minerals extracted and refined in the US for production and use in the USA.

Anything else is just deluding ourselves. The clock is ticking and we need to act – even when doing so requires political courage. Perhaps especially when that is the case.

There is a word in the Navajo language, in English written as: “hozro.” This one word encapsulates an important philosophy for the Navajo people, as it translates to mean putting oneself in harmony with one’s surroundings. “Hozro” has helped the Navajo, one of the largest Tribes in the US, to coexist more harmoniously than many other Tribes with the dominant White culture. The Navajo reservation is the largest in the US and hosts many natural resources essential to the economic development of the country.

These resources have not always been developed either harmoniously, respectfully or conscientiously by companies. Uranium mining on the Navajo reservation remains a disgraceful episode in US history, with radioactive contamination of essential water sources and soil and associated human sickness and death still a reality, not a memory, for many Navajo families. As a consequence, many Navajo are adamantly opposed to new uranium mining anywhere on or near the reservation.

Despite this, coal mining has a much more successful history with the Navajo. Until 2019, when the Navajo Generating Plant closed, many Navajo worked both at the coal mine feeding the Plant and in the Plant itself for 45 years. The Navajo Nation initially attempted to purchase just the coal mine, but then pivoted to a much more ambitious vision, establishing the Navajo Transitional Energy Company (NTEC). NTEC’s website states its mission is: to be a reliable, safe producer of coal, while diversifying the Navajo Nation’s energy resources to create economic sustainability for the Nation and the Navajo People.  One visible effort by the company is the large solar panel array near Kayenta on the reservation.

Less visible efforts include building a mining portfolio, until recently heavily focused on coal. NTEC owns and operates the Antelope and Cordero Rojo coal mines in Wyoming, Spring Creek in Montana, and Navajo Mine in New Mexico (the latter located on the reservation). Utilizing its multi-generational mining expertise, NTEC has built a sound operational foundation and increasingly is being recognized for its efforts. In November of this year, the National Mining Association, in conjunction with the Department of the Interior’s Office of Surface Mining Reclamation and Enforcement recognized NTEC with two awards, for Mine Safety and for Stewardship of National Resources through Reclamation.

But while building on its strengths NTEC also kept an eye on its mission to develop sustainable energy sources. In 2019 NTEC took an investment position in both Texas Mineral Resources Corp. (OTCQB: TMRC) and its USA Rare Earth project in Round Top Texas. More recently, NTEC has entered a more active partnership with Arizona Lithium Limited (ASX: AZL | OTCQB: AZLAF) to develop the Big Sandy lithium project near Wikieup, Arizona. This latest agreement may pose potential difficulties for NTEC, however.

NTEC’s December 5 announcement of the strategic alliance states that “NTEC has committed to lead the operational development of Big Sandy, which will include everything from Bureau of Land Management (BLM) project permitting, mine design, drilling environmental assessments, and construction and contract mining operations. The agreement provides for AZL and NTEC to commence work towards development of the Big Sandy project while at the same time continuing due diligence and negotiation of a definitive agreement.”

The announcement goes on to say that when NTEC meets certain mining development milestones with respect to Big Sandy, it (NTEC) will receive remuneration in cash or AZL shares and options to purchase additional ordinary shares. Importantly, the announcement notes that “NTEC understands the cultural significance of the land near the mining site. The company plans to work with the Navajo Nation and other Indian Nations to ensure the development at Big Sandy prioritizes appropriate cultural and environmental safeguards throughout the process.”

This latter statement appears to be a reference to the opposition of the Hualapai Nation to the Big Sandy project, which abuts the Hualapai lands in one area but does not lie within the Hualapai reservation. A December 15 interview on KNAU News Talk noted that “In April of 2021, the Hualapai Tribal Council passed a resolution strongly objecting to the proposed mining claim area, citing devastating impacts to significant cultural and spiritual resources.” Likewise, the Environmental Justice Atlas registers the Hualapai opposition, with the Hualapai claiming that exploratory drilling has affected a sacred spring on their land. According to the Atlas, the project also faces opposition from some residents of nearby Wikieup, Arizona.

It would appear that the Navajo, as part of the strategic agreement with AZL, may be about to become entangled in trying to resolve a pre-existing conflict between AZL and the Hualapai. If so, this could pose problems for not only the two Tribes but also BLM and the broader Department of the Interior, whose permitting processes require it to take into account objections from Native peoples to mining projects. BLM also is supposed to give priority to critical materials projects, including lithium, which is essential to the development of the electric vehicle industry, a growing component of the Arizona economy.

Kudos to the Navajo Nation for focusing on cooperation instead of conflict, and for taking the standard model of indigenous involvement in mining to new and more lucrative levels. In this particular case, let us see if “hozro” can prevail.