Kwasi Kwarteng, the Secretary of State for Business, Energy and Industrial Strategy, has just published a policy paper for the UK’s first ever critical minerals strategy.
Kwarteng's paper sets out the government’s plans to secure critical mineral supply chains, by boosting domestic capability and foreign supplies in a way that generates new jobs, creates wealth and attracts investment.
This is a major development for suppliers and potential suppliers of these metals as the government plans to accelerate the growth of domestic capabilities but also collaborate with international partners to ensure robust and diverse supply chains.
The report points out that the minerals we rely on to ensure the continuation of our everyday lives are often produced thousands of miles away and particularly the raw materials required for the transition from a fossil fuel-based economy to one powered by greener sustainable energy sources.
So, for example, we need lithium, cobalt and graphite to make batteries for cars; silicon and tin for our electronics; and rare earth elements for electric vehicles and wind turbines.
A significant uptick in demand
The UK government points out that, “the world in 2040 is expected to need four-times as many critical minerals for clean energy technologies as it does today”.
However, the complexity and opaqueness of current supply chains mean that the market for these minerals is volatile and can be distorted.
Given the supply chain issues experienced during the Russian invasion of Ukraine, the government is clearly uncomfortable with China being the dominant global supplier.
So, to help secure the UK’s access to what’s required, it has set up a Critical Minerals Intelligence Centre (CMIC), the first of its kind.
The centre will be run by the British Geological Survey in Nottingham and will provide up-to-date data on materials such as rare earth elements.
The government also plans to establish a dedicated Critical Minerals Unit to act as its single point of contact with the sector, including business, academia and civil society.
A delivery plan for the commitments in this strategy will be published later in the year.
We would expect the UK’s critical minerals strategy to have positive implications for both domestic and foreign-based explorers and miners of critical minerals.
Funding options
For domestic explorers and miners, the government plans to explore how state funding mechanisms can support companies developing domestic critical mineral capabilities that would also reduce the risk for investors.
At the same time, it wants to develop an inbound foreign direct investment (FDI) proposition for UK critical minerals projects, as well as reducing barriers to domestic exploration and extraction of critical minerals.
Explorers and miners with projects that are based abroad will get help from development banks to direct Overseas Development Assistance (ODA) and support companies working to build responsible, diversified supply chains overseas.
In addition, the government expects to continue to make UK export finance products available to the critical minerals sector, including where this can support the security of supply, as well as help export UK mining and mineral expertise, goods and services.
Rainbow Rare Earths’ low-cost approach
Rainbow Rare Earths is one UK-registered company with international projects that could benefit from the UK’s first critical minerals strategy.
It is currently advancing the Phalaborwa Rare Earth Minerals Project, located in South Africa. Phalaborwa is a historic gypsum operation, where the two waste piles (stacks) are rich in rare earth minerals.
The deposit currently has a JORC 2012 compliant mineral resource estimate of 38.3mln tonnes at a grade of 0.43% total rare earth oxides, of which 29.1% represents higher-value neodymium and praseodymium (NdPr) with economic dysprosium and terbium credits.
Phalaborwa has a number of advantages over traditional rare earth minerals projects, notably that it doesn't require hard rock mining, crushing and milling, which reduces both capex and opex costs for the project relative to a standard mining project.
The rare earth elements contained at Phalaborwa are also in a chemical form within the gypsum, which removes the requirement for energy and reagent-intensive cracking processes, also reducing the costs.
As a result, Rainbow Rare Earths is confident that Phalaborwa can be one of the lowest-cost global producers of separated rare earth oxides.
Rainbow Rare Earths has recently completed the development of a process flowsheet and now plans to move forward with a technical feasibility study, the next step for the project.
A rarity: Mkango Resources at DFS stage
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF) is even further along the value chain and in deed has a definitive feasibility study for its Songwe Hill rare earth project in Malawi.
It ascribes a US$559mln post-tax net present value (NPV) and a 31.5% post-tax internal rate of return to Songwe, one of the very few rare earth projects globally to have reached the DFS stage.
The study envisages a payback period of 2.5 years from full production (five years from the start of capital expenditure) and a post-tax life-of-operations nominal cash flow of US$2.1bn.
Pensana breaks ground
Finally, Kwasi Kwarteng took a personal interest in Pensana PLC (LSE:PRE)’s groundbreaking ceremony to mark the start of work to create the world’s first rare processing facility Saltend on Humberside.
After attending the gathering, he told the audience: “Pensana breaking ground today has been made possible in part through government support and shows how our plans to secure an internationally competitive electric vehicle supply chain in the UK continue to gain momentum.
“This incredible facility will be the only of its kind in Europe and will help secure the resilience of Britain's supplies into the future.
“That’s why we’ve also launched the UK’s first Critical Mineral Strategy, setting out plans to develop robust supplies of minerals that are key to our economic success and national security.
"The strategy will bolster our resilience to market shocks and geopolitical events while supplying key industries such as automotive and defence.”