What are critical minerals anyway?

Critical minerals are defined by Geoscience Australia as “metals and non-metals that are considered vital for the economic well-being of the world’s major and emerging economies, yet whose supply may be at risk due to geological scarcity, geopolitical issues, trade policy or other factors” (2022). One category of critical minerals, ‘rare earth elements’ (listed below) are particularly important:

The problem with critical minerals is their availabiilty: they are not distributed evenly throughout the world, and in some cases it is not economical to extract them using current technology. This is particularly the case with rare earths, where according to InvestingNews, the top 10 countries for rare earth production are:

1 China	6 India
2 United States	7 Russia
3 Myanmar	8 Thailand
4 Australia	9 Vietnam
5 Madagascar	10 Brazil

Readers will note that some of the countries are subject to greater geopolitical risks than others – ranging from emerging to developed economies and sanctioned to non-sanctioned jurisdictions. One of Australia’s strengths is our proliferation of critical minerals and our geopolitical and economic stability. As shown in the following figure, Australia has critical mineral deposits distributed across the country:

As demands for the world’s critical minerals increase and supplies dwindle, rich countries will increasingly seek alternative sources. Deposits that were previously uneconomic to extract may become economical, whilst other countries may resort to war or coercion to achieve or maintain geostrategic advantage. Geoscience Australia has ranked Australia’s resource potential for critical minerals and their associated criticality (or scarcity):

Geoscience Australia (2022) notes that some “category one and category two metals and semi-metals are primarily by-products of refining of the major commodities such as zinc, copper, lead, gold, aluminium and nickel”. Australia has abundant stockpiles for many of these commodities, however they are not always cost effective to extract. In the future, advances in processing techniques might mean these can be extracted in a highly targeted way at a cost that makes economic and environmental sense.

What industries use critical minerals?

Critical minerals underpin the world’s 4th Industrial Revolution as well as the high tech gadgets as well as enabling a green low-carbon, digitised economy. Without access to critical minerals, we would not be able to have our computers, phones, wind turbines, electric vehicles or solar panels that are decoming de rigueur in Australia and worldwide. Here are some lesser known examples and their applications:

Critical Mineral	Usage (examples, not exhaustive)
Yttrium	Ceramics (abrasives, jet engine coatings, oxygen sensors in cars, and corrosion resistant cutting tools) Electronics (microwave radar, dental and surgical procedures, digital communications, industrial cutting and welding, photochemistry, distance and temperature sensing) Metallurgy (superalloys, high-temperature superconductors)
Tantalum	Production of tantalum alloys, capacitors, compounds and metal Major end uses for tantalum capacitors include automotive electronics, mobile phones and personal computers Tantalum oxide is used in glass lenses and tantalum carbide is used in cutting tools
Germanium	Fibre optics, infrared optics, electronics and solar applications including solar cells for satellites

As you can see, the applications for critical minerals are diverse – without them, much the advanced civilisation we live in today would cease to function.

What are the security and supply chain risks for Australian companies?

Two principal security and supply chain risks associated with critical minerals are worth highlighting, both of which have a geostrategic flavour – (1) foreign ownership, control and influence, and (2) sanctions and trade embargo risks, as illustrated below:

The Foreign Ownership, Control and Influence (FOCI) risks we have seen globally tend to materialise in two scenarios, outlined in the following table:

FOCI Risk	Risk Description / Scenario
Mining rights (licences) are held by a single company which controls a substantial percentage of production	This scenario is particularly applicable to Rare Earth Elements which are only found in a few locations around the world, hence global supply is very low in comparison to demand. In this case, a single company could conceivably control a substantial percentage of the production for a given rare earth element globally.
Ownership of multiple mines is held by shareholders of the same nationality (i.e. a concentration risk)	This effectively gives the parent country ‘control-by-proxy’ of critical minerals production, meaning the minerals can be exported under the guise of legitimate trading contracts to the parent country for stockpiling and / or use in manufacturing. Once extracted and shipped, there is no easy way of getting the minerals back, and the country which holds all the stockpiles effectively controls both market pricing as well its permitted end use (for example, military end-use export controls might be applied, effectively giving the controlling country a military advantage).

The second type of risk is sanctions and embargos risk. Historically, when we think of sanctions, trade embargos or even naval blockades it is typically on countries such as North Korea and Iran for their actions against the global community and internationally acceptable norms and behaviours.

As a source country for critical minerals, there is always the possibility that Australian companies or Australian exports could be sanctioned. However, two factors act in our favour to mitigate this risk with critical minerals:

• First is global availability, being that critical minerals are either only located in specific geographic regions or can only be extracted in a way that makes economic sense from a small number of locations.
• Second is the global balance of power. Whilst geostrategic power is shifting away from the United States, we are not yet at the point where other geostrategic players have sufficient power or leverage to impose meaningful sanctions or export restrictions at a large scale (note this does not mean that targeted, and even non-conventional forms of sanctions would not be possible or effective).

Another commonly used sanctions and embargo tool is the naval blockade would be very oenerous to enforce in a country such as Australia, which is so large and surrounded by navigable waters.

What can we do about it?

Like an increasing number of countries around the world, Australia has implemented foreign ownership and foreign investment restrictions to prevent the scenario arising whereby our mining companies or mining licences are owned by foreign investors either at issue or throughout their period of validity, without appropriate review. Additionally, we have introduced a range of foreign intereference laws to criminalise and help prevent actions by foreign governments and their proxies (including legal entities) from interfering in Australia’s sovereignty.

As with saw with trade restrictions on Australian exports, the management of sanctions, embargos and the like are much harder to mitigate. This is particularly the case where Australia sends extracted ore to a third country for processing and refining, which may then be purchased for re-import back to Australia. In this scenario, Australian manufacturers or businesses are immediately exposed to potential sanctions risks. One way to mitigate this is to conduct mineral processing and refining here in Australia, allowing Australia to export refine material as well as to use it directly in Australian manufacturing.

If there is one positive thing that can be said for the COVID-19 pandemic (aside from introducing more flexible working practices), it is that the supply chain disruptions have really refinforced the need for Australia to expand our domestic manufacturing capability and the need to be less reliant on other countries for our critical supplies and services in the Australian psyche. Understanding where security, geopolitical (country) and resilience risks lie in your supply chain, and implementing appropriate risk treatments, is critical for every Australian business.

Further reading

• ANSI/ASIS SCRM.1-2014. Supply Chain Risk Management Standard: A compilation of best practices, https://www.asisonline.org/publications–resources/standards–guidelines/scrm/
• AUSTRADE (2019). Critical Minerals Supply Chain in the United States: Mapping the Landscape for Australian Suppliers, https://www.austrade.gov.au
• Curwell, P. (2021). Conducting a Country Risk Assessment for your key suppliers, 20 March 2021, https://paulcurwell.com/2021/03/20/country-risk-assessment-for-key-suppliers/
• Geoscience Australia (2022). Critical Minerals. https://www.ga.gov.au
• Office of the Director of National Intelligence (2022). Supply Chain Risk Management, United States Government, https://www.dni.gov/index.php/ncsc-what-we-do/ncsc-supply-chain-threats
• Pistilli, M. (2021). 10 Top Countries for Rare Earth Metal Production, InvestingNews, 23 March 2021, https://investingnews.com/daily/resource-investing/critical-metals-investing/rare-earth-investing/rare-earth-metal-production/
• World Economic Forum (2022). Fourth Industrial Revolution, https://www.weforum.org/focus/fourth-industrial-revolution

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