The last few years have not been kind to international supply chains. Between COVID, trade tensions with China, and the Russia-Ukraine war, countries have been having a tough — or at least tougher — time getting the products and materials they need to thrive.
Not only that, but natural disasters, financial crises, and operational challenges have triggered additional volatility and hamstrung efforts aimed at meaningful progress.
“Supply chain professionals are under more pressure than ever to anticipate, assess, and mitigate the risks associated with the full range of inputs to their production, from individual suppliers, materials costs, and logistics contracts,” a white paper published last year by S&P Global said.
“Even as global freight rates fall and supply chains continue their recovery from the shock of the COVID-19 pandemic, businesses need clear sight of their supply chain risks to remain competitive.”
In our present era of heightened geopolitical tension, and particularly given the re-election this week of US President-elect Donald Trump, secure supply chains have come to assume a prominent role in economic discussions. This is especially the case in the West, and even more so if those supply chains relate to critical minerals — those commodities considered vital for the well-being of the world’s economies, but which are nevertheless exposed to supply disruptions.
China, for example, dominates much of the world’s critical minerals marketplace. Over the last seven or so years, the country has tightened its grip on virtually every aspect of the metals supply chain, from processing to licensing and regulation. This zeal for vertical integration has curtailed foreign company access to key parts of the supply chain.
More recently, in response to sanctions imposed following the launch of its ‘special military operation’ in Ukraine in 2022, Russia halted exports of more than 200 products. While energy and raw materials — including the country’s biggest export, crude oil, as well as nickel and semi-finished iron — were excluded from the ban, it highlighted the scale and speed with which global supply chains can be turned upside down.
Fostering supply chain resilience
Indeed, supply chain security has become a key focus for policymakers around the world. In Australia, it represents a significant component of the federal government’s Critical Minerals Strategy 2023-2030.
Unveiled in June last year, the strategy provides a framework for the country to develop its critical minerals production, processing, and supply chains while also creating jobs and economic opportunities.
The government has set aside $57.1 million to develop new, diverse, and resilient supply chains underpinned by domestic critical minerals processing. Of that amount, $40 million in grants is available to support co-investment between Australia and “like-minded international partners”, as well as end-to-end supply chains between Australia and those partners.
An additional $6.65 million has been committed to increase global engagement on critical minerals, including detailed analyses of strategic projects, as well as $6.7 million to support promotional efforts by Austrade — the Australian Government’s trade and investment promotion agency.
“The fastest and most efficient way to build our downstream capability and get Australian projects into international supply chains is through investment from like-minded countries and global companies,” the strategy dictates.
“Attracting international investment and offtake arrangements will help Australian projects access key markets and make the sector commercially viable.”
The plan is partly designed to capitalise on the success of the US Inflation Reduction Act 2022, which — like Australia’s strategy — seeks to shift supply chains vital for US decarbonisation to domestic sources and, more selectively, free-trade partners.
Security by deal-making
Already, these initiatives have been exemplified by a number of early-stage, supply-focused deals.
In September, ABx Group (ASX:ABX) signed a memorandum of understanding (MoU) with Nova Scotia-based Ucore Rare Metals (TSX-V:UCU) that contemplates a potential offtake deal for ABx’s mixed rare earth carbonate (MREC).
Ucore intends to obtain the right of first refusal for 50% of ABx’s annual volume of MREC for a minimum of five years, subject to commercial terms. The MoU also allows for a potential investment by Ucore in ABx.
Speaking to Mining.com.au, Ucore CEO Pat Ryan says the company had worked with Austrade for roughly a year to identify promising rare earths projects Down Under that can supply Ucore’s processing plant currently under development in Louisiana.
“The intent was not to necessarily have a source that would be available for commissioning heading into 2026, but rather to support ramp-up plans knowing that the necessary rare earth oxides will grow 200% by the end of the decade and represent a global US$40 billion market by 2035, according to Adamas Intelligence,” Ryan says.
“The ABx project in northern Tasmania has the highest grades of the ‘heavy’ rare earths dysprosium and terbium in any clay-hosted rare earth resource in Australia, according to ANSTO (the Australian Nuclear Science and Technology Organisation), and it certainly caught the eye of the Ucore team doing due diligence on various Western projects.
“The heavies are necessary to produce world-class permanent magnets and the ABx path to production, including sound economics, also represented an opportunity for Ucore to consider an equity position, thus potentially securing a ‘long-term’ feedstock source.”
ABx and Ucore now intend to collaborate on flowsheet development as well as entry strategies for penetrating Western markets — which, as ABx CEO Mark Cooksey explains, is just as integral as the offtake deal itself.
“It’s important because different customers have different product requirements, so you need detailed knowledge of your customers to ensure you produce saleable products,” he tells Mining.com.au.
In another case, Vital Metals (ASX:VML) signed a deal in June to sell stockpiled rare earths material at its Nechalacho Project in the Northwest Territories, Canada, to the Saskatchewan Research Council for C$3 million ($3.28 million).
“This agreement highlights the strategic value and importance of the Nechalacho Rare Earths Project, and the prioritisation of a rare earths value chain in Canada,” Geordie Mark, Managing Director of Vital Minerals, said at the time.
The outlook
In the opinion of Warren Pearce, CEO of the Association of Mining and Exploration Companies (AMEC), Australia needs to be smarter about facing the world’s supply chain challenges.
He argues Australia has become trapped between its largest trading partner, China, and its largest strategic partner, the US. Where it was once China’s favourite raw materials supplier, Australia is now being asked to become America’s.
“We’ve got to be looking between those two countries and taking a little more control to say: ‘Well, we’ve got these minerals. We’re a reliable supplier, but we also want to realise greater value here before we send those overseas. What are you prepared to do to support us in order to secure that supply chain outside of China or outside of America?’,” Pearce tells Mining.com.au.
“We’ve got to be better at playing off those interests for our own benefit.”
That, he explains, begins with the Australian Government, whose critical minerals strategy is admittedly in its early stages. It makes for a stark contrast with the US Inflation Reduction Act, which is “working very successfully” — perhaps even too successfully.
“They’re attracting that investment in the US for value-adding and down-streaming, and they’re pulling that opportunity away from Australia,” Pearce explains.
“We’ve got to be serious about capturing that value here at home. We need to recognise that we’ve got a very strong position to do that. The question is, how do we do that while being sensitive to our strategic alliances, and also our significant trading partners and major customers?”
Still, supply chain activity is rebounding globally, supported in part by growth in electronics supply chains. Global trade is forecast to increase 1.8% this year, according to S&P Market Intelligence.
Global cooperation is also expected to increase as countries look to establish shorter, faster supply chains. The effort is partly underpinned by the concept of ‘friendshoring’ — a growing trade practice where supply chain networks are focused on countries regarded as political and economic allies.
These friendshoring initiatives are expected to facilitate commercial agreements and foreign investments via bilateral partnerships, such as the US-led Minerals Security Partnership and the diplomatic alliance between Australia, India, Japan, and the US, known as the Quad.
“The world is one economy, and it’s probably unrealistic and unattractive to have separate Western and non-Western supply chains,” ABx’s Cooksey says.
“Western companies need to be able to operate in a global supply chain where different participants have different constraints, strengths, and weaknesses.”
Indeed, establishing secure global supply chains is a hefty challenge, particularly in the aftermath of COVID. But with the ever-escalating need for critical minerals, it will be a worthwhile effort.
Write to Oliver Gray at Mining.com.au
Images: iStock, Ucore Rare Metals & Our World in Data
