Australia could be big critical mineral player in Indo-Pacific region

The Perth USAsia Centre at the University of Western Australia has published the first in a series of reports addressing what the Australian government can do to spur local critical mineral production.The Perth-based think tank seeks to forge stronger relationships between Australia and the countries of the Indo-pacific region and the USA.The proposed series of reports will explore key opportunities, challenges and policy priorities for the mining industry within the context of Australia's various bilateral relationships.The report's author, Policy Fellow James Bowen, describes an opportunity for Australia to reinforce bilateral relationships as well as build the country's economic base. "Australia can be a vital critical minerals partner in the Indo-Pacific", Bowen concludes. He says "many of Australia's economic and strategic partners are already eager to cooperate".The first report, addressing possible links between Australia and the USA, projects a modestly optimistic tone. That said, there is a tension in the relationship between the two countries. Canberra's desire to add value locally to Australia's critical minerals endowment may be at odds with Washington's own industrial and security ambitions, Bowen concedes.Like many, Bowen places considerable faith in the benefits for Australia of the US Inflation Reduction Act (IRA). The Act will "incentivise US companies to import Australia's raw critical minerals and invest in the Australian economy", he says.Undeniably, the IRA spurs demand for a wide range of mined products but offers far less encouragement to expand supplies.The IRA retains an overwhelmingly domestic focus. The funding guidelines make clear that "Congress and President Biden designed these programs to benefit working families and parts of the United States that are too often overlooked and underserved".By law, at least 40% of all IRA benefits must flow to "disadvantaged communities, including Tribes, communities with environmental justice concerns, rural areas, and energy communities".US official capital, where it might be available for mine development, is directed primarily at more advanced projects with a heavy emphasis on US domestic benefits.Despite multi-billion dollar appropriations and lending authorities, a US$30 million commitment to a nickel-cobalt mine in Brazil by the US Development Finance Corporation is the only example cited in the Perth USAsia Centre report of US official funding of an overseas venture.Bowen highlights how long it takes to permit a new project in the US "compared to only a few years on average in Australia" as a lure for US support. And, yet, when executives are asked to rank jurisdictional attractiveness, Australia has been losing ground against its US rivals.In any event, the scene is set for approval processes to converge, threatening any advantage Australia may have, after US and Australian governments recently agreed to share information about their respective environmental approval processes.Two ingredients - a mineral resource and adequate funding - remain indispensible for the fossil fuel transition to progress. Australia has ample supplies of the first but little of the second.Any convergence in strategic interests between Australia and the USA, or others in the region, will depend on a solution to the funding conundrum, especially for those companies stuck in the no-man's-land between a mineral discovery and a production commitment.Outside wartime, the industry has never experienced so much government interference in its markets. Australia, a capital importer with a tiny domestic market, is one of the most vulnerable to the resulting disruption despite an outstanding natural comparative advantage.Rather than let a few key locations dominate global mining and mineral processing, governments almost everywhere are touting the energy transition as a way to rejuvenate their own aging or less developed industrial bases with an emphasis on their own raw material sources, wherever possible.At the same time, Australian companies are being encouraged to stop doing business with China, the most logical source of development funding, without alternative sources of support having been lined up.And, of course, central banks in some of those locations most insistent about the need for more investment are making funding harder to source.While Australian governments have upped their financial backing for exploration and mine development, the commitment remains small relative to the country's resource endowment and the firepower offered by bigger US and European budgets.In distorting capital flows, government intervention is detracting from Australia's comparative advantage. The Australian industry could end up smaller than it otherwise could have been.The Bowen report touches on some of these complexities facing the industry but generally paints the strategic links as opportunities, downplaying the bigger picture of an industry battling to cope with the challenges it is being asked to meet.Any Australian government minister engaging with their Washington counterpart on critical minerals policy should ask, at the outset, whether the US government and its agencies would ever fund Australian located projects ahead of viable projects in the USA competing for the same capital.Without a positive response on that front, the prospects for joint efforts are pretty slim. US private capital will likely follow the official lead until US located opportunities are exhausted.Without a willingness among US capital providers to at least take a neutral stance on location, invoking joint defence and security links at an official level may prove frustratingly pointless.The decade long funding commitment by private and public Japanese entities for rare earths miner Lynas Corporation, referred to by Bowen, remains closer to what the Australian industry needs than anything so far offered by US officials.In the end, Japan and Korea may prove more willing to assemble the mix of private companies, official guarantees and financial institutions needed to partner Australian companies.Hopefully, the Perth USAsia Centre can use its expertise to throw some light on where Australian officials are likely to get the most favourable responses from among its potential strategic partners.*John Robertson is a director of EIM Capital Managers, an Australia-based funds-management group. He has worked as a policy economist, business strategist and investment-market professional for nearly 30 years, after starting his career as a federal treasury economist in Canberra, Australia

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