Over the coming years, Western countries will require tremendous volumes of critical minerals given the demand for mineral-rich technologies like electric vehicle batteries.
A popular policy proposal for supplying and de-risking this mineral demand in industrialized Western countries is “friendshoring,” where partner countries source extracted minerals from each other instead of relying on geopolitical adversaries, namely China.
For example, Australia and the European Union recently signed a memorandum of understanding to increase collaboration and investment in critical mineral supply chains.
In this article’s context, “the West” encompasses countries part of the Mineral Security Partnership—that is, Australia, Canada, Estonia, Finland, France, Germany, India, Italy, Japan, Norway, South Korea, Sweden, the United Kingdom, the United States and nations in the European Union.
Theoretically, these countries collectively have significant reserves of critical minerals; they just need to build more mines. However, building new mines requires not just deposits but profitable deposits, which the West lacks for many critical minerals.
A mine’s potential profitability influences whether a mine is built. Mine profitability relies on several variables, including the targeted element’s price, the mine’s capital expenditures, operating costs, metallurgical recovery rates, and—perhaps most crucially—the deposit’s scale and grade.
For many minerals, Western countries have discovered and are mining most of their large-scale, high-grade deposits, while other jurisdictions like African countries have more untapped large-scale, high-grade deposits.
For example, of the ten largest copper discoveries between 2012 and 2021, only 13% of the discovered copper volume was in the West, with the majority of commercial copper deposits being discovered in Latin America and Africa.
Thus, when seeking to increase mineral production, mining companies generally prefer to expand production at their existing mines or develop large-scale or high-grade deposits in non-Western jurisdictions, not small-scale or low-grade mines in Western countries.
The copper industry displays this trend with the three largest copper-producing mines to commission this decade being in non-Western countries, namely the Oyu Tolgoi mine in Mongolia, the Kamoa-Kakula mine in the Democratic Republic of the Congo and the Antamina mine in Peru.
Most of the major new copper projects expected to be commissioned in 2024 are in countries like Chile, Botswana, Brazil and the Democratic Republic of the Congo.
Nonetheless, some mining companies may seek to develop less profitable deposits in the West.
To access higher grades, these mines are increasingly underground and usually incur higher costs with the complexity and safety risks of designing, constructing and operating mines thousands of feet beneath the surface. Given these higher costs, such mines are often economically unviable amid lower mineral prices.
For instance, the recent zinc glut caused lower zinc prices, and the first zinc mine to be placed on care and maintenance was Boliden’s Tara underground zinc mine in Ireland. Similarly, due to low cobalt prices, Jervois suspended final construction at its underground cobalt mine in Idaho until cobalt prices, which are currently around $12/lb, reach $25/lb.
Meanwhile, mines with higher profit margins, like the Chinese company CMOC in the Democratic Republic of the Congo, continue to produce cobalt. Even open-pit mines in Western countries face profitability challenges during price slumps.
Amid low nickel prices, First Quantum Minerals has placed its open-pit nickel mine in Western Australia on care and maintenance.
With higher mineral prices, new, less profitable mines in Western countries may be built and commission production. But as more profitable mines also come online, greater global supply may lower prices so that higher-cost mines become unprofitable and thus nonoperational.
However, sustained, higher mineral prices could make mining these deposits in Western countries profitable. Notably, given the US Inflation Reduction Act, higher prices for minerals produced in the United States and free trade agreement countries (e.g., Australia) are possible.
Electric vehicle companies selling into the American market may pay premium prices for battery minerals that enable their customers to claim tax credits, creating price bifurcation between higher-priced minerals compliant with the Inflation Reduction Act and lower-priced non-compliant minerals.
Instead of waiting for higher mineral prices to build new mines in the West, governments can help companies discover and develop new mineral deposits, as well as keep them profitable and operational.
To discover and develop new mines, Western governments could increase mineral exploration incentives and mine development loans. To keep those mines profitable and operational, Western governments could increase demand and thus prices for these minerals through higher tax credits for electric vehicles with friendshore-produced minerals and collective tariffs on mineral imports from non-partner countries like China.
Moving forward, industrialized Western countries lack profitable deposits relative to other countries in many minerals, hindering the prospect of friendshoring critical mineral mining. Even if companies do develop mines in Western countries, these mines may face long-term profitability challenges given their higher costs.
Yet with government support like subsidies and tariffs, the friendshoring of critical mineral mines is indeed possible. Western governments should therefore help companies discover new deposits and develop new mines in the West, as well as keep existing Western mines profitable and operational.
Gregory Wischer is a non-resident fellow at the Payne Institute for Public Policy at the Colorado School of Mines and at the Northern Australia Strategic Policy Centre at the Australian Strategic Policy Institute.
Shubham Dwivedi is a Faculty Fellow at Georgetown University’s Science, Technology, and International Affairs program.