Australia has a lot to gain by taking advantage of its natural abundance of essential minerals and positioning itself as a world leader in their production. But the federal government has yet to find the right formula for helping to ensure that as many of these projects as possible get off the ground.
Critical minerals, as defined by Geoscience Australia, are “metals and non-metals which are considered vital to the economic well-being of the world’s major and emerging economies, but whose supply may be threatened due to the geological scarcity, geopolitical issues, political trade or other factors ”.
They include rare earth elements such as neodymium and praseodymium that Arafura Resources will produce from its Nolans project in the Northern Territory and a long list of other minerals you may not have heard of.
Since the onset of Covid-19, the imperative for governments to boost supplies of these minerals has only increased. Recent semiconductor shortages have highlighted that China’s control of much of the global supply of rare earths and other essential minerals leaves the rest of the world vulnerable.
But there is no quick fix.
The markets for many of these minerals are far from transparent, projects typically have high upfront capital costs, and the companies that drive them forward typically have small market capitalizations. This combination means that commercial banks are reluctant to provide debt financing, while project financing entirely with equity is generally out of the question as it is excessively dilutive for shareholders.
This is where government support is so crucial. Arafura is lucky here, because after a long period of working with the government’s Export Finance Australia (EFA) and with the Northern Australia Infrastructure Facility (NAIF), we have non-binding letters of support offering senior debt facilities up to to $ 200 million EFA. and $ 100 million from the NAIF.
Other companies may simply not have the resources or the time to go through such processes. And that’s probably not something the EFA and NAIF can change on their own.
Political leadership must give them the means to go faster and take more risks, all with taxpayers’ money. Doing this can provide all the benefits that come with Australian companies being able to tell other investors and financiers that they are supported by these government agencies. It’s a more powerful message than almost any other in the world of finance and investing, and its absence is an issue that can be difficult to overcome.
Rather than being lenders of last resort for critical mining projects, the EFA and NAIF must function as catalysts and facilitators.
It is a real opportunity to form a new industry for Australia and to show that we are more than the quarry of the world.
At Nolans, we don’t just extract the ore and ship it. We have worked hard to refine the processing scheme, making the most of Australia’s competitive advantage in advanced mineral processing, to produce a value-added NdPr oxide.
For customers, we expect this to be a big plus. Considering the growing importance of environmentally and socially responsible operations, it is very attractive to be able to source materials from a fully traceable and sustainable supply chain in a low risk jurisdiction like the Australia.
Then there is the economic development that the project will bring to central Australia, a part of the country where there is very little.
Arafura understands that the federal government cannot be seen as picking winners or playing favorites. This is not what we are asking for.
If Australia is to offer itself to the rest of the world as part of the critical minerals solution, it must at least ensure that the channels through which project developers can access support are open and functioning effectively.