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The US Government and Critical Materials

Dear MMTA Members,

Good afternoon, once again from Cleveland Heights, Ohio. And it is a stunning afternoon here: crisp, bright and with the foliage myriad different colours. Quite Lovely!

A short piece today. Especially after two pretty long ones on the “talent drought” being endured by mining companies. Sorry about that, but I think it is an important topic. In particular, because I believe it constitutes a somewhat “hidden” supply constraint about which not much has been written.

I should like to kick off, though, with a quick look at critical materials lists. Those who read my letters may remember that, toward the end of the last US administration, I wrote a fair deal on critical materials and lists thereof. Government had, at last, appeared to be doing something positive on the “identification” front for these. And it had started seriously to address supply concerns. One of the things I noted was that there seemed  finally to be a definitive single list of these.

It came as somewhat of a surprise then when, the other week, I learned from Ben Steinberg of Washington, DC-based Venn Strategies and also a founder, the spokesperson for, and Executive Vice President and Critical Infrastructure Group Co-Chair of the Battery Materials & Technology Coalition (“BMTC”), that we now actually have three such lists, not just one. There’s a Department of Defense (“DoD”) list, a Department of Energy (“DoE”) list and a Department of the Interior (“DoI”) list. And, whilst there are extensive overlaps, they are different.

How come? I asked myself. Why three?

I found the answer to this in a great webinar hosted on 9^th September this year by The Fuse and entitled “Untangling The U.S. Government’s Many Critical Minerals And Materials Lists”. I would thoroughly recommend watching it.

Quoting directly from The Fuse (with their use of bold), the participants, including one each working with the DoD, DoE and DoI, explained the differences thus:

• “The Department of Interior (DoI) examines likelihood of foreign supply disruption, net import reliance, and the vulnerability of U.S. manufacturing to a supply disruption. disruption. DoI does not consider future demand or supply forecast.
• “The Department of Energy’s framework is driven by five central pillars: diversifying supply, element substitution, enhancing efficiency, promoting a circular economy, economy, and emphasizing cross-cutting functionality. Their list is forward-thinking and globally focused.
• “For the Department of Defense, the goal is to ensure the U.S. is ready for national emergency scenarios, therefore focusing on materials that are deemed essential to mounting a military defense of the country, followed by materials essential for civilian use. DoD’s list includes many (if not all) the same elements, it also includes subcategories of minerals that have defense-only uses.”

The issue of the three different lists arose when Ben was explaining to us just how the current administration is trying to mobilize the entire government to secure a reliable and sustainable supply of critical materials used in the “electrification economy.” He illustrated this with the following, very useful, table:

US Federal Agencies’/Departments’ Involvements

Source: Venn Strategies

^* Office of the U.S. Trade Representative, ^† Export-Import Bank of the United States ^‡ U.S. International Development Finance Corporation

To give you an idea of the just how much funding is available, I have adapted below one of Ben’s charts. It illustrates that for battery materials alone there is major funding, together with significant incentives.

And how did the three subject lists come up?

Like this: while copper may recently have joined the DoE’s list, it is not on the DoI’s list. This is important because, when legislation is written, it will often tie funding and policies to these lists. However, this can lead to confusion. (And does!) An example: while, on the one hand, a deal of support has been given to the mining sector, on the other there’s also been significant discussion around NIMBY¹-ism, inclusivity and community engagement.

Funding and Incentives

Source: Venn Strategies

*BIL: Bilateral Infrastructure Law; DPA: Defense Production Act; and DIB: Defense Industrial Base

** IRA: Inflation Reduction Act ^† Research, Development and Demonstration

In the case of copper, while the metal is on the DoE’s list, and even though it’s currently tied to the 48C² tax credit for the first time, it will probably never get on the DoI’s list because the administration has now blocked three very substantial copper projects in the U.S. Go figure!

And, with that, I should, for another month, like to bid you farewell from Cleveland Heights.

And I remain, as always

Yours

Tom Butcher

November 12, 2023

©2023 Tom Butcher

Tom Butcher is Director of ESG at Van Eck Associates Corporation (“VanEck”). The views and opinions expressed herein are the personal views of Tom Butcher are not presented by or associated with VanEck or its affiliated entities. Please note that VanEck may offer investments products that invest in the asset class(es) or securities mentioned herein. This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein.

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¹NIMBY = Not In My Back Yard: “[T]he behavior of someone who does not want something to be built or done near where they live, although it does need to be built or done somewhere.” Cambridge Dictionary.

 ²U.S. Department of Energy: “The Qualifying Advanced Energy Project Credit (48C) program was established by the American Recovery and Reinvestment Act of 2009 and expanded with a $10 billion investment under the Inflation Reduction Act of 2022. The Advanced Energy Project Credit provides a tax credit for investments in advanced energy projects, as defined in 26 USC § 48C(c)(1)