First came the chip wars. Now it looks like the critical minerals wars have begun.
As supply chains warp and allegiances shift, the Five Eyes countries — an intelligence coalition of anglophone countries (the US, the UK, Canada, Australia and New Zealand) that traces its roots back to second world war code-breaking — are forming a protectionist huddle, jealously guarding how much foreign interference, or investment, they permit within their borders.
Deteriorating Sino-US relations, alongside disastrous reliance on Russian gas, led Western countries to nervously tot up supply chain dependencies, and it is critical minerals that have come to the fore.
Critical minerals are those increasingly crucial for fuelling the modern world but for which there are no substitutes. Lithium, nickel, cobalt, manganese and graphite are crucial for batteries; rare earths are needed for wind turbines and electric cars; copper and aluminium are the cornerstone of electric networks.
China dominates the supply. According to figures from the International Energy Agency, China accounts for more than 71% of global extraction and 87% of global processing capacity for rare earths.
With a stable supply of critical minerals becoming ever more strategic, consensus is mounting within the Five Eyes countries to leverage their geopolitical alliance to loosen dependence on China and limit the risk of Beijing’s weaponising its tight control over their supply.
Canada was the first to lower the portcullis. It forced three Chinese firms to divest from Canadian-owned mining firms last November and updated the Investment Canada Act to screen acquisitions of controlling stakes in Canadian critical minerals firms.
In a statement on November 2, minister of innovation, science and industry, François-Philippe Champagne, termed these “investments that pose a threat to our national security and critical mineral supply chains”.
But Canada is not a lone actor. Its role in the Five Eyes alliance means its stance may speak to wider bloc policy.
“[The UK should] follow the example set by the US and, more recently, Canada in limiting foreign investment in UK critical mineral activities,” British MP Alexander Stafford, vice-chair of an all-party parliamentary group on critical minerals, tells fDi.
Mr Stafford is one of a handful of politicians who have voiced support for Five Eyes co-ordination. He calls a Five Eyes critical minerals alliance “an easy and obvious step”.
“We already have the legislative powers to [limit foreign investment] under the National Security and Investment Act; all that remains is to use these powers to ensure investment primarily from Five Eyes countries,” he says.
A spokesperson for the UK’s department for business, energy and industrial strategy (BEIS) told fDi it would not hesitate to use those exact powers to prevent investment that could harm national security in the sector.
A recent agreement with Saudi Arabia – a January 11 agreement between the two nations to explore new mineral sources – could be the perfect blueprint for the Five Eyes to follow, Mr Stafford adds, for showing the UK’s willingness to collaborate with overseas partners on the issue.
Australia is close to following Canada’s example.
The country’s treasurer, Jim Chalmers, warned in November that Australia will more assertively review whether foreign investment proposals are in the national interest, particularly critical minerals investments.
In an address to the Australian Critical Minerals Summit, Mr Chalmers said that Australia, in close co-operation with “key partners”, would develop a more sophisticated method to monitor foreign investment in the sector.
“It does feel like we’re potentially going into an era of – effectively – protectionism,” says Caspar Rawles, chief data officer at Benchmark Mineral Intelligence. “What the Canadian government did is perhaps an early indicator as to what could happen.”
But others, including Rystad Energy’s senior analyst Susan Zou, think Canada’s motives are apolitical and simply an attempt to keep value-add within the country to meet the government’s lithium-dependent electric vehicle ambitions.
Australia’s investment reviews already favour investors from Five Eyes countries, alongside other key international partners such as Korea and Japan, says Matthew Watkins, partner at DLA Piper’s Perth office.
Even now, if a foreign investor seeks anything more than 10% interest in an Australian critical minerals company, it will likely be redirected to the Foreign Investment Review Board (FIRB), Mr Watkins wrote in a December client note. The FIRB has been taking longer to review applications, he pointed out, with transactions in the critical minerals sector “particularly affected”.
As Mr Rawles puts it, there is “almost a trading bloc emerging”.
And in the US, the Biden administration has given greater authority to the Committee on Foreign Investment in the United States (CFIUS) amid dark government warnings about “adversarial capital”. The executive order that conveyed the new approach, issued last September, calls on the committee to review all critical minerals investment applications that affect national security.
This is the first time the White House has given CFIUS formal input on specific risks to consider.
“Some countries use foreign investment to obtain access to sensitive data and technologies for purposes that are detrimental to US national security,” the order warns.
There is some precedent for US wariness over Chinese investment in critical minerals. Take the Molycorp saga: the company’s Californian rare earths mine went bankrupt in 2015, and when Las Vegas-based MP Materials bought it, the US Department of Energy temporarily warned government scientists not to collaborate with the mine because of MP’s partial Chinese ownership, according to a Reuters report.
Five Eyes co-ordinate
Are policies aligning by pure coincidence? It is not yet clear, but Mr Watkins says there is an “increasing amount of co-operation and intelligence sharing among Western governments”.
In 2020, Canada announced the Canada-US Joint Action Plan on Critical Minerals Collaboration to improve the availability of critical minerals supplies, and the BEIS spokesperson told fDi that it also works with other countries on the issue via the Minerals Security Partnership, which includes the Five Eyes countries, and via the International Energy Agency.
The Critical Minerals Mapping Initiative links three of the Five Eyes countries via the forces of Geoscience Australia, the Geological Survey of Canada and the US Geological Survey: all government agencies.
None of the Five Eyes countries can go it alone, says Jane Nakano, senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. Co-ordination is “essential”. Canada and Australia are known for efficient processes in this area and for upstream natural resource extraction and production. The US is “really lagging” in those areas, Ms Nakano adds. But the US does offer an automotive sector with the capital and facilities to keep Canadian miners in business.
These complementary skill sets need to be blended, she argues.
“Whether or not governments will go to the level of ousting Chinese ownership of companies like the Canadian government did, it’s hard to say,” Mr Rawles adds. “But we are definitely seeing big moves by the government to protect those supply chains.”
Some talk about globalisation of the supply chain, and now some talk about localisation. But in the opinion of Rystad Energy’s Ms Zou, the industry will have to develop a fine blend of the two. “I don’t really see how, if you only depend on one of them, how that could succeed,” she says.
This article first appeared in the February/March 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.