Mining the Gap: Critical Minerals & the SDGs

Moderator:  Hello everyone, I feel energized.  I’m glad [inaudible] seven years.  Wow.  We have a lot to do.  We have a lot of work to do.

But excited to have this conversation because this next topic is absolutely critical to getting there.  This is why it’s called Critical Minerals and How they Fit into the SDGs.  We’re super excited.

Just one note, Vera, who was also going to join us, had to bow out at the last minute for a family emergency, hence the empty chair.  But I’m sure she’s going to be working hard as well.

I’d love to kick things off, Ambassador.  Critical minerals, a very interesting topic.  There’s a lot of intersection, as we know, but this in particular we know is a national security issue.  We know it is a vital economic issue.  And also key to sustainability.

How are you thinking about that intersection and how have the discussions been all week?

A/S Pyatt:  Thanks, Maggie, and thanks for the opportunity to share some reflections on this.

I’d say a couple of things.  First of all, what’s really striking to me this year both during UNGA High Level Week and around Climate Week, is the central role that this conversation about critical minerals is now playing.

To give you an example, the other day I was able to join President Biden for his meeting with the five Central Asian Presidents.  We were talking about critical minerals!  This has become a front-of-mind issue in terms of both the pace of the energy transition but also how we build international partnerships.  

And what I would also like to put a spotlight on to start with is what we’re doing at the State Department.  I think if you look at Secretary of State Blinken’s remarks last week at Johns Hopkins where he tried to frame a foreign policy for the next era that comes after the post Cold War era, you see both a central focus there on these global challenges like climate, like economic justice, but also the priority the Biden administration has placed on building international partnerships.

So when we look at this scarcity of resources, and Richard can talk much better about where the demand curves are leading.  But lithium — 42 times increase in demand.  Graphite — 25 times increase in demand.  We’re trying to build international partnerships that attack that challenge but do so in a way that meets high ESDs and creates opportunities for our partners around the world.

Moderator:  Richard, I think this is an instance where people are trying to build this in earlier in the conversation instead of having to sort of go back and fix it afterwards.  But the demand is enormous.  How are you, what are you seeing?  What are you hearing from customers?  And how are you coming to terms with that demand and trying to meet that demand?

Mr. Morgan:  I think hearing is the right word at this stage because it is in everyone’s lips, coming from everyone’s lips, tends to mean different things from different people.

What I’ve been hearing this week is that from the African countries, we’ve got a big operating base in Southern Africa on various things — platinum, diamonds, iron ore.  We’re looking for copper at the moment in Zambia.  So we’re very much interested in trying to transition to the new minerals ourselves, copper and nickel probably being the primary ones we look at as a big mining company.

African governments clearly want value to be added there.  That’s not new, but it’s a question as to what the best energy transition means and is it credible to them?  So you have to respect that.

The current operating model tends to be, for copper anyway, certainly for us, is that we don’t actually beneficiate it completely in situ.  That’s a bad carbon footprint, if you like, it will go to Asia, come back as copper.  If that’s going to change then we have to work out how, because [the thing] needs power.  These things take time.  We’ve just secured an exploration license in Zambia and we’ll have that for seven years.  We’ll drill it actively for two or three years.  We’ve done agreements with the local traditional leaders there.  So everything is in place, but everything like that takes time.  

We’re just doing our copper mine in Peru.  The social license for water there took the better part of ten years to negotiate.  These things populate,

So when people say there seems demand, there probably is.  And we’re a reasonably big company, to bring onstream a mine costs billions.  The sort of financing you often hear about is incentives in the millions.  It’s how do you balance all that out?  And if you can meet the high SD performance standards, which you can, but it often does take time.  Where do you get the financing from?  Does the financing accommodate less profit than it perhaps used to?  And where can you put a premium on that product?

Moderator:  This comes up again and again, but it is particularly salient when we’re talking about the energy transition.

Do we have work to do to talk about the transition, because you’ll hear from people that there’s a feeling that it’s flipping a switch, right?  We want to migrate from other parts of the [inaudible], we’re going to migrate to all these by a certain deadline.  But then there’s the reality of what that takes on the ground.  We hear 2030.  It’s seven years away itself, and you’re talking about bringing one mine on taking that long.

Do we have a timing issue, Ambassador and Richard?

A/S Pyatt:  A couple of thoughts.  First of all, I think the requirement for the transition is now widely understood and I’m shocked as I travel around the world whether it’s in developed countries, Japan, Korea; or in the developing world, Nigeria, India, Pakistan.  I hear the same narrative everywhere which is the climate crisis is real and we have to act at a much faster pace than the market alone would produce to accomplish this transition.  And that is exactly what drives the dilemma that Richard pointed to.  In terms of how we meet those ESDs, so let me give you an example of what the State Department is doing. 

We have a thing called the Mineral Security Partnership.  It brings together now 14 governments, about 50 percent of global GDP, and we are all committed first of all to de-risking our exposure to a single source of these critical minerals but also partnering with the countries that have these resourcing them.  And I think one of the really interesting things about this energy transition moment that we’re in, it’s going to mean that when we look a few decades out, the world is going to be trading a lot less crude oil, less coal, a lot more cobalt, lithium, copper, nickel, zinc.  And it happens to be the case that a lot of those resources are found in the global south.  Those countries, quite understandably, want to ensure that they enjoy some of the benefits of that resource endowment and we share that perspective.

So we’re trying to figure out how to move faster than a market pace to accomplish this expansion of supply because that is what is going to enable the electrification of transport, the development of largescale batter storage, the deployment of a whole lot more wind and solar and geothermal, but we have to do it with international partners and that’s I think for me in this role one of the exciting things about being Assistant Secretary for Energy Resources right now is I’m exercising this responsibility in the context of the Inflation Reduction Act which has done so much to give the United States credibility in the global climate conversation and is stimulating such remarkable acceleration of investment and innovation in these areas, but we have to bring along the rest of the world.

Last point.  My boss, Secretary Blinken always points out the United States is maybe 12-13 percent of global CO2.  We can decarbonize the US economy tomorrow and it will not solve the climate crisis unless we bring along the rest of the world.  So this is the quintessential challenge of global partnership and international cooperation.

Moderator:  And that issue of collaboration and partnership is something both of the speakers in the afternoon session already have both really commented on.  And this is the most heavily attended, most attended since 2015, and I think [inaudible] COP as well.  So I think there is a sense of that because these are capital intensive projects.

Mr. Morgan:  And that’s why we need to get as many people interested as possible because if you can hit the ESD targets, which you can with care and proper development attention, then it does really bring sustainable development to countries.  If you look at Botswana, which was one of the poorest countries in Africa, through diamonds, through the relationship with [Inaudible], has certainly become one of the more middle income countries.  Chile with copper.  These developments make it possible to really make a difference in a country through mining.

So we need to harness what we learn from that, and then [to sign] [inaudible] across various [inaudible].  And I think the advantage of the other players in the market like the US coming in, and if we can interest the EU as well, if they’re wanting to do things perhaps more locally then we can try and do that as well.

You can mine really sensitively and we’ve got a big [fertilizer project for the UK [International Park].  We’re looking at one in Finland in a [inaudible] area.  It’s entirely possible.  I mean we can adjust or help people adjust their views of what modern mining looks like.

Moderator:  I think that’s very important.  This is an issue of supply, but it’s an issue of supply chains.  And we’ve never talked about supply chains more than we do right now.  Do they have to become shorter?  Is that a way to —

Mr. Morgan:  I don’t think they have to become shorter.  I think the more options we have, the better.  Then people, as long as you can articulate what the supply chain looks like, talking of diamonds, clearly there’s been more work in terms of branding what a natural diamond looks like that’s been mined ethically.  We are seeing the same in copper, for responsible copper, for steel.  I think if you can make clear various options of supply chains, and then customers can make their own choices.  And some of the car companies, some of the IT companies are very keen on ethical supply of raw materials.  We need to articulate that.  And then just give them options.

Moderator:  And this is where taken from the tech forum that we talked about this morning, we have the tools now to do this more.

Ambassador, for all of the talk of collaboration and the importance of supply chain and being preempted in building this in, this is happening at a time when there are also forces that are for regionalization, nationalization or nationalism, and talking about a different world than the one we’ve been living in with all of these agreements and trade agreements, turning inward and hoarding the resources.  How are you navigating through that from a political perspective?

A/S Pyatt:  I’ll make two points.  One, of course, is that the United States remains among the world’s most open economies.  We sometimes forget that in the conversation, but in terms of openness to foreign investments, trade as a component of our GDP, we have a very, very open economy and we have a huge stake in maintaining that openness because that’s part of what drives prosperity here at home.

Again, I think as I look to the energy transition, if you look back the past 100 years with the fossil fuel era, it’s really American companies that led the way.  The Standard Oils and the Exons and the Essos of the world.

I want to make sure that as we come into this energy transition era it’s also American companies that are still setting the highest standards in terms of both ESDs but also efficiency.  Recycling, which we haven’t talked about but it sort of feeds into Richard’s point about traceability and it’s a key part of this new cycle.  A lot of that is already happening.  You look at how much innovation is happening in the United States in terms of new battery chemistries, in terms of concentrated solar, and the market is responding and then the United States is taking advantage of the openness and what new [inaudible] represents.  An entrepreneurial system that’s arguably the most vibrant and most effective at applying capital to opportunity.  The most effective that the international system has.

So we need to take that and we don’t want to lose that, even if we try to force the pace of this energy transition because we’re driving the energy transition both as an opportunity for innovation and job creation in the competitiveness of our own economy, but also to meet the challenge of the climate crisis.  Which is something to which the United States is vulnerable but also a phenomenon through which many of our international partners are even more vulnerable.  And again, I’m thinking especially of the Global South and the dislocations that are already happening in terms of food security, in terms of extreme weather events.

So we have a huge stake in meeting the challenge of this moment, and I know that’s something that our hosts and COP and the UAE are extremely focused on.  In part because that’s what they hear from so many of their regional partners.

Moderator:  Richard, what do you think needs to be done to bring more private/public partnership or private/public sort of intermediaries that live in the world of finance?  Especially when it comes to ESD type of financing.  What’s the conversation with mining?  For a while I think mining was really not included in a lot of that innovation that was happening in terms of green finance.

Mr. Morgan:  That’s exactly right.  I was in Zambia last week and we had an impact investing conference there which is really about encouraging the entrepreneurial [inaudible] the Ambassador was talking about in a way that’s not necessarily dependent on the mine itself.  Because — and we’ve committed to providing five jobs off the mine for every job on the mine because of the advances in technology which is helpful, but you’ve still got to provide that wider economic benefit.

Then you have to think a bit more regionally in the countries you’re producing because traditionally, certainly in poor countries, you created a mine and everyone’s looking for work.  That’s less the case now.  So you need to work with the new reality and provide some kind of economic uplift that isn’t necessarily a job on the mine.

So it’s rethinking ourselves a bit about a new social compact that makes sense for the countries as well sustainably, but you need to talk there too.  We can’t dictate that.  So you have to hear what makes sense for them and then also work with primes who are prepared to fund that or pay for that extra premium.

At the moment you can get a preference for being a responsible [supplier], you don’t necessarily get a premium.  Certainly something like copper which has an international price.  So it’s really getting people behind the idea of differentiation.

Moderator:  You said something very interesting because we all talk about this race to secure these minerals that are so needed.  But you sort of talked about the demand as if it’s in the future.  

Mr. Morgan:  — is now, but it’s —

Moderator:  But the products.  Are the markets mature enough to be able to sustain the profitability your investors look at?

Mr. Morgan:  If you ever owned Anglo American shares, they go up and down quite a lot, and they go up and down on things that you don’t necessarily anticipate.  People suddenly think of the time as not needing so much copper, and the price goes down five percent.  So you know the market isn’t entirely reading it and the copper price isn’t — it’s high but it’s not particularly high at the moment.  It’s not as high as you’d expect for something that’s in as much demand as people say it is.  But the mine we brought on in Peru, 300,000 or 400,000 tons of copper a year, mining projection is the world needs one of those globally every year and that’s simply not happening.

So yes, improve the market forces would be good, but mining isn’t necessarily a very attractive investment.  It’s not a massive rate of return.  Therefore we need to articulate that better so people think actually this is a responsible investment for me.  If we can do that then I think we start to perhaps get a better, more logical — because what happens with us, we’re under commercial pressure as well.  So suddenly we think we’ve got the solutions to these things and then the market goes down and people say, well we can’t afford to be doing this.

A/S Pyatt:  And it’s a strategic investment.  It’s not just a commercially attractive transaction, it’s a strategically significant transaction.

Mr. Morgan:  And that’s another words that crops up, people talking about strategic minerals as well as critical minerals and we need to work out what — I mean the time scale, you need to be looking 10-15 years —

Moderator:  Yes.

Last word, Ambassador, what do you think can be done to, like you said, [inaudible] on some of the nuances in this conversation as well as foster the kind of public/private partnership that’s going to  move this along in the equitable way that we need it to happen.

A/S Pyatt:  I think the most important thing for us in the United States, and our energy transition is happening.  You can see it on our streets and in our houses.  The most important challenge I think we face is how we build these partnerships, especially with the Global South.  How we de-risk our collective exposure to a single source of so many of these strategic minerals, and especially the processing of those minerals.  And then how we create what Secretary Blinken describes as a better offer.  How we offer a package of financing, ESDs, local community engagement which says to countries that have these resources that you don’t have only one choice in terms of your international partnership.

I remember exactly a year ago here in New York where Secretary Blinken launched the Mineral Security Partnership in our first big ministerial-level meeting.  And one of the African Ministers came up to me on the margins and she said, you know, Ambassador, what I really appreciate is just the fact that the Americans are talking to us about this.  And I think nobody says that to me anymore because we’ve got every embassy in the world is out working on these issues every single day and everybody understands that this is a strategic race.  It’s not just a matter of the energy transition, it’s about American competitiveness, it’s about American leadership, and it’s about how we uphold the values that are fundamental to American national security.

Moderator:  Fantastic.

I’m happy, we’re all happy to hear it’s top of mind for everyone.  We’re going to dig more into the important financing part of this conversation a little bit latter, but thank you both so much.  Fantastic stuff.

A/S Pyatt:  Thank you.

Mr. Morgan:  Thank you.