Just what should the critical minerals strategy be - less perhaps?

We can tell that something’s coming to a head. When two of the major Sundays publish long pieces on these critical minerals then clearly a political decision on critical minerals is imminent. The Sunday papers being where you go to influence future political decisions.

Last year, the UK formed the critical minerals expert group, and is due to publish a “strategy” on minerals soon.

Ah, yes.

So, the Sunday Times gives us a long piece on how those inscrutable Chinese are doing everything really cheaply and efficiently and don’t we just have to do something about that?

“The challenge the West has is you are competing against a Chinese processing industry that’s years ahead and is already very cheap,” noted Sanderson of Benchmark. With raw material costs going up, carmakers will be under pressure to choose the cheapest supplier; these are unlikely to be European processors,”

Cheap and in volume - we’d better get government involved to make sure that doesn’t happen!

The Sunday Telegraph:

The Western world has become tangled in a near Chinese monopoly of rare earths - the materials required to make the magnets required for all manner of items in households, industry, military and the green transition.

China provides around 98pc of the EU's requirement for rare earth metals. While the minerals could be mined in many countries, Beijing has invested in the production capacity required to process and export them worldwide.

Terrors, the division and specialisation of labour, added to trade, has led to cheap and efficient supply. Such a terror that requires a solution.

By the end of that piece it becomes an advertisement for Pensana, who are building a rare earths separation plant on Teesside.

As to what actually should be done. Lithium at $70,000 a tonne is a self-solving problem. The lower levels of stock markets are infested with the traditional two men and a dog companies claiming to have a lithium deposit. Why wouldn’t they be, with lithium at $70,000 a tonne? There is also a flood of real capital into sensible projects. Plus entirely new extraction technologies - why wouldn’t there be with lithium at $70,000 a tonne? Adaptations of desalination technologies now mean that lithium can economically be extracted from brines where there’re only 50 or 100 parts per million Li. We’re getting close to where mere seawater is a source and with lithium at $70,000 a tonne we might well be there in fact.

Lithium is likely to follow the same path it did last time. Everyone got terribly excited back around 2013 and some of the mines funded then have already gone bust - on the grounds that so many got funded that the marginal mines went bust.

More specifically with the rare earths the production of rare earth concentrate is trivially simple. Cheap too - values of such concentrates are in the $x,000s per tonne and x is not just a single digit number but a low one. What costs the money is the separation into the individual elements - a tolling price for that service is perhaps $20,000 a tonne. It’s the processing that matters, not the mining.

At which point we could indeed get all Mazzucato about this and demand that government have a plan, intervene. The first stage of which would be to change current environmental law so as to allow people to build rare earth separation plants.

The terror is that rare earth ores will near always contain thorium. That’s radioactive, even if lightly so, and it does need to be extracted. The actual written laws about what you do next are sensible enough and on paper it’s not a grand problem. Extract and store and there we are. The reality of trying to get the permissions and licences to do so is that it’s damn near impossible. So, it’s damn near impossible to gain permission for the rare earths processing cycle.

20 years back that mine in California closed at least in part because the process was leaking thorium back into the desert that the thorium had come from. Shifting it around a bit was an environmental crime, d’ye see? Or there’s a plant in the US that can process the material under current licences. Actually, no problem at all. Except it doesn’t have the licence to be allowed to do so - thanks to the State of Utah. It has all the licences required except the one that allows it to ship rare earths out of the plant. An old French plant closed because its thorium storage capacity was full and it wasn’t allowed to build more.

The problem isn’t with capital - that’s abundant in this space. It’s not with technology, nor even expertise. It’s the paperwork to be able to go do something. So, relax the paperwork and it would get done.

We can even go that one Mazzucato stage further and insist upon government actually spending money on the problem. There are a number of possible technologies that would make this separation less costly. Bring that price down from that $20,000 a tonne. We know of one proposal out there for a £1/2 million pilot project for example - the major problem with it being that it would cost at least £1/2 million to get the licences to do it. Plus some indeterminate amount of time which again just adds to the costs. That regulatory uncertainty means private capital is rather wary.

That is, where the market is being allowed to operate, with lithium, high prices are doing their usual job of being the cure for high prices. Where markets are being constrained by regulation - rare earth processing - the problem is not being solved.

Therefore the critical minerals strategy needs to be less regulation constraining markets. And if you believe that that’s what the British government’s critical minerals strategy is going to be can we interest you in this fine bridge we’ve got for sale? Only one little old lady owner, very few miles on the clock…..