30th Annual Automotive Insights Symposium

KRISTIN DZICZEK: All right. So we're going to get started. I'll give people a couple minutes to get settled down and sit down. I'd like to say a couple of folks have said that they like the mix of what we're doing here. This conference, in my mind, is sort of the things that worry me about the auto industry, and things that people should be talking about more.

And that's the role that the Fed is supposed to have in we're keeping track of what's going on and how it affects our economy. These are things I think people ought to be talking about. And there are a lot of conversations about minerals.

And I'll tell you, this is the most intimidating panel for me. I don't know very much at all about minerals. I know enough about battery chemistry. I have studied very hard to be as smart as you guys. So I hope you'll give me some grace here.

But I went through, like there's seven major minerals that we have that we need for batteries. And I called all of the people, of the desk job at USGS, the Geological Survey.

They put out a really great report every year about what's going on with trade in these minerals what's going on with the production and the reserves of these minerals. And I freaked everybody out when I called them. And I had no idea that this was possible, but I call them and say, hi, I'm Kristin from the Federal Reserve.

They're like-- I could hear them straighten up.

[LAUGHTER]

And then they would give me an hour of their time at least to tell me all the things that worry them about minerals. But they put out this great report. And I'm going to go through some of the minerals that we're going to talk about today.

Cobalt, we are 76% import dependent on cobalt. Our major import sources for 2018 to 2021 are Norway, Canada, Finland, and Japan. So our last panel talked about our friend sourcing. Those are friendly-ish countries. And we get 38% of our imports from other countries. But those four are 62%.

None of those are the top producers of cobalt. The top producer, of course, is Congo, which is two and half times as large as the next largest producer, which is Australia. And between those two countries, they make 66%. They have 66% of the reserves of cobalt.

Lithium, we're about 25% dependent on imports. Argentina, Chile, China, Russia. 98% of our stuff comes from there. We have our imports. And the number one producer is Chile, and the number two producer is Australia. Between those two, 60%.

Manganese, 100% import dependent. We get our imports from Gabon, South Africa, Australia, and Georgia, not the state. And there are different variants of manganese. So it's not easy to tell, but depending on the type between these four countries make up between 98-- between 75% and 98% of our imports.

Number one producer is South Africa-- or resources, reserves, is South Africa. And then three are tied. China, Australia, Brazil. They make about 90% of the reserves. Nickel, we're about 56% import dependent. Canada, Norway, Australia, Finland. They are about 69% of our imports.

Australia is the number one producer. Indonesia is the next largest. And we're going to talk a bit about Indonesia because I have some questions. Between those two, about 42% of reserves.

Graphite, we heard a lot about graphite in the last panel on the trade panel. We're 100% dependent on natural graphite on imports. China, Mexico, Canada, Madagascar. They're 78% of the imports. Turkey and Brazil have the largest shares of reserves. Copper, 41% import dependent. Chile, Canada, Mexico. Again, it varies by type. I don't really know.

But about 68% of our imports come from those-- oh, and UAE, sorry. No, sorry, that's the next line. Chile, Canada, Mexico. It varies by type. The number one producer, Chile. Then Australia. That's about a third of the reserves in the world.

There's aluminum, 59% of import dependent. Canada, UAE, Russia, China. That's 68% of our imports. China, Russia, India, Canada are the top producers-- or the top reserves, 72%. And then there's rare earths, like those magnets that I don't how to pronounce very well.

We are about over 95% import dependent on rare earths. China, Malaysia, Estonia, and Japan. 92% of our imports come from there. The number one producer is-- or reserves are China. Then Brazil, Russia, Vietnam. 80% of the reserves.

This is where the rocks are. Rocks are in the ground where they are. You got to get them out of the ground. It has to be-- or out of the brine, or whatever. It has to be economically feasible to do so.

And then you have to not only mine them but refine them in processing to get them to what is called battery grade. We don't want just any nickel. We don't want just any graphite. We have-- or lithium. We have very specific and exacting requirements in the auto industry for these things.

So when you look at, oh, are there enough of these things? And that was my first question to the USGS guys. And they were like, there's enough. But is it-- are there-- is there enough will to get it where we need to get it?

I want to give a quick shout out to one of my colleagues who might be watching online, David Rodziewicz, who is a risk specialist at the Kansas City Fed and knows a lot more about minerals than I do. And he helped me not only prepare my comments and questions, but recruit some of my speakers.

My speakers, today we're going to go in order of Rod Eggert. Rod is a research professor in economics and business and the Coulter Foundation Chair in Mineral Economics at the Colorado School of Mines. If you're ever in Denver, go to their mineral museum. It is cool. It is very, very cool. I have a science nerd kid.

Next up, we're going to hear from Gracelin Baskaran. She's the Research Director and Senior Fellow at Energy Security and Climate Change Program at the Center for Strategic and International Studies.

And last, Luisa Moreno, who's the President and Director of defense. minerals Corporation. Luisa and I met in West Virginia at a big auto conference earlier this year, and she's got some very interesting things that she's working on.

There are a whole lot of things I could say to start us off, but I'm going to let each of our panelists, in this order, give it a little bit of an opening statement about who you are, what you're thinking about, what worries me.

[LAUGHS]

RODERICK EGGERT: All right. Well, thank you very much. First of all is, the microphone working? Can you hear me? Excellent. Except for those who went maybe.

Anyway, Thank you very much, Kristin, for the invitation to be here today. I'm happy to be here and excited to engage in a discussion about critical minerals and the materials derived from them. Let me use my introductory time to make five points, five points I hope that will help get us started.

So number one, demand. Demand for a number of these materials will grow significantly. But we don't know exactly how much, or when. There's uncertainty in a number of dimensions. There's the uncertainty about the speed of the transition to full battery electric vehicles. There's uncertainty about the mix of vehicle types, of hybrid, plug-in hybrid, full battery electric.

And then there's uncertainty that's already been discussed at this meeting about the exact technologies, and, for example, the battery chemistries involved. And so there is uncertainty that I think, to some degree, is mitigating or causing the investment community to be a bit wary about jumping into this sector. So that's demand. Demand is going to grow for sure.

Number two, and related to that, what about supply? And what about the supply risks associated with this growth in demand? So my second point is that we have two different-- somewhat different types of supply risk. One short term, one longer term.

In the short term-- and by short term, I mean one or a few years up to five to ten years-- its lack of diversity in the supply chain that leads to the risk of disruption and surprise. So geographically concentrated supply chains and a short term risk.

But that's very much different than the risk over the longer term, decades into the future. And that's the lack of capacity, the lack of capacity to supply these materials. And we have to manage both of them simultaneously. So that's number two, supply risks.

Number three, think about recycling and mining as potential solutions to the supply risk. And here, I just make a simple statement. In a world of growing demand, recycling of spent batteries or used magnets from electric vehicle motors can only be a partial solution. The quantity of battery material available today from spent batteries is limited by how much battery material was used five or ten years ago.

And so recycling, while essential and important to enhance and increase, can only be a partial solution. More mining will be needed. So that's point three.

Point four, it's not just about mining. It's about supply chains. We have significantly geographically fragmented supply chains. Take lithium. Chile is an important producer of lithium resource. Much of that gets exported to China for further processing into battery grade lithium chemicals, which then some of which are then manufactured into batteries in China, but also in other places like Korea. And so we need to think about supply chains as well as fundamental mining supply.

And then my fifth and final point, that's nirvana. And you say, what's nirvana have to do with all this? Well, in my mind, there's a mineral nirvana, a desired state of the world that would have the following characteristics. And there's five aspects to the ideal type of mineral supply.

First, sufficient. We want the quantities to be sufficient to satisfy the needs of the energy transitions and national security. But that's not enough. It's necessary but not sufficient.

We want them to be affordable. Because if they are not affordable, customers will not purchase the electric vehicles in the quantities that we hope they will. Third, we want them to be secure. So sufficient affordable, secure. We want supply chains to be resilient.

Fourth, we want them to be sustainable in an environmental sense. And finally, responsible in a social sense in how the production activities interact with and benefit the local communities. So sufficient, affordable, secure, sustainable, and responsible. And that's almost too many for me to remember. I've tried to come up with a good acronym.

Well, the acronym is SASSR. But I would say that's probably not very effective. Anyway, that's where I will end my introductory comments. I look forward to the comments from my colleagues here, and for your questions and discussion. Thank you.

KRISTIN DZICZEK: Thank you, Rod. Gracelin.

GRACELIN BASKARAN: Kristin, thank you so much for having me. I'm based in Washington DC, but I actually grew up in Michigan. I grew up in Sterling Heights between two automotive plants. So it's really exciting to come back, because I grew up, really, with a deep understanding of how it is the backbone of Metro Detroit, in particular. But what happens when the sector underperforms and hits challenges, as it did in 2007, 2008. So that would, I think, be my first point.

The other thing I would preface my comments with is we are going to be wrong many times over in the critical minerals sector. And what I mean by that is when I first started, I wrote a PhD in a former life on the platinum sector.

And when I started writing it, we weren't really thinking about hydrogen fuel cells the way that we do now. And we were really thinking about it through the lens of catalytic converters.

And after the emissions scandal happened in Europe, we really moved away from platinum and we moved towards palladium. So platinum prices fell from $2,200 an ounce in 2008 to-- they were hitting about $700 about five years ago, in a way that we were worried that prices were not actually going to be cyclical. They were going to be secular on a one way decline.

By the time I finished writing a PhD, which tells you of the trauma about it, is hydrogen fuel cell technology became really big. And all of a sudden, you realize that most of that was wrong. And it's OK. Examiners have a lot of compassion to the fact that the changes are happening on a constant basis. And prices are actually coming back up now.

If we can recycle the same share of resources now than we do in ten years, we've screwed up, because R&D is not keeping pace. So that would be the other thing that I would preface.

So one of the biggest challenges we face right now is that mining is just not happening at the level that we need it. The S&P actually has a pipeline activity index. It's a single score, and it takes into account financing, drilling, exploration, and it's actually at a three year low.

If you take September 2023 on a year on year basis, it's down 35%. And it feels totally counterintuitive for us, because we're going, wait, like in every instance, pretty much, we see demand shortages across almost all of our major minerals.

But the reality is that demand globally is suppressed right now. And we're wondering why. One is there was this deep hope that China's economy would rebound, and it would rebound strong. It's our biggest market globally, if you're a mining company. And it did not. And then we realized youth unemployment is 20%.

So there are structural challenges. When everyone else is increasing interest rates, China cut them three times in a four-month period last year. And people are still not buying. But when you have unemployment at that level, the outlook that it's going to increase is quite dim.

The second reason is that there's just externalities. We can come back to Indonesia. But New Caledonia, the French territory, has quite a big nickel mine. And actually, Glencore has been cutting a loss for so long that they're ready to walk away from it. But nobody predicted when they built that mine that Indonesia would come online and have the surplus of nickel that it's generating such that it's put prices down.

By the end of last year, lithium prices were down 70% from the start of the year, nickel by 40%, and cobalt was on a multi-year low. So that'll tell you why your pipeline activity index is the way it is.

My second point would be, I think the previous panel touched on it quite well, is us friendshoring. The US is very late to the mining game. We closed our Bureau of Mines in 1996 and we never reopened it. And so sitting in Washington, we brief-- we're bipartisan, so we brief members of Congress bicameral, bipartisan, State Department, energy, commerce. And there's no central coordinating agency, which really inhibits our domestic efforts, but particularly our international efforts.

And we talk a lot about the Inflation Reduction Act, that you get tax credits if you're the US, or you're a free trade partner. The US extended that to Japan through a critical minerals agreement, possibly the most controversial thing that's happened lately, because it didn't go through Congress. It went through the Executive. And if you want how to upset Congress, it's by bypassing Congress.

So as we look at potential new critical minerals agreements, which would encourage investment in other countries that you mentioned, then we need to have these agreements in place because it enables them to get these tax benefits. And right now from a policy point of view, we are looking at critical minerals agreements with other countries-- India being quite a prominent one-- and we acknowledge that India is going to be the biggest market and a key ally going forward, especially as we want to strengthen our counter to China. Objectively, the two most bipartisan issues in Washington right now are not liking China and needing to strengthen critical minerals security. There's not a lot of disagreement.

My third point would actually be graphite. I've been interested in graphite for a very long time. And this was before export restrictions. So if you look at a conventional ICE-- like your ICE vehicle, you don't need graphite. But if you look, the International Energy Agency did modeling, if you look at how much graphite you need for an EV, it's 66 kilograms out of 220. I acknowledge from yesterday that that number is always going to change. But when they modeled this about a year ago it was 66 out of about 210, 220.

That's a lot of graphite. And while China produces about 70% of graphite, 100 percent of it is processed in China, and we cannot get any graphite out of China. And it is forcing the US to go to markets that it hasn't gone. The US Development Finance Corporation, which is a US Agency, did $150 billion loan to a project in Mozambique in a high conflict territory, might I add. And then Department of Energy, for the same company, Cyber Resources, did a significant amount of money to a processing facility in Louisiana.

So it gets mined in Mozambique and it goes to processing in Tanzania. So when we look at friendshoring, we're actually starting to think about how to engage with countries that we have historically not engaged with on a commercial level. And again, we've been about domestic protectionism. Democrats and Republicans-- the IRA is essentially a form of industrial policy and protectionism, but we're also going, we can't do this without our international friends.

I guess the last couple of points I'd make-- it was made in the previous panel. This year is going to be significant for the future of critical minerals. Like we said, you have elections in the US, India, Panama, the UK in '20 and Africa. And that's a lot of your critical minerals markets.

And the reason elections matter is it depends on who you partner with. A Trump administration would look different in some ways, even though both Trump and Biden passed executive orders on critical minerals-- it's of interest to both sides-- how they execute it could vary. So it could look different for the countries you partner with, the transparency of how you issue your mine licenses. If you honor existing fiscal and social agreements as it relates to mining. So that's something that I'm all eyes on.

And I think the last point that I would make is it's such an evolving policy space. Some of you may know that Treasury released the Foreign Entity of Concern Guidelines in the last couple of months. And that, for example, says that if you want to benefit from the Inflation Reduction Act and all these tax credits, you have to be less than 25% owned by a Chinese company.

So what you're going to see in a lot of these countries are Chinese companies start to sell off everything but 24% of what they have. And that, again, is a way for us to say, OK, we're going to reduce our reliance on Chinese companies. Because the reality is, when I look at the critical minerals you named, China is only a top three producer for two of them, but they're a top three processor for all six, which is why you have seen a proliferation of financing for processing facilities all over the US now, is to say, OK, we can cut deals to get the supply to the US, but we want to process it so we don't widen those disruptions.

So it's a really fascinating time to be alive. It's a really fascinating time to be in critical minerals. And Washington is a fascinating space, because it is so bipartisan.

KRISTIN DZICZEK: Gracelin, thank you very much. Luisa.

LUISA MORENO: Thank you. Thank you for inviting me. I will try and give you more of a perspective of a junior mining company. So the world needs to find more of these minerals. About 100,000 tons of lithium was produced in 2020. Elemental lithium, that is, because if it's carbonate, it's a different equation and so forth. So about 100,000 of lithium.

But the projection is that by 2030, we would have needed-- we would need about million, which is a 10 times increase. So whatever we have right now and self sufficiency that you might have right now, that's going to change significantly depending on the technologies that you will be adopting.

And I will make a small pause just to add to your initial comment about-- you're listing the various metals that the US is self-sufficient. And you said aluminum. We are about 30% self-sufficient or something like that. So I just wanted to say that you might make aluminum, but you need bauxite to make aluminum, which is the actual rock.

And I don't think you produce any bauxite. So indirectly, you are 100% dependent on aluminum. So when you look at production-- so I am the president of Defense Metals, and we call the company Defense because of the military need for rare earths. This is what we're trying to produce.

And so we want to mine the rare earths. And after you mine it, you go to different stages. You have to concentrate it, and you can sell that concentrate. So the US produces about 16% of rare earths, 16% of the total mine production. And they produce these mineral concentrate that they have not been able-- and that's a whole different conversation-- but they have not been able to process economically.

So they export those 40,000 tons to China to be refined. So we are-- Defense Metals is trying to, then, bring a mine to production to produce these mineral concentrate. Once we produce these mineral concentrate-- if we were able to produce it tomorrow, we would have to do the same thing that MP Materials does in this country, which is exported to China, because there is no capacity to process it.

And the second stage of processing is to produce what we call a precipitate, or a carbonate product, which still has all the rare earths. Together, rare earths are about 17 elements, and they use for medicine, defense. And obviously, they use in permanent magnet motors that produce the most efficient motors for the electric vehicles.

And so we also want to produce this-- build this plant to then refine the rare earth from the mineral concentrate into this concentrate with all the rare earths, and then sell it. And that's where our preliminary economic assessment stops.

And now we're doing a preliminary economic assessment and we're doing a study to see what is the economics of producing that. One of the questions that we always get from investors is, so then, how are you going to separate the rare earths? Because they need to be separated.

And the question is, if you were to do it in the next two or three years, we probably have to send it to China, because that's where the capacity is. So there is a need to build that supply chain, even for the simple thing as to produce these compounds of separated rare earths. But that is nowhere near to go into the electric vehicle yet.

Once we separate the various elements and we end up with the neodymium oxide, that neodymium oxide and praseodymium would have to then be made into metal, and then into magnet. And then it will go into electric motors, and then you can use it in your vehicles.

So there is a whole supply chain that has to be built. We are just trying to do one part of it and we are struggling. It's complicated. China has been doing it for 30 plus years. They are the largest producer, the largest miners. They are the largest refiners. They control 85% plus of the refining. And for certain elements, the so-called heavy, the more rare of the rare earths, that is almost 100%. They also control the supply chain.

But they also have the market. So which means even if I could produce metal tomorrow-- 25,000 tons of total rare earth is what we planning to do-- even if I did that, I would still probably have to sell into Asia for somebody to make the magnets.

So it is very complex and complicated, but I will go back a little bit. So Gracelin was saying that she likes graphite a lot. I'm the CEO of a junior mining company as well, and it's a graphite company.

And so we could reinvent the wheel in terms of finding out how to produce this anode material. Or we can have China technologists show us how to do it. But the Chinese have decided that they will not going to export those technologies. And many of the technologies that we also need, they are deciding these days that they might not export it.

And yes, it's true, I think it was Layla that mentioned-- that some of that was triggered because a few months ago, some folks-- policy folks in Washington woke up in the morning, got together, and decided that we're going to impose export restrictions on technologies for chips against China.

And then China retaliated by saying, we will do the same with gallium, germanium that you need to make the chips. And it gets really complicated. Because these machines that you use to make the chips also use rare earth. And then if they put export restrictions on that, then you cannot make the very machines that you do not want to sell to the Chinese. So this goes on and on and on. And it's all connected and interconnected in a world that we are, basically, it's so polarizing.

So I can continue on and on. I'll stop now. And I will, I guess, wait for your questions. I'm not sure what angle the audience wants to go, whether it's policy or just finding more of the supply, what we can supply, when we can supply, the difficulties of doing this.

I'll just say one more thing. The head of our metallurgists of-- our head metallurgist is 81 years old, and is constantly telling me, Luisa, I need to retire. And when he retires, I will have a very hard time to hire somebody to be able to develop our process from the level that it is right now.

We haven't even finished a pre-feasibility study to a bankable feasibility study. So we have issues with talent. We have issues with our supply chain. And yes, I think working together probably would move things forward faster.

KRISTIN DZICZEK: Well, thank you, all. I want to make one comment before we get in graphite-- we're all talking about graphite. You all had pencils, right, graphite pencils. We're talking about the same graphite, right?

LUISA MORENO: Yes.

KRISTIN DZICZEK: Yeah. OK. And from what I understand, it is chemistry agnostic. So it's in the NMC batteries, it's in the LFP batteries, it's in the anode of every single battery chemistry that we have thought about so far.

LUISA MORENO: Yes.

KRISTIN DZICZEK: Yes but?

LUISA MORENO: Yes but-- OK, so graphite is graphite. But there are different types of graphite. There are flake graphite, lump graphite. And so you need flake graphite. But not all the flakes. There's certain flakes that you need.

And some of them have impurities. They have more sulfur than others, depending how intrinsic it is, whether you can purify it. So it gets--

KRISTIN DZICZEK: Complicated.

LUISA MORENO: It gets complicated. And then you have synthetic graphite, you have natural graphite, and you mix the two. And so, yes, it is the pencil graphite, but it really isn't.

[LAUGHS]

So sorry.

KRISTIN DZICZEK: That's OK. I appreciate it. I think--

RODERICK EGGERT: Could I add one additional--

KRISTIN DZICZEK: Please.

RODERICK EGGERT: --factor in thinking about graphite. There is a threat looming on the horizon that silicon could partially or fully replace graphite as an anode material.

LUISA MORENO: Yes. So the other thing I wanted to say, just to answer your question, is that so the solid state lithium batteries do not use graphite. I don't know why I'm saying that. I am the head of a graphite company. But it is-- it is--

KRISTIN DZICZEK: We'll let Layla talk about solid state graphite.

LUISA MORENO: And so the other thing that I should say, just quickly, is that there is also the ion-- sodium ion batteries. Those do not really use graphite either apparently. And that could be also a threat to the lithium sort of. But not really is not. The lithium batteries are better, period.

KRISTIN DZICZEK: So critical minerals in the IRA. I did a presentation on what the IRA was all about back when it came out. And I got my-- check me out-- I got the table of elements.

And I went through it and said, this is what the government thinks is critical minerals. And then they had and others. And there's a whole heck of a lot of things on here other than the ones we are talking about-- everything that I outlined in green or blue-- and if you want a copy of this, I'll give it to you, or it's in the law. All these things, and then there's some compounds too, baryte and fluorspar and other stuff.

So there's a whole lot of things we call critical minerals. And then we've talked about the big ones. It's a large group of elements and alloys that are needed. Which do you think are the most critical, in your view, and why?

GRACELIN BASKARAN: I can start. So there's two things. There's the US government can't even agree on what's critical. The USGS list has about 50 and the Department of Energy list has about 35. Copper is the new hot one. Is it critical, is it not critical?

The first thing is that criticality is inherently-- it's moving and it's changing all the time. If you think of it as a graph, as an x and y-axis, our x-axis is the amount we need, and then the y one would be our risk to supply chain disruption.

So things actually move on that based on new discoveries, based on export restrictions, et cetera. So rare earths are one that we're most concerned about. In particular, there's 4 out of 17 that we're worried about.

And again, China processes 90%. But the reason I think that there's a lot of concern over it is because it's not just energy security, it's national security. It's in almost every sort of defense technology that we need.

And the US has in the last-- since 2020, it became-- it opened its eyes to the risk. And it's put in over 300 million into developing rare earths processing separation and processing facilities in the US. However, those are under construction and it takes quite a long time before those will be fully functional.

That's one I think that we are particularly worried about. The thing about copper that's interesting, we're not worried about it necessarily from a-- I mean, the US is a huge copper producer. But we're worried about it because we need so much of it and we're not sure that we're going to meet our demand.

Other ones that if you look at that red zone on the Department of Energy's criticality matrix for 2023, graphite is on there. But other ones that move on there with hydrogen fuel cell technology is platinum.

Last year became the first year that we've actually had a platinum deficit in many years. And this year, it's expected to triple to 1.5 million ounces. So as things are starting to move up-- and the other thing is, it's not just China. You had mentioned when I look at something like manganese or platinum, we get a lot of it from Gabon.

Well, Gabon had a coup, right? Will they continue-- will we be able to get it? We didn't think there was going to be a coup there two years ago. Our relations with South Africa are increasingly icy. Could that have an impact, given they have 70% of manganese? So that list is going to look different, I think, this year.

So the platinum group metals, two of them particularly, are on that list, which is platinum and iridium. So I would say if I was most worried, I would be worried about rare earths. I'm still worried about copper.

I'm worried about some of the platinum group metals that jump out to me. And I am worried about lithium. But I'm actually worried about lithium a little bit less and less. We found that really big discovery last year. And these projects all take time to come to fruition.

I mean, we often say from kind of identifying something to being able to fully operationalize it is about a decade. In Alaska, we found some graphite, and we did $37.5 million. We went halvsies with the company-- it's a Canadian company-- to accelerate the feasibility study of what we can get out.

We're still many years away from turning that into a fully producing mine. So those are the things that keep me awake at night. And it's, again, like there-- Amos Hochstein, he's kind of Biden's energy guy in the White House.

There was an event where he said, you know, China's got a whole list of our vulnerabilities and they know how to roll them out. They've already done, what, four or five in the last six months. So it's going to be interesting to see in the next six months what comes out. And that's going to continue to rewire our areas of concern.

KRISTIN DZICZEK: Rod, I'm going to go to you. What do you think are, of the critical minerals right now, the most critical? I understand it's a temporal issue now.

RODERICK EGGERT: I'm going to deflect your question and actually rephrase it in the following way. There are probably 81 or 83 elements in the periodic table of elements that are used in materials or processes used to make materials and engineered systems.

All of them are essential to somebody. And so to the extent that critical means essential, then everything is essential to someone. The issue of criticality in this more specialized use of the word is it's the combination of essentialness and supply chain risk. It's the combination of the two.

And what is critical in that sense depends on the circumstance. I think it's very difficult to give a general all encompassing answer, which is why the US Geological Survey list of critical minerals from the US-- for the US-- from the US perspective, includes 50 some of those 80 some elements.

Everything is critical, but that raises, if everything is critical, is anything really critical in terms of a priority? Another kind of a pithy phrase that I learned from a mentor of mine. He said that what is critical depends on who you are, where you are, and when you ask.

When you ask focuses on the dynamic nature of what is critical as technologies change. The more who you are gets to my situational point. But where you are is important as well. China has critical vulnerabilities as well there is a list of Chinese critical minerals that are a priority for them that have been a focus of outward foreign investment into mining outside of China.

KRISTIN DZICZEK: Well, that's very helpful. Thank you. And I think for the who you are, this is the auto conference.

RODERICK EGGERT: That's right.

KRISTIN DZICZEK: So for the auto-- in the auto industry, I'm going to-- I'm going to take it to Luisa. In the auto industry and in making batteries that we're going to be making, what do you see are our most critical of the critical minerals?

LUISA MORENO: For the batteries, assuming that we are going to use lithium ion batteries, I think lithium. Cobalt, it's up there as well. But there is an option to use different chemistries and use much less of it.

For the whole car, if we look at the whole car, I think probably neodymium, praseodymium, dysprosium, ytterbium, those will be really, really critical. And now graphite, in that order probably.

KRISTIN DZICZEK: Great. So one of the reasons why the country, the world, the industry is shifting to electric vehicles is that we have a need to decarbonize transportation. And some of the first adopters of electric vehicle technologies were environmentalists, like they wanted to do something very clean.

I recall, there was a famous British singer who wanted a Prius very early on. And he ordered a Prius, as the story I'm told, and they flew it to him, thereby negating any carbon savings he might have had.

But there is a concern, I think, among some folks about, if you go to a mine and see mining machines are enormous, they don't run on batteries. Mining processes are not things that communities often welcome, especially they're kind of nimby about having a mine in your backyard. The extraction part of things.

I read this article in The Washington Post last year about Indonesia is making a play to be a big player in nickel, but they're using a technology or a process that is not used in a lot of other places, where they use acid and heat and pressure to remove the nickel from the ore, and they have this waste. And there's a bunch of islands in Indonesia.

What are you going to do with this waste? Well, it's going to pile up on the island. Well, we're going to put out in the ocean. And so there's some dirtness-- dirtiness in here. So I want to ask each of you to comment on how clean is extraction mining refining and processing chain when we're trying to make a clean vehicle.

I guess they're all looking at you, right?

[LAUGHTER]

It feels like it should go in order, you know?

RODERICK EGGERT: OK.

KRISTIN DZICZEK: They did have the questions before.

RODERICK EGGERT: A couple of different-- a couple of somewhat independent responses. One issue that sometimes is raised is how large are the additional carbon emissions associated with producing the critical minerals relative to the carbon abatement that you get from electric vehicles.

I think the answer to that is pretty clear. The carbon emissions from mining and material production are trivial compared to the carbon abatement that they can provide. The real issues relate to the other types of environmental consequences associated with mining and material production, and they are varied, and they're site specific.

They are a key focus of the mining sector. A major priority for all major mining companies is decarbonizing and de-polluting their activities. A number of mines have been in the forefront of adopting solar panels to provide the electric power for their operations. They've been in the vanguard in using fuel cell vehicles for the vehicles at the mine site.

There are major efforts to appropriately manage the water damage and the other damages to air, water, and ground. So there certainly are challenges. I think they are at the forefront of industry activities, and we have to deal with them head on.

KRISTIN DZICZEK: If either of you want to weigh in. You don't have to.

GRACELIN BASKARAN: So I think there's four points that jump out to me very quickly. So one is carbon accounting. There's been academic research done on carbon accounting of EVs, and it still works out in favor of EVs. Part of that is if you take an EV being driven for 10 years, it still is actually more-- environmentally, emissions intensity is better than driving around that conventional vehicle for 10 years.

Two, in terms of trucks, I think, again, we're going to see a lot of-- there's been a lot of R&D that's been done on this. South Africa Anglo Platinum has actually put together the first hydrogen fuel cell powered mining truck. And we're hoping to get those moving at commercial scale. So again, R&D is making even the trucks more environmentally friendly, which again, goes a long way.

The third point and the fourth point are kind of interrelated. Social license to operate, which is that relationship with your communities, is regularly cited as a number one challenge facing the mining industry. Look at Panama in the last few weeks, in the last few months.

But if you look more broadly, if you don't have your social license to operate because you have made your community angry and they do not feel like they are benefiting, they can bring your production to a halt. And so one of the things that mining companies look at when they go into a jurisdiction is what is the likelihood that I'm going to have conflict.

And now, what you're seeing from the likes of Rio Tinto, after they accidentally blew up that cave in Australia, and there was a lot of backlash for that-- well, it wasn't an accident. There was a lot of attempts to prevent that. But is how do we engage with communities in a consultative way as opposed to a more of a formality and a tick box exercise. So we're starting to see that.

And then the fourth and final area is in terms of Indonesia, because this does get cited a lot, right? Is it's super environmentally unfriendly and often host countries for minerals don't have standards. So what we're saying is, the International Council of Minerals and Metals, which is based in London and which all of your mining majors are a member of, and also some junior mining companies, is they've just announced that they are consolidating one set of standards on environmental, social, and governance. Because otherwise, companies don't know which standards to follow.

So what we're hoping is that, by having a single set of standards, then British-- I would say American companies, but there's not very many American mining companies-- British, Canadian, Australian have a set of standards of what they can bring to emerging markets to do better, to have a better offering than-- we'll pretend this is Chatham House rules, so nobody's going to attribute this to me, even though it's online. But better than Chinese companies, which generally don't come in with the standards that Western companies have.

LUISA MORENO: I agree with what she said. I think there is a difference between where we're getting the minerals now. And a lot of it is from the emerging markets, and the conditions there are not very nice in some circumstances.

So for instance, when we think about rare earths, there's a lot of folks have in their heads the production or the processing of rare earth, the ion adsorption clays. And when you see folks pumping reagents in the ground, is in situ mining, that's the way they mine it. And everybody's like really dirty.

Or they start imagining what's happening in Congo with some of the artisanal mining and so forth. And they're using diesel generators and all these conditions. So it is possible, however, to mine responsibly. so

In North America, we are subjected to very high environmental standards that we have to follow. So how we will mine rare earths or lithium or graphite will not be different from the way we mined iron ore in this country, or gold, for that matter.

KRISTIN DZICZEK: So the Inflation Reduction Act passed in August 2022, right? Yes. And it took a while before they were able to tell us exactly what they meant by when they operationalized the language.

One of the things for qualifying for the consumer credit for purchase or lease, that critical mineral content requirements were going to ratchet up year after year. So before 2024, it's supposed to be 40% of the minerals were critical minerals in a battery electric vehicle, according to the Department of Energy, I guess, would be sourced from either the United States or a free trade agreement country, plus Japan.

And so that was 40%. This year, it's 50%. Next year it's 60. And next year, when that goes into place, zero can be extracted, processed, or recycled by a foreign entity of concern. This is shorthand for China, I mean, but it's more than China.

So Russia has a lot of nickel and they're going to be on that list. There's a lot of other countries that are foreign entities of concern-- North Korea, and they don't-- we're not going to trade with them. But it gets up to 80% by 2027.

Benchmark Minerals has a thing out saying they think there's only 20% of the critical minerals will be IRA compliant by 2030. So we have this responsibility. We want responsibly sourced ethically sourced stuff.

I guess I should also mention, it's not like the cars were driving around now, oil is extracted from the ground and processed in ways that aren't exactly clean either. But I guess the person driving an electric vehicle might have higher standards maybe.

But I wanted to talk about what is the time frame for having ethically sourced non-foreign entity of concern meeting these increasingly ratcheting up critical minerals standards for the consumer credit, or is that just going to be everybody's going to get half the credit, because half the credit is dependent on that, half of it's dependent on the components. Can we get away from foreign entity of concern that quickly?

LUISA MORENO: I guess-- I think the previous panel, which was a very good panel, by the way, I think they touched a bit on that. What's the definitions of that the friendly countries and not. So I think probably if that can be massaged a little bit and be more flexible, probably you will be able to meet those targets. But if China is in that list, it's not going to be possible.

RODERICK EGGERT: Not possible in those frames, if China is in--

KRISTIN DZICZEK: Is an FEOC.

RODERICK EGGERT: Exactly.

[INAUDIBLE].

GRACELIN BASKARAN: China is an FEOC.

KRISTIN DZICZEK: Yes. On the to do list.

GRACELIN BASKARAN: I'm like-- I may be a little bit more optimistic. Here's why I'm a little bit more optimistic. When we do congressional briefings now, when we work with state, particularly one of the biggest areas everyone is interested is commercial diplomacy.

The US has not been historically very good at commercial diplomacy, particularly at the mining space. I always say, if you walk into-- I spent 10 years living overseas-- if you walk into almost any British embassy in a mineral rich, jurisdiction they know what to tell you to do with minerals. Americans don't.

So there's a couple of things that I think we're going to see. I think we're going to see a proliferation of critical minerals agreements, which is how Japan qualifies. We're looking at a news outlet called for an interview last week and they said, what countries do you think we're going to have CMAs with?

And I think that's a way to bypass the fact that in this trade environment, we're not going to see free trade agreements come to fruition. CMAs are a way to help us reach our goals.

I crunched some numbers recently. If you look at South America and Africa, you have 85% of manganese, 80% of platinum, 60% of lithium, 20% of nickel, 40% of graphite, 50% of cobalt, and 46% of copper. And out of that, Morocco is the only country in Africa we have a free trade agreement, only one who gets that benefit.

And in South America, there's a handful, Chile being the most notable one. So I think for us, you're going to find, A, you're going to see the CMAs. Two, though, is you're going to see Chinese companies sell off everything they need. And we're starting to actually see those moves with South Korea, where they're selling off what they need to keep the minimum to qualify for that.

So I think you're going to see that effort accelerate. So in parallel with more CMAs, commercial diplomacy, and Chinese companies want to keep that benefit by selling shares, we may actually-- we may not get there exactly, but I think we're going to accelerate a significant amount of progress.

KRISTIN DZICZEK: Great. I have just two more questions I'm going to do before we go to what's piling up on the iPad, which is great. So I'm going to make another plug for, if you have questions for this great panel get on the Pigeonhole for this session and please ask them or upvote the questions you would like to come to the top of the list.

My next question is about prices. So battery prices per kilowatt hour have come down. Lithium has fallen dramatically. And falling prices makes it difficult to sustain investment in new sources. And for this, I call to-- there's a cobalt mine in Idaho in the United States.

The governor shows up to cut the ribbon, and hurray, cobalt. Because everybody thinks about Congo, and like, well, we have cobalt. We have a mine. They hired 300 people, and the price tanked, and they haven't produced an ounce of cobalt out of the mine in Idaho. It's an Australian investment in Idaho.

So what kind of thing can be done to keep these investments on track? Are there additional policy supports needed when prices are just swinging very wildly? And you could end up in a situation like this where you've got mines, or you've got refining and processing capability, and it's not economical to do so. Anybody?

GRACELIN BASKARAN: So the biggest challenge we have as Western companies are that we are beholden to shareholders, which is different than China, which is often the state. So we spend a lot of time thinking about what does it take to make the private sector in the West competitive with the Chinese state, who is often willing to absorb losses for many years on a project.

So mines right now-- big mining companies are hesitant. I mean, and this is the same thing that the mine when they released a statement in Idaho, is they said, we don't want to pull all-- we don't want to go into our ore body too much when prices are low. We'd rather wait.

At that point, there's only two options, right? They're also beholden to shareholders as they wait, or we find a way to use fiscal subsidies, which is how we've seen us accelerate efforts, whether it's Alaskan graphite, whether it's processing facilities around the country, is to say, how do we use fiscal subsidies to keep it going?

But that would require, I think, a significant amount of fiscal resources in not just a short term, but probably to the medium term, which is when they think they would reopen the mine. And that's a tricky balance, because you create market distortions when you start to pump in subsidies, right?

So it is tricky. But the good news is that the mine is there and it can be reopened. And eventually, I mean I think this is why the US and India, that partnership is so important. They are our next biggest market. And the faster we can boost demand in a place like India, the faster these prices are going to come back up, and the faster the investment is going to get flowing again, if you were to take a slightly more free market approach.

KRISTIN DZICZEK: I mean, this happens with oil too. I mean, the tar sands were not economical until they were. We have critical oil reserves that we hold onto. Are minerals something we would have a critical reserve of?

LUISA MORENO: Well, we do have-- well, it's actually called resources. It's only called reserves for us in the mineral-- I think probably oil and gas is similar, once it becomes economic. I know the US uses reserves a little bit loosely, in my opinion.

But pricing is very important. So 10 years ago, back in 2010, I was an investment banking analyst. And there was a lot of rare earth companies, and prices of rare earth were up 1,000% in some cases. So I remember lanthanum cerium, which was selling for $2 or $3 a kilo went as high as $250 per kilo.

And I remember sitting on my desk and Shell was calling me and thinking-- and asking me, what's your projection for lanthanum? Because lanthanum, one of the rare earth elements, is used for oil refinery.

And so there was a lot of panic, and there was a lot of junior mining companies. But then prices came down collapsing and buyers disappeared. And a lot of those junior mining companies have to stop their projects.

Now, fast forward 10 years later, here we are again. And so prices of rare earth went up, neodymium, praseodymium, which was in 2017, '16, was about $45 per kilo, went up all the way to almost $200 per kilo. So then lots of projects are now economic. They put out their preliminary economic assessments and feasibility studies, and there's billions of dollars. Investors are so excited. And now prices are down again, to the $70. And so a lot of these projects are not economic at this level.

KRISTIN DZICZEK: Well, and they swing so wildly too. I mean, the lithium, carbonate, and lithium hydroxide are down like 12% in two weeks.

LUISA MORENO: Correct.

KRISTIN DZICZEK: 80% year over year. But it's going just--

LUISA MORENO: It does. But when it's high, there is interest and investors are investing. We can raise money, we can develop the projects. When it's down right now, it's difficult to raise money. And some mining companies cannot advance the projects. Now, the difference between US and the Chinese--

KRISTIN DZICZEK: The state.

LUISA MORENO: --is that they have the support from the state. So in terms of policy in this free sort of market, US, that you live in, are you ready to set up prices for rare earth? Can we keep neodymium, praseodymium prices at $100 per kilo?

Can we keep lithium at, say, $20,000 per ton? So then you will have lots of projects that could be economic. Maybe not clays, but some of the brines, et cetera.

KRISTIN DZICZEK: Right. Go ahead.

RODERICK EGGERT: And one-- just very quickly, one might ask the question, who should be responsible for ensuring that the appropriate investments for the supplies that we need in 10, 15, 20 years occur? Who's in the best position to evaluate these risks?

Is it a national government, or is it the companies that will need these materials in 5, 10, 15, 20 years? Arguably, it's the companies that should be willing to pay a premium for the supplies that they think they will need in 5, 10, 15 years that the market today is being myopic about.

KRISTIN DZICZEK: Thank you. I think we're going to go to Pigeonhole now. And thank you guys for giving us some really good questions as I've looked through them, and some upvotes. We're going to start with the top voters-- vote getters.

What are the barriers to processing? Are they political, environmental, capital, ROI considerations? Are we playing checkers while other countries are playing 3D chess against us? Why don't we have the refining and processing capability?

LUISA MORENO: All of the above.

[LAUGHTER]

So we lack talent, generally speaking. So it's complex. China has most of the technologies. But they also in some instances don't do it as the same standards. So we need to innovate around that. And we are.

But it tends to be more expensive. And prices oscillate. So it's tricky. So it is in terms of processing, we need the time, we need the market, we need the money. It's definitely capital intensive. Every one of the rare earth projects is like $1 billion in CapEx.

And most of the market cap of these companies is in the few hundred million. Our company is 50 million market cap, you know? So to build the supply chain, not just the mine-- the mine is not that expensive. But then you have to build the modification plant, and then you have to build the processing hydrometallurgy plant. And then you have to separate it eventually. By the time you want to separate, you just already passed 1 billion. It's expensive.

KRISTIN DZICZEK: Right.

GRACELIN BASKARAN: I would add to that too, is Australia is a really interesting example. It was probably 10, 15 years-- probably 15 years ago that Australia determined that they were going to be a center of excellence. And they have probably some of the best mine education programs.

But they also decided they were going to build the mine inputs, right? Your machines, everything you need to mine, but also your processing. Mining accounts for about 15% of Australia's GDP. It's less than 2% of ours.

So they built-- they had the forward thinking to build a robust mining economy, including processing. The US was very, very late to the game. They only started rare earth processing separation in terms of helping fiscally subsidize that but three years ago.

So that's one challenge to capital three is the technical know-how. And with rare earths, there's a couple of things that China built a huge advantage because they had the technical expertise to do that. So the restrictions now on the export of technology is actually really crippling to us. And yeah, I mean, going back to Australia's kind of forward thinking is the fact that they had the political will to do so, which I don't think we had.

LUISA MORENO: Yes. But Australia for a long time-- for instance in the lithium-- they only did beneficiation. They make the mineral concentrate and they sell it to China. And more recently, I've been putting pressure in Albemarle and Tianqi to start going downstream. And I think finally, they probably producing some carbonate now. But definitely, they have this amazing strategy of focusing on mining and now they slowly going downstream. The Canadians, on the other hand, we want to do it all. And it's expensive.

KRISTIN DZICZEK: I think earlier we talked about two things that were sort of limiting, and some developments here. This question is about government efforts, and I'm going to expand it a little bit. Government efforts on investing in mining technology to enhance output, and what's happening on the machinery and productivity of mining itself.

And then, Luisa, you brought up the human capital issue. Like you can't replace your 81-year-old chemist who's going to-- or--

LUISA MORENO: He's going to retire eventually. Hopefully, I mean, he will continue supporting it.

KRISTIN DZICZEK: It'd be nice for him to retire, yes.

LUISA MORENO: Yes.

KRISTIN DZICZEK: But like what can governments do to make sure that we have the-- that we're innovating in the extraction refining processing and providing the talent that this industry needs? You're training some of them at Colorado School of Mines.

RODERICK EGGERT: I was going to say. Come to the metallurgical engineering program at Colorado School of Mines. I realized that it will take a while before the freshly minted engineer will have the wisdom and experience of the generation now retiring.

But I think clearly, at least clearly to me, one of the essential roles for government is thinking about the long term and having a thoughtful technology policy and education and workforce development policy, even if we disagree about industrial policy and subsidies and barriers to international trade, education and workforce development and technology policy throughout the supply chain.

Really, there are three fundamental ways to solve the challenges of critical minerals. Produce more, enhance, and diversify primary production. Waste less by improving manufacturing efficiency and recycling, and use less by developing technologies that use less critical materials. And R&D is important for all of those.

GRACELIN BASKARAN: America has capitalism, which works very well in our favor when it comes to R&D. We're really good at it in that regard. And I think the US government through DOE is putting out quite a bit of money to build processing capacity through their LPO office.

But I think at the end of the day, what we're really missing, and I feel very strongly about this, is we're missing that coordinating agency. The Bureau of Mines in a former life, they were coordinating R&D efforts on the mining front. And we need to have a centralized uniform government approach to ensure we're maximizing use of our resources.

Because if we do-- I mean, other countries, for example, use-- they use government money for scholarships to build mining talent South Africa was very good at it. And South Africa has mining talent all over the world now. Many mining majors are led by South African CEOs.

So going back again and saying that central approach to R&D, building, the workforce for that coordination, we're not very good at it. We need to do better.

KRISTIN DZICZEK: So we have a whole bunch of questions. We have about five minutes left. I want to try to get about two of them into here. And the first one, I don't know if it's an easy question, but what causes the swing in prices, particularly to the downside and below break even? When rare earth minerals are supposedly in short supply and China is the market maker, why are our prices swinging so wildly?

LUISA MORENO: There's different theories. I think the easiest one is to say China manipulate prices, and there could be some truth to that. But also, we cannot forget these are strategic materials, and they usually use in very small quantities, right?

So the whole rare earth tonnage per year right now is probably 300,000 tons. Compared to iron ore is a billion. So the sizes of these materials, and you know-- and some of them, you only use a little bit, because they're really very strategic and so forth.

So it's small contracts, which sometimes-- if you buy small amounts, it's more expensive. And so it's tricky nature. But I think that the Chinese have a lot to say about it.

GRACELIN BASKARAN: I think the macro-- like the global macroeconomic condition matters a lot. When COVID-19 restrictions were lifting, prices actually skyrocketed, because we were announcing public infrastructure programs all over the world to stimulate a lot of money where people's pockets from all of the fiscal stimulus that was going out.

JP Morgan said we were about to start a commodity supercycle, which means that prices were going to be at a high for a minimum of 10 years. And then we realized the economy was not going to open up as intended. Interest rates pushed up, so people were spending less, et cetera.

You see the same thing kind of global financial crisis in that aftermath. So I think the state of the global economy-- I mean, look at China's economy-- plays a lot to changes in demand. And then supply kind of teeters with that depending on how price sensitive and risk averse the sector is.

KRISTIN DZICZEK: Yeah.

RODERICK EGGERT: Just very quickly, I think to really capture both Luisa and Gracelin's comments, mineral prices are notoriously volatile over weeks, months, a few years, for two somewhat different reasons.

In one category, we have the miner and specialty metals used in small quantities, which by the very nature are prone to disruption, if there's a supply disruption at an important production facility, , or a new material all of a sudden replaces use in a particular application.

And these small markets are not transparent. They're opaque, which makes them inherently vulnerable to volatility. That's much different from the major metals, iron and steel, aluminum, copper. That's where the state of the macro economy demand can swing significantly from one year to the next. Production capacity doesn't. And that's reflect-- this inflexibility of supply in the face of swinging year to year demand for major industrial metals results in volatile prices.

KRISTIN DZICZEK: So my last question for all of you comes from the audience. And I will say, I have learned a lot on this panel. I really studied hard on minerals. This was intimidating for me, and you guys have made me feel very comfortable and I've learned a lot.

But there are folks here who would like to know, how do you suggest that people outside the mining industry keep up with these changes in critical markets and what's going on in minerals? I mean, there's going to be a new USGS report out in January for-- and I'll read it. And that's something I think everybody who is interested in this should take a look at. Those happen every year. But what other kinds of things should people be keeping up with?

LUISA MORENO: Definitely-- sorry, go ahead, Rod.

RODERICK EGGERT: Well, excuse me. A couple of things that are aimed at a more general audience. International Energy Agency in the last couple of years has established a capability in minerals for the energy transition, and they come out with periodic publications.

Similarly, the US Geological Survey, US Department of Energy, and in fact, the Defense Department have at least annual, in some cases more frequent reports on mineral raw materials.

GRACELIN BASKARAN: So I highly suggest you download The Financial Times app, get a Financial Times subscription, and then hit the Commodities button. I read it every morning and I read it every night, and it's where I get almost all of my, like hey, there was an export ban, or the iron, that project in Rio Tinto that took 27 years to get online finally came online, right? Glencore and walking away from this $9 billion operation. The FT is really good at that, and they do really good commodities work.

The other shameless plugin is we are a think tank. Our energy security program just phenomenal mining work. We put it out very digestible-- a lot of it's like 800 words. And then we do longer reports which are like 5,000 words. We host events. We stream. Come check us out, it's all fun.

LUISA MORENO: And I think also the relationship between China and the US is extremely important. So seriously, the bottom line is that in the near term, we're still going to be dependent on the supply from China. And that relationship is related to many things.

So I have to bring up, again, the point that was made in the previous panel about the export restrictions that the US has against China, and how that then affects how China responds to the US and the rest of Europe. So when the US says, you cannot have these advanced chips because we are concerned of how you are growing your military, or whatever it is, I think that matters, because then it affects how China responds in terms of export policies of the minerals and the processing technologies that we mining companies desperately need to advance as quick as possible the production of these metals.

So those relationships are very important. And perhaps next year, you should bring as well a defense policy person that can probably explain to us a little bit more the big picture that we just looking at trade might be [INAUDIBLE].

KRISTIN DZICZEK: National security aspects, yeah.

LUISA MORENO: Yeah.

KRISTIN DZICZEK: Great. Luisa, Gracelin, Rod, awesome. Thank you so very much. Let's give our panel a hand.

[APPLAUSE]