Latest / Columbia Energy Exchange / Tom Moerenhout and Tomasz Nadrowski on Fixing the Mineral Supply Chain

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Tom Moerenhout and Tomasz Nadrowski on Fixing the Mineral Supply Chain · Columbia Energy Exchange

• 0:00
  Tom Moerenhout:
• 0:01
  The problem right now that we have is that we're spending public money without actually having first identified and treated, if you wish, the binding constraint on why private capital is not flowing.
• 0:02
  Tomasz Nadrowski:
• 0:03
  Private capital failed us. Failed us because it used labor arbitrage and arbitrage on negative externalities by being attracted to the ultimate point of gravity. Instead of a comparative advantage, with certain countries producing different products, is basically betting on the fact that one country produces everything and other countries produce nothing.
• 0:04
  Bill Loveless:
• 0:05
  Critical minerals sit at the intersection of energy technology, industrial competitiveness and economic resilience. It is an urgent issue in the United States where the Trump administration has established a $12 billion strategic critical minerals reserve and taken other steps to support mining projects. And more broadly, G7 countries recently agreed to step up coordination to cut their country's reliance on China for critical minerals. All of these moves are targeted at breaking China's stronghold on the sector, which it built over decades as the US largely turned away from securing a critical mineral supply chain. And it's not just about supply dominance. China is also using its strengths in the sector as a geopolitical weapon, yet questions remain over whether either US investments to date or international agreements are stoking the level of a private investment needed to compete with China. So what financial models could provide effective blueprints for quickly scaling mineral supply?
• 0:06
  Which countries are pursuing the most promising approaches? And looking beyond investments, what policy tools could help the US and its allies grow a resilient critical minerals supply chain?
• 0:07
  This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Bill Loveless.
• 0:08
  Today on the show, Tom Moerenhout and Tomasz Nadrowski. Tom Moerenhout leads the Critical Minerals Initiative here at the Center on Global Energy Policy and is a professor at Columbia University School of International and Public Affairs. Recently, he and other scholars at the center contributed to a new world economic forum report called Making Critical Minerals Bankable: Policy Tools to Unlock Investment. Tomasz Nadrowski is the co-founder and portfolio manager at Amvest Terraden, where he invests in exploration development in mining companies that are focused on strategic minerals. He has 25 years of mining sector investment experience. He is also the author of the recently published book Mineral War: China's Quest for Weapons of Mass Destruction.
• 0:09
  We talked about what led to China's dominance and then weaponization of the critical mineral supply chain. We examined the critical minerals investments model that the US government is pursuing. And we discussed what it really takes to build mineral supply chains as strategic infrastructure. Here's our conversation. Tom Moerenhout, Tomasz Nadrowski, welcome to Columbia Energy Exchange.
• 0:10
  Tom Moerenhout (03:12):
• 0:11
  Thank you for having us.
• 0:12
  Tomasz Nadrowski (03:13):
• 0:13
  Pleasure to be here.
• 0:14
  Bill Loveless (03:14):
• 0:15
  Well, I look forward to the conversation. It seems hardly a day goes by when we don't see critical minerals -- once an obscure aspect of materials science -- in the news. Governments and industries in the United States and elsewhere are trying their darnedest to unlock resilient mineral supplies, but finding the right financial instruments difficult to achieve. Tomasz, as I say, everyone agrees that critical minerals are strategic. So why are we seeing underinvestment?
• 0:16
  Tomasz Nadrowski (03:50):
• 0:17
  It takes years to invest in minerals and see a result. So if we're starting now, we'll see results maybe to 10, 15, 16, 17 years, depending on the nature of the deposit and the nature of the processing stage after that. We stepped into this problem during the years of relative underinvestment in mining in general in the West. You may recall that in the first decade of the century we went through super cycle, was driven mostly by quite progressive growth of the Chinese economy and urbanization. Most miners were working to send product to China. At that time, mining companies just over-invested. There was a massive inflationary wavr with the end of the period. So between great-great financial crisis in 2011 and subsequently companies pulled back from that growth mode very strongly and focused on very few predictable sectors like copper or iron ore, something like that. Not those smaller markets.
• 0:18
  (04:57):
• 0:19
  So that's one kind of a cyclical reason for that why by the end of the second decade we realized that suddenly we don't have enough investment in the West. The second part of the story is structural because many of these critical minerals are really small markets and they don't necessarily appear geologically as separate targets by mining project. They're associated by mineralogy with those major OEMs and when the miners sell the product from smelters, they're not necessarily paid for that value embedded there. It could be gallium with alumina, indium or germanium with zinc, tellurium with copper and so on. Smelters don't pay for it and unless we solve that problem at the smelter level, it's going to be very difficult to incentivize investment in this space.
• 0:20
  Bill Loveless (05:49):
• 0:21
  Well, Tom, the World Economic Forum white paper argues that many critical mineral projects are not failing because the geology is bad, but because the economics are uncertain. What are the biggest barriers to making these projects bankable today?
• 0:22
  Tom Moerenhout (06:07):
• 0:23
  Well, I think what we do with the World Economic Forum in our report is basically start from the premise that basically the core problem is that governments tend to reach for sort of the same handful of tools regardless of what's actually blocking investment. So that can be broad subsidy programs, undifferentiated funds, tax incentives and so forth. The problem right now that we have is that we're spending public money without actually having first identified and treated, if you wish, the binding constraint on why private capital is not flowing. And that means that we're basically not moving private capital efficiently. So what we describe in our white paper with WEF is that we first need to understand those constraints and those differ across three dimensions that you have to look at simultaneously. The first is sort of the critical mineral market itself. We're talking about copper, lithium, reverts, graphite and so forth.
• 0:24
  (07:04):
• 0:25
  Right now critical minerals in the US cover half of your periodic table. These are radically different markets that need radically different solutions. The second dimension is your jurisdiction. A project in Australia or Canada obviously face completely different risk profiles than projects say in Indonesia or a jurisdiction with high security risks and political instability. And so again, this requires different instruments to resolve the capital constraint. And the third one, and that's one that I care quite a bit about, is that we also don't really look at where we are in the supply chain. The supply chain for critical minerals is very long. Tomasz basically alluding to it. We're starting from exploration, early stage drilling. Then you need to do feasibility studies. This is the moment where basically your expenditure starts ramping up for a considerable amount of time and you have zero revenue, zero cashflow. And then we need to go all the way up until project finance, production and then processing and refining.
• 0:26
  (08:07):
• 0:27
  Again, each of these different stages require very different instruments to resolve the capital constraint. And this is sort of almost the irony that really concerns me and curious maybe Tomas to hear from you on this as well. But when we now apply these blunt broad instruments without solving exactly what it is that needs solving, you don't actually crowd private capital in. The risk is actually more that you crowd it out or that you condition it because investors learn to wait and they only move when government support is on the table. And that is to a certain extent deeply problematic because we have a lot of interesting elements in our "western critical mineral system" from junior miners to mature companies to capital providers. But right now what is basically being told to them is wait until the government comes in as an investor itself and otherwise stay out.
• 0:28
  (09:08):
• 0:29
  And that is ironic and basically a bit of a tragedy to unlock private capital.
• 0:30
  Bill Loveless (09:16):
• 0:31
  Yeah. Tomasz, I'm thinking that, and of course we're seeing governments including the US government move into this space, but more broadly, what would make institutional investors view critical minerals more like infrastructure and less like speculative mining ventures?
• 0:32
  Tomasz Nadrowski (09:32):
• 0:33
  Infrastructure is a difficult endeavor because incentives from a public sector. A lot of these would have positive strategies resource that private capital cannot finance directly. I think one thing that Tom mentioned comes to mind about relative success with another extract industry in the US where the financial market was ready and that is fracking. Can we learn something from fracking? Fracking offered three different dimensions for which capital market was ready. One was a heavy depletion. Second was a very strong CapEx hurdle. The third one was short duration. That third one is very different in mineral exploration, development and production. And therefore just typical vehicles that we had during the period of huge interest rates where private equity could walk easily into a flexible low footprint fracking production is just not available to us because of the timelines and because of the lack of flexibility that a mining or metal producing project offers.
• 0:34
  (10:48):
• 0:35
  What do I mean by that? In fracking it is actually possible to respond to the occasion of preferences of investors to either hold cash or reinvest back into the project. This flexibility could run within even 18 months or so. So in addition to the fact that interest rates you want a short duration, this is another problem. That flexibility in mind you just don't have it. You can do some sequencing by mining, you can maybe have modular plans, you can maybe do some brownfields development and so on. But it's more on the positive side than negative side. You're going to just stop producing for a period of time just because the investors prefer cash payout. You will have to invest in reserve replacement. And so all that means that what Tom mentioned is critically important. Understanding what is the actual capital structure of this industry right now.
• 0:36
  (11:48):
• 0:37
  And most of this is carried through this period of non-cash development through relatively illiquid equity markets in Australia and in Canada, not in the United States. We don't have the tradition of investing in those long duration projects here. Something has still happened to the duration, especially now when you have higher interest rates and are probably in this environment for a while to deal with. Unfortunately, specialist mining funds during this period after the super cycle shrank, not just here, but also in Canada. I actually give some numbers to it. This is quite dramatic when you have this bifurcation of capital market going on the one hand into private equity. On the other hand, into something liquid like ETFs. ETFs don't finance projects. They are basically trend-following proxies for exposure. And that is unfortunate on the equity side. On the debt side, I think it probably could be solved more easily if our governments were ready to provide security guarantees to credit creditors, especially in those areas which cannot be easily hedged and efforts toward building hedge products or futures markets in some of these, like your neodymium, one of the rare earth elements, is one of these products that potentially could -- we could end up with a futures market that will, of course, help on the debt side. We are overexposed always to equity, risk equity for years to come.
• 0:38
  Bill Loveless (13:23):
• 0:39
  Interesting. Tom, do you see that same comparison with the fracking industry?
• 0:40
  Tom Moerenhout (13:27):
• 0:41
  Yeah, absolutely. I think Tomasz refers to three good elements. I would add on that I consider very important that made fracking a success as well, which was a demand side. You had absolute guaranteed demand and there was no question about it. And we are missing that with respect to critical minerals. I think the abolishment or sort of downgrading of a lot of Inflation Reduction Act subsidies is one element, but even beyond the energy tech, you can also look at defense tech, data centers and so forth. The ability to first know the amount of demand that sectors will need looking forward. And secondly, indeed supporting demand in different sectors all of the IRA, but other subsidies as well. This is actually a huge relevance to critical minerals. And so right now you need to think what it is that we're asking. We're basically asking investors to put in billions of dollars to supply a material.
• 0:42
  (14:26):
• 0:43
  First of all, that you are not fully certain enough that it might not be an oversupply because that of course is something that China does as well. And secondly, you don't even know that you will have certain demand. I mean you would be a fool entering into this sector voluntarily. And this is basically where a government comes in to first of all understand demand better and secondly, incentivize demand. And if we're missing that part of the story and only focus on the supply side strategies, you're missing half of the point here.
• 0:44
  Bill Loveless (14:57):
• 0:45
  Yeah. Speaking of China, Tomasz, your new book is Mineral War: China's Quest for Weapons of Mineral Destruction. We are already seeing minerals used as a geopolitical weapon. It's not still a future risk as it might have been before. What is this war that you see playing out?
• 0:46
  Tomasz Nadrowski (18:10):
• 0:47
  So there are two sides to that coin, unfortunately. One is the monopolization or quasi monopolization of many of these sectors way above the weight that China represents in the global economy. So, you know, it's seventeen percent of global GDP, some thirty-five percent of global manufacturing, but sixty, seventy, eighty, sometimes ninety-five percent of production, processing, refining of some of these materials. So quasi monopoly. Having said that, monopoly in commodities is not unknown. It just happens this way. You know, I say usually that God, when he decided where to put our geology, did not consult humans who are deciding where to put borders. And therefore, myself working for years in South Africa, you know, we had a monopoly over platinum. It was not a problem for the world. Brazil has a near monopoly on niobium production. It's not a problem for the world. The United States used to have or used to be a monopoly in rare earth production in the 1960s, 1970s.
• 0:48
  I myself remember my first color TV was a Sony color TV, a Japanese product when I grew up in Europe. And what did it have? Of course, it had rare earths from California, from Mountain Pass, Europium to make those very vibrant reds that I reveled in as a child. So, that is -- that monopolization in itself in commodity space is not a problem. The problem is when this is weaponized. And the only real parallel that I find historically to what's happening right now is the 1973 OPEC oil embargo. This is quite ironic. I just looked at the G7, papers from Evian Les Bains the other day, and they called on International Energy Agency to coordinate the effort to help those leaders of the G7 industrialized countries and their allies to become less dependent on China. Of course, China is not named in the paper, but we know what it is. International Energy Agency was created in November seventy-four, right? So this is extremely familiar terrain for all of us.
• 0:49
  Tom has actually a very interesting, um, uh, comparison the other day that we discussed between those two crises. One was, I think, a car crash, and the second one is a cancer, right? So most people don't, don't realize what's going on here, so credit to Tom for the metaphor. Um, uh, but I tend to view it as a conflict, and I think it's important, uh, for myself in investment and life in general to realize in which social operating system we are functioning. Are we in a system that's based on cooperation, competition or conflict? And what happens if we misread that? Uh, it's important to realize that the other side has decided long ago, and at least since 2020, has decided to weaponize this aspect of the global economy and use it as a weapon. And therefore, they believe they are in conflict with us, regardless of what we do, that means that there is a conflict.
• 0:50
  Bill Loveless (18:12):
• 0:51
  But is China's dominance the result of unfair practices or the result of long-term industrial strategy that Western countries simply chose not to pursue?
• 0:52
  Tomasz Nadrowski (18:22):
• 0:53
  So I think there are two things and from false dichotomy. There's a fortuitous developmental confluence of factors over a long period of time and we can take it sector by sector. It's a little different, but we take just rare earths. There are different pieces of that. Trying to acquire those technologies. Processing, developing very rich geology in Southern China Yangtze craton especially, and one important iron ore mine which was a rare earth byproduct of the country. And then tightening the noose around independent producers through three waves of consolidation, which was state-led, in order to prevent leakage of the material. So very consistent drive towards monopolization. Weaponization itself is a different story. It just feeds into a number of different policies. In the case of the United States, this is a leverage against rebalancing of the lopsided trade relationship that we have with China. We're not the only ones with the problem of current account deficit vis-à-vis China.
• 0:54
  (19:21):
• 0:55
  We probably have a little more political power trying to push against this than South Africa, Southeast Asia, or Europe sometimes. But the problem is weaponization. So the five years between 2020 and the meeting between Xi Jinping and Trump in October of '25, China introduced 24 different restrictions. 24 different restrictions on a variety of metals and components, alloys, related technology, IP, equipment, reagents, extraction, even extraction technology and so on. Very dedicated and it's not US-centric. One restriction introduced in December 24 will welcome the return of the Donald Trump White House. All the other Chinese restrictions were applied worldwide. Now of course this year we have conflict with Japan, not related to trade at all. So it's a leverage concerning national security as perceived by the CCP in Beijing, and they use again the same weapon against Japan.
• 0:56
  Tom Moerenhout (20:19):
• 0:57
  Maybe if I can quickly, because you also asked about the industrial strategy and I think Tomasz did a very good job at pointing out why it is weaponized right now. I do think there's something to say about industrial strategy and our own response to the situation we're in right now. I think in the '90s we started focusing on sophistication, the higher value end of the smiley curve and manufacturing we kind of allowed to be outsourced. This was dirty. It was carbon emissions intensive. We cared about it at that time and we allowed it to kind of escape. China, to their credit, I think we have to say, mastered that type of manufacturing and they started vertically integrated exactly where we started chopping up all the supply chains and we needed a margin at every single segment of the supply chain. China vertically reintegrated and basically said, look, if we lose some money upstream, we don't care because we're going to be excellent at manufacturing of components.
• 0:58
  (21:10):
• 0:59
  And back in the '90s, these were not very valuable components. Today they are electric vehicles and batteries and magnets. And I think in that respect, Bill, your point of sort of having a very consistent industrial policy that set out strategic objectives and that work towards it over 10, 20 years has been remarkably successful. And I think we need to also be able to look in the mirror today and say, we don't have this today. We are stuck in bipartisan warfare that also basically influences our industrial strategy and that cannot change every four years because if demand matters, well you cannot change every four years where your demand is going to come from. Even if you all agree that you have a problem on critical mineral supply.
• 1:00
  Tomasz Nadrowski (22:00):
• 1:01
  The history of industrial policies in China policies in China is not necessarily linear. I think it's true that since at least 2006 and premier Wen Jiabao reintroduced industrial strategies on a grand scale, it has grown ever since. But there was a period in the 1990s that it wasn't the case under the premiership of Zhu Rongji, and that all this ran up to WTO accession. However, certain things that happened during the time of industrialization time period helped China subsequently control these sects. One of the controls is co-location of industrial production and special economic zones. It's very important some of these projects, and I have an example in my book of a separation -- solvent separation plant or a graphite spheronization plant to be in the vicinity of a steel plant or a vicinity of a chemical plant, because then you can beneficiate the waste products, you can use the byproducts as well. And that was harnessed later on through those industrial policies on the back of already an existing industrial park.
• 1:02
  (23:05):
• 1:03
  Now there's one cost however to all of these decisions, given that they're politically driven decisions and not return on investment decisions. It's massive, massive staggering over leverage of the Chinese economy. It's an economy of 360% dash to GDP and we agonize our numbers at 130, 140 for an economy is much more developed on a GDP health capital basis. So there is a huge ticket to pay for that. And of course currently you see all the other problems in the Chinese economy. It's extremely difficult, not impossible to figure yourself out of that burden, which is partly related to the miseducation of capital, which created this massive productive capacity. Ideologically the Marxist view of labor fear of value infuse using value into the proactive process. That's how they believe value is created regardless whether you can sell it or not. So we produce it and someone also will buy it.
• 1:04
  (24:06):
• 1:05
  For a long time the United States was the buyer. Now of course this momentum is redirected into some other countries if it's called global China shock VG2. But it's not the linear stories. We should not believe that China had this idea in 1970s and 1980s to monopolize these places and weaponize them in 2026. That's not what happened.
• 1:06
  Bill Loveless (24:32):
• 1:07
  Well, Tom, if China spent two decades building this position, can the US and its allies realistically close the gap in one decade?
• 1:08
  Tom Moerenhout (24:42):
• 1:09
  Well, I think that's going to be very, very difficult. I think a lot of people are focusing on the decade and they're making sort of crazy comparisons to the development of nuclear weapons in Los Alamos and so forth. I think that's a lot more complicated. If you look, for example, to Japan, the interesting part, we often consider Japan as a success story. They managed in 15 years to reduce their rare dependence from about 95% to around 70% and even a little bit higher. And I think we need to be realistic about that is what success looks like. So the idea of moving China out of your supply chain fully for 60 critical minerals within a decade, it's impossible. It's already impossible just because it takes much longer than a decade to put a mine online. So even with our best efforts, this is going to be an objective and a challenge of at least one generation and probably two if we play it right.
• 1:10
  Bill Loveless (25:43):
• 1:11
  Yeah, Tomas, the timeline is often looked at as 10 years. It does seem to be a rather short, unrealistic timeline as Tom says.
• 1:12
  Tomasz Nadrowski (25:55):
• 1:13
  Yeah, this is true. There are other hurdles which are, I would call them political economy type. Most importantly, political power, lobbying power in this country and other industrialized economies is downstream. The companies that actually purchase these components, elements, magnets, batteries and so on from China, they have the political influence because this is still an existing industry. If you compare it to the mining industries, political power of the non-existent melting industry's political power. Simply there's just not comparison. What does it mean? By default, our real strategy, not the paper strategy of white papers, Brussels and G7, but the real strategy of day-to-day basis is driven by procurement departments of downstream OEMs. And sadly, that of course feeds into that project. And unless we incentivize downstream producers to move gradually away, as Tom said, they take a lifetime gradually moving away from the Chinese product because we realize that this is source of leverage for a variety of reasons, not all of them related to trade and economy, many of geoeconomic nature.
• 1:14
  (27:20):
• 1:15
  So using economic tools to achieve other strategic goals. Unless we incentivize downstream OEMs, this is going to be an uphill battle. It's just at a conference, Frankfurt, and everybody discussing exactly what we're discussing now and entering the break.
• 1:16
  (27:38):
• 1:17
  A procurement officer from a very well known car maker in Germany says well we'll buy the cheapest, we'll buy the cheapest source of course and that means China. For as long as you have this dissociation and each mutual influence over the political direction of our government coming from downstream rather than us helping them to wean themselves off the Chinese product, this is going to take a long time.
• 1:18
  Bill Loveless (28:05):
• 1:19
  I guess it raises the question, should government support projects that private investors would otherwise reject?
• 1:20
  Tomasz Nadrowski (28:13):
• 1:21
  Well, of course. I mean, private capital failed us. Failed us because it used, this is one of many sectors, labor arbitrage and arbitrage on negative externalities by being attracted to the ultimate point of gravity instead of having comparative advantage in certain countries producing different products. Basically betting for the fact that one country produced everything and other countries will produce nothing. That's a failure of the capital market. That's the addiction to scale is part of the problem instead of promoting innovation, whether it's climate change or economic security, national security promoting innovation. Because now that we are in conflict mode, it's a little different and technology is changing faster. We know it's from the Ukrainian war. And so maybe there is a hope they're going to leapfrog some of these steps. But during the period of globalization, that was the name of the game. You're going to have fantastic R&D, foundational R&D in the United States, applied research in the United States.
• 1:22
  (29:18):
• 1:23
  Send it to Asia. That's the solution of the capital. So gas capital needs to be framed by government decisions.
• 1:24
  Tom Moerenhout (29:24):
• 1:25
  Because I think there as well, if we sort of extend that argument to smelters and processing facilities, I think what I try to advise people to look at is basically cost curves. And when you look at the cost curve of processing refining facility, what you notice is that they're very important sub-components. Energy, labor, chemicals. For two of those three, we currently lack the cost competitiveness. We are a high labor cost jurisdiction. We are a high energy cost jurisdiction. And right now, if you take the United States as an example, the energy that we have available, the growth rates that we... Have are also challenged by basically a sector that is willing to pay as much as... The willingness to pay is much higher than a smelter or refining facility. I'm talking of course about data centers. And so when you don't have that, it completely makes sense to basically offshore that towards Asia.
• 1:26
  (30:17):
• 1:27
  And if we think about reversing that, you need to start thinking to me much more from a systems perspective. So you really need to look at where are my factors of production where I'm lacking competitiveness to incentivize reinvestment in those sectors? And that means getting into things like energy, labor costs, chemical supply. And if we don't do that, we can keep talking about how we have a problem with concentration of refining, but on the ground, very little is going to happen.
• 1:28
  Tomasz Nadrowski (30:47):
• 1:29
  This is actually one thing that brings to mind. This is not just a US problem. This is not just a West problem. I was recently in Brazil visiting a couple of mining operations, one operating mine in Bahia, producing vanadium and ilmenite, built about ten years ago by a Canadian company, and using back then reagents from the state of São Paulo or Santa Catarina, somewhere in the south where there's significant chemical industry. By the way, the largest taxpayer space historically in Brazil. Ten years onwards, what happens is that those reagents are no longer available in Brazil. Why? Because all of these businesses have been underpriced by Chinese competition. We know how this competition looks. We usually think about subsidies and so on. But what really changed the situation was the Ukrainian war, where Russia was no longer welcome to sell their gas to Europe, at least partly, and then redirected some of these flows to China at 30% discount. With natural gas available at 30% discount, the chemical industry, China's chemical industry could take the entire world by the cojones. And therefore, the chemical industry will begin to die in Brazil. Right now, two years onwards, like it seems like Brazilian government is getting the message and sending out tariffs on some of these chemical imports from China at 97%. But it's late. And without reagents and without equipment to rebuild this thing, which is also controlled by largely now by China, it's not gonna be possible to rebuild this industry
• 1:30
  Bill Loveless (32:27):
• 1:31
  You've made the point, you mentioned this tariff from Brazil. You said that one idea that's receiving attention is tariff-based floors. First, what does that mean? And then what do you think of this?
• 1:32
  Tomasz Nadrowski (32:42):
• 1:33
  So what I mean by tariffs and tariffs related to specific harmonized system coats, so HS codes customs codes, not like Liberation Day, that's probably not helpful here. It's important to target specific products. And some of these HS codes actually are quite confusing. When China last year tightened restrictions on exports of sintered magnets, they didn't dissociate between sintered magnets that are doped with dysprosium or terbium sometimes, those that are for aerospace, defense, and so on, they have to perform at a higher temperature, from those sort of more pedestrian magnets that every car maker would use. And that of course created havoc in the global market. So we have to be very specific and very sharp in terms of finding where the tariffs should hit. Of course, there's going to be pushback from downstream. We saw it in the Biden versus Tesla fight over graphite. The government lost that battle. So when there's a tariff, there's a revenue generated, what do we do with this revenue?
• 1:34
  (33:50):
• 1:35
  First it allows us to set up this price floor at a level that incentivize the investment and partly allows us to generate revenue, to incentivize downstream producers to become less dependent on the Chinese product. So two different functions. One upstream, one downstream. And I think the government slowly begin to understand that. There was discussion about unfortunately indeed so far hasn't led yet to a final decision, but it's absolutely critical because often what happens in this process of organization is that foreign businesses by working with negative margins for a while then the businesses die, the competitors just die and human capital disperses. And then later on the prices are raised again by the Chinese producers just for the operating business, not to incentivize their investment, which is a completely different lens. And it's no different in mining.
• 1:36
  Tom Moerenhout (34:57):
• 1:37
  I think also with respect to the tariff-based price floors, it's a very good idea. I think right now the problem that we're seeing is how you implement something like that. And I think there's two components to that. The first one is how do you have these type of plurilateral negotiations? And I think the initial strategy that was suggested was US is going to lead this, is going to have several sort of understandings or partnerships or whatever it is, critical minerals agreements with different partners bilaterally. And through the US at the center of the web, we will negotiate and coordinate these type of tariff-based price floors. I don't think that is going to work and I don't think that's going to work for one simple reason. What we're talking about here is really a fundamentally different way of doing trade in critical minerals. And I think this requires an actual plurilateral approach with all the different partners on equal standing.
• 1:38
  (35:51):
• 1:39
  That is a polite way to say that when I talk to several people within Europe, I mean in Japan, I mean in South Korea, right now there's actually a question about the trust that they can place in the United States to be the almost broker of such an agreement based on the fact that we have a president who's slapping tariffs on these allies left, right and center and in a very unpredictable way. Don't shoot a messenger. This just what I'm hearing. The second part of course is that several countries will need to prepare their own instruments to be able to apply such tariffs. And the United States have these instruments that the executive can use. Europe doesn't have that yet. Japan doesn't have that yet. Some of the other countries don't have that yet. So Europe is probably the best example. We have what we call this bazooka.
• 1:40
  (36:34):
• 1:41
  So that was threatened towards the United States in the whole Greenland problem. But this is not a single tariff that the European Commission can decide to adjust. And so what we're seeing now are interesting moves. The French have suggested that Europe needs an instrument to basically raise specific tariffs. Germany is supporting that now. The European Commission will come up with propositions I think in September. So different countries are now moving to prepare their own domestic instruments, but we are not quite there yet. And once we're there, then we can really move on these tariff-based prices.
• 1:42
  Bill Loveless (37:14):
• 1:43
  Interested in what each of you thinks about efforts that the Trump administration has taken to try to prompt critical minerals supply chain in the United States. For example, this project Vault, the $12 billion public private initiative by the administration and the US Export Import Bank to create a US strategic critical minerals reserve. It's getting a lot of attention. Tomasz, is it a game changer?
• 1:44
  Tomasz Nadrowski (37:44):
• 1:45
  It's a game changer on the demand side, not on the supply side. It doesn't really address supply issues. The first three traders, some who might discuss this. And China too. Obviously this is a buffer. This is a buffer to protect the downstream industry to ensure that there is a flow of this material. It's going to be secured and priced at a sort of set level. It makes sense from the perspective of balance sheets and downstreams rather holding inventories themselves exposed to chain changing market pricing and everything before that China do those prices. That's more like a prepaid expense like purchasing insurance for current assets. It doesn't weigh heavily on balance sheets of those companies. So it's both an accounting gig as well as an attempt to create a market, civilian market, whether large enough that depends on which metal sources.
• 1:46
  Bill Loveless (38:42):
• 1:47
  There have been other steps by the administration to fund firms in the rare earth supply chain. There's MP Materials, which received a $400 million Pentagon investment last year to bolster domestic supplies of magnets that are critical to defense applications. Still another illustration of an attempt by the government to step in, Tom. Yeah,
• 1:48
  Tom Moerenhout (39:04):
• 1:49
  No. Look, I think credit where credit is due as well. I think what we have seen since Trump won is actually much more dedicated focus to critical minerals. This was continued under Biden. What we saw during both of those administrations was that public capital wasn't flowing enough at all. Trump too has taken a very different approach. So they have been very clear that they want to make investments on the supply side of the equation. Again, that's not the whole picture, but it's an important part of what a government needs to be doing. I think the jury is out on whether all of those investments were the most wise investments. I think given the speed that we need to have right now, the due diligence has not always been done in the best way. I don't think that is something that we could have easily expected because technical and financial due diligence is sort of a whole world of its own.
• 1:50
  (40:02):
• 1:51
  I always like to refer to Japan where you have this public agency joke make. 200 people work on critical minerals. A hundred of those have deep technical expertise. They know everybody in their sector. If these guys need to do technical due diligence, they can do it properly and they can do it fast. We have a deficit in this particular area. And of course, if you want the government to move fast and by allocating funds, that deficit is going to show. This is all sort of me saying, I think we will see a couple of investments that probably either don't work out or that will be investigated for cronyism, which is probably a good thing that if that was the case that it is indeed being investigated. But that first part, some investments that don't work out, that's just going to be what you're going to have to pay to actually get results.
• 1:52
  (40:55):
• 1:53
  And I have the feeling that ever since Solyndra, which is always the argument that we bring up, we are very afraid of the politicization of any type of public investment failures. And on the raw material side of the equation, on the critical mineral side, we will need to welcome basically a portfolio of investments realizing that not every single one of them is going to work out exactly because we are not yet the strongest actor with respect to due diligence.
• 1:54
  Bill Loveless (41:25):
• 1:55
  Yeah. Tomasz, I can't help but think that you must think some of this government approach is a bit misapplied or maybe not extensive enough. I'm recalling a passage from your book where you said, "The government cannot simply use taxpayers funds to build equity stakes in all of these systematically important companies. It requires a major legislative overhaul and an implementation by the US Treasury Department, not the Department of Defense, which has been overwhelmed with mineral tasks for which it is ill prepared."
• 1:56
  Tomasz Nadrowski (41:59):
• 1:57
  Nothing has changed since I wrote it. It's still Department of War that's most involved although Department of Commerce this year. Department of Energy, we have not seen any tax incentives yet for private capital space. And maybe that's part of the magic, just to realize that I have private capital towers over other social issues over 70% of the global equity market and yet this is a street that is invisible in our space, less than 1% of S&P 500. So there's definitely something to be said about the more comprehensive. I wish we tried a JOGMEC in this country. We don't. I'm not holding my breath.
• 1:58
  (42:49):
• 1:59
  However, I have to say that I tried a lot of envy towards the United States. Momentum, this administration has given real money backing the ambition, which is not the case in Europe. So at the very least you mentioned building implementary materials deal that the rarely signal to the private market world are serious about it. We're serious about this restriction country. And that attracts some attention. And there's a number of Australian mining companies list in the United States because that's probably easier when waiting for American money to drop through Australian door. So there is this sort of recognition that there is a momentum. Sometimes direction is not ideal, but it's not just talk more and more over the last say 12 or 13 months.
• 2:00
  Bill Loveless (43:42):
• 2:01
  Yeah. Tom, we hear a lot about friend shoring. Which countries are genuinely emerging as alternative suppliers? Are countries like Australia, Canada, Indonesia, Chile becoming part of a coherent allied supply chain or are they pursuing their own resource agendas?
• 2:02
  Tom Moerenhout (44:04):
• 2:03
  So it's a very good question. Again, the answer would kind of depend on the minerals. I think we are seeing more and more efforts to actually have a clearing approach. The G7 process is part of that. The mineral security partnership was part of that, but then there was a Biden thing so that changed now to forge and so forth. But we are seeing those efforts. In the end, we also have to be realistic about several mineral rich countries that one of their most important clients, if not the most important client is Chinese. Of the most important investors Chinese. When China comes to a certain country, they come with a guaranteed offtake. They come with infrastructure investment. They come with basically the knowledge as well to develop these things, which is again something that we are missing. So I think where we come in sort of as a potential competitor here is that we don't want to be exposed to a single supplier.
• 2:04
  (45:03):
• 2:05
  Mineral rich countries don't want to be exposed to a single buyer. And then in addition to that, of course, you have a lot of concerns with respect to debt to China and so forth. So this is something where we can definitely work. And then it depends on the minerals markets. I think the first we've mentioned already Canada and Australia a lot here. They have very mature policy ecosystems for junior miners. They have very interesting projects. That one for sure. But we need to start looking into different directions as well. I think Brazil for me has been absent as a real massive ally to the United States for far too long. If you talk about a specific type of railroads, these heavy rares that you need for defense and drones and so forth, second biggest reserves in the world after China, that is Brazil. So that can become a very important ally.
• 2:06
  (45:53):
• 2:07
  When you look at processing and refining, and again, you need that cheap energy and you need that cheap labor cost. There are currently interesting things happening in India and in Saudi Arabia, especially in Saudi Arabia, which is also putting money behind that. So again, we're seeing different countries move. Today, I would say more with self-interest and with this big broad idea of actually making a coalition that can guarantee a diversification of supply. But we are seeing steps in that direction and that requires leadership. And I think right now if we need to look at one country to really provide that leadership, it's the United States, but it will have to be in a bipartisan way. Otherwise it has no chance of succeeding.
• 2:08
  Tomasz Nadrowski (46:36):
• 2:09
  I think there's more to this. If we just step away from government to government relations and every week I archive all those bilateral deals between different countries in search of security, whether it's processing security, geological security. There is also consolidation by corporations that are increasing wealthy supported by West Coast government in many ways and capable of building a portfolio throughout the entire value chain. That also means acting across a variety of different jurisdictions. Very important processing center in France that could become a hub yet for rare earth separation for the Western world. Another US company, purchased assets in Madagascar, in Australia and Korea, and just this week bought a very important German magnet-making company, which has one investment here in South Carolina. So it's happening almost faster in a way that we see an actual fruit of all that discussions that G7 and beyond Forge is why private business sees an opportunity to fill the holes in what I call some taller cheese style value chain of so many calls.
• 2:10
  Tom Moerenhout (48:11):
• 2:11
  I completely agree, but I do think that the government to government angle still matters here. If we look at Japan's investment in the French refinery, we saw that the government to government negotiations preceding that were actually really quite important. So Jokmek was involved with that so was the French government. French government also put in some subsidies to make this project workable. And when I spoke to people both in Japan and France, they basically were very adamant about how important it was that they had trust in each other, that there was the ability for both governments to work together towards realizing this project. So completely agree, Tomasz, with your point on the private part goes faster. And ideally public governments make sure that they back these projects also quick enough that basically that the investments happen.
• 2:12
  Bill Loveless (49:05):
• 2:13
  We're almost out of time, but before we go, I'd like to ask this question of each of you. Perhaps we can start with Tom. What country will surprise people the most when it comes to critical minerals if we look ahead a few years?
• 2:14
  Tom Moerenhout (49:23):
• 2:15
  What country will surprise us most? I think it can be the United States because of the momentum that we have right now, quite frankly, because we see real money being applied. I'll think that Europe could surprise us, but they will need to get a lot of institutional and governance setups together because right now there's just a missing governance system. There's unwillingness to assume risk. And I have the feeling that under the surface, all of this is starting to become a big issue, but it has not yet resulted in actual structures that allow for the allocation of capital. So the European Commission is now creating this European Critical Raw Material Center. They want to model this off of JOGMEC. They have different development finance institutions that are currently putting aside pockets of money that are significant, that are supposed to be targeted at critical minerals, but they struggle in actually implementing it and getting a project pipeline of critical minerals projects.
• 2:16
  (50:28):
• 2:17
  If we go five to 10 years down the line and they have figured that out, we will have a major player, an economy of more than 400 million consumers who will actually start putting their public capital to work. And the alternative I think would be an absolute disaster for Europe. So maybe rather than US actually, I hope that Europe will be the one that we will be surprised with in say five, 10 years time.
• 2:18
  (50:51):
• 2:19
  Tomasz?
• 2:20
  Tomasz Nadrowski (50:53):
• 2:21
  I'm going to surprise you in this case instead of saying France. France because this is one Western country that never managed to completely industrialize during the globalization period. It still has significant chemical, nuclear, defense, fiber optic, and so on industry, and an engineering pool, uh, that comes with it. Specifically in rare earth business, I mean, Tom already alluded to this, that's sort of everybody goes there, the Japanese, the Brazilians, the Australians, and the people from Utah, White Mesa in Utah. And so it's already showing signs of becoming a hub. Why is that? Because there is still institutional memory of certain French and Belgian companies from the past -- people who are in their 80s but are helping us redevelop that capacity as they still remember how it was done back then before globalization, probably the last moment to use that knowledge and that memory. So, this is of course not the only country, but I think because it's less dependent on, say, access to Chinese market, it's also less vulnerable to retaliation, or threats of retaliation by China. How that plays together with, you know, Germany and Europe is a different story
• 2:22
  Bill Loveless (52:17):
• 2:23
  Tomasz Nadrowski, Tom Moerenhout, thank you very much for taking the time on the Columbia Energy Exchange.
• 2:24
  Tom Moerenhout (52:23):
• 2:25
  Thank you very much. Thank you, Bill.
• 2:26
  Bill Loveless (52:25):
• 2:27
  That's it for this week's episode of Columbia Energy Exchange. Thank you again, Tom and Tomasz, and thank you for listening. The show is brought to you by the Center on Global Energy Policy at the Columbia University School of International and Public Affairs. The show is hosted by Jason Bordoff and me, Bill Loveless. Mary Catherine O'Connor produced the show. Greg Vilfrank engineered it. Additional support from Caroline Pitman and Kyu Lee. For more information about the show or the Center on Global Energy Policy, visit us online at energypolicy.columbia.edu or follow us on social media at ColumbiaUEnergy. If you liked this episode, leave us a rating on Apple, Spotify, or wherever you get your podcasts. You can also share it with a friend or a colleague to help us reach more listeners. Either way, we appreciate your support. Thanks again for listening. See you next week.