Scaling critical minerals value chains sustainably

07 December 2023

As the energy transition gains momentum globally, pressure is building on the supply chains for essential clean energy technologies like electric vehicles, wind turbines and battery storage. Meeting the growing demand for these technologies in an efficient and affordable way will be contingent on manufacturer access to supplies of the necessary mineral inputs, some of which – like lithium, nickel, copper, and cobalt – are classed as “critical”.1 Disruption to supplies of these critical minerals could derail clean energy investment plans and global climate ambitions, thus it is imperative that their value chains are expanded speedily and sustainably.2

In this article, we explore the current state of play in critical minerals, considering the barriers to scaling up supply and actions needed to overcome these. We also draw case studies from Macquarie’s significant experience supporting companies in the critical minerals value chain to demonstrate the role financial institutions can play in facilitating the sector’s next phase of growth.

Minerals critical for the energy transition by technology type3

Source: McKinsey & Company

The current state of play in critical minerals

Global demand for critical minerals is forecast to grow at breakneck pace in the coming decades if clean energy technologies are deployed at levels consistent with corporate and government targets. Demand will grow even faster if the world gets on track towards net zero greenhouse gas emissions by 2050.

Between 2017 and 2022, energy sector demand was the main driver of a tripling in lithium demand, a 70 per cent increase in cobalt demand and a 40 per cent increase in nickel demand.4 Projections almost invariably expect this trend to continue, with rapid growth in critical minerals demand throughout this decade and beyond as countries continue to transition to clean energy. For some minerals, like lithium, the potential growth is dizzyingly steep – with forecasts of as much as 16 times more demand in 2040 than 2022.5

Growth in demand from clean energy technologies for selected critical minerals, 2040 relative to 20226

Index (2022 = 1)

Source: International Energy Agency

However, these demand outlooks for critical minerals face some uncertainty. They can fluctuate over the short term due to changes in political will or macroeconomic shocks. Longer term, they can be significantly altered by innovation in clean technology manufacturing that drives material substitution or reductions in mineral intensity. The growth in critical minerals demand will not require equivalent growth in mined production as some will demand will be met by recycled material. From the 2030s onwards, minerals recycling is expected to supplement primary supply, though by 2040, recycling is still only forecast to reduce primary supply requirements by around 10 per cent.3

Critical mineral supply chains are highly concentrated geographically, making them vulnerable to disruption. Governments are looking to mitigate this risk by supporting supply chain diversification and onshoring, but they must also address lengthy approvals processes, particularly for mining projects.

Australia, China, and Chile produce 90 per cent of the world’s lithium while China, Chile, and Argentina account for 99 per cent of lithium processing.7 Cobalt and nickel likewise have a small number of countries controlling most of the supply chain, while rare earths and graphite have a single country with near-exclusive control of global supply. Supply chain concentration for most critical minerals has intensified in recent years and is not set to diminish materially in the near term, with currently dominant countries responsible for most of the planned capacity additions.

Market share of top three countries in supply chain segments for selected minerals

Per cent

Source: International Energy Agency

Projections of continued geographic concentration of supply chains and the associated risk posed to national energy transition ambitions, are catalysing political support for new investment in critical minerals value chains. Over 100 new critical minerals policies and regulations have been established globally in the last few years,8 with a fivefold rise in export restrictions.9 Major importers of critical minerals value chain products are enacting policies to shore up security of supply by encouraging investment into supply chains domestically and in partner countries. Recent examples include the EU’s Critical Raw Materials Act and the critical minerals provisions in the US’ Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law. Meanwhile, governments of mineral-rich countries like Australia and Canada are seeking to capitalise on the push for supply chain diversification by implementing policies to attract investment across the value chain, with a particular focus on ramping up local mineral processing and manufacturing.

With policy tailwinds behind critical minerals, the pipeline of announced extraction projects is nearing a level sufficient to meet the requirements of government energy transition ambitions by 2030.6 Whilst encouraging, this pipeline falls well short of the level needed to be on track for net zero by 2050 and would still require a major pivot from the historical norm to be delivered on time, as mining projects currently take over 15 years, on average, between discovery and production.10 Projects are often delayed by slow planning approvals and permitting, public opposition and lengthy negotiations with governments on issues like taxes, royalties and ownership structures. These hurdles must be addressed to speed production growth while maintaining environmental and social protections.

In the push for expansion, the sustainability of critical minerals value chains is coming under increased scrutiny. Fortunately, the industry has many solutions at its disposal to address its most pressing sustainability issues.

Addressing sustainability challenges in critical minerals value chains is imperative to maximising their climate and socioeconomic benefit, and to gaining backing for new projects. However, managing environmental impact has historically been an area of difficulty for the mining and minerals processing industry. Analysis of leading mining industry companies found that between 2018 and 2021, water withdrawals doubled and greenhouse gas emissions intensity remained high and broadly flat.6 The industry is looking to address these issues and most leading mining groups have developed sustainability strategies targeting phased reductions in emissions and their broader environmental footprint.

Another environmental concern is that the extraction and processing of critical minerals tends to be more emissions- and water-intensive than other minerals. Whilst the absolute figures for critical minerals emissions and water use are relatively low currently, they could grow markedly as production volumes rise.3 Compounding this is the fact that growing mineral demand is making it economic to mine deposits with lower resource quality and undertake further processing steps to yield higher value products. Exploiting these newer production pathways tends to require more energy and produce more waste. As the energy supply tends to come from fossil fuels like coal and diesel, the new pathways tend to be even more emissions intensive.

An example of a newly economic production pathway is the conversion of nickel pig iron produced from low-grade laterite ore into nickel matte and ultimately nickel sulfate which can be used in EV batteries. While this pathway has markedly increased the supply of EV-grade nickel, it is also, on average, nearly six times as emissions intensive as extraction from sulfide ores given the use of coal in the conversion process.6

Emissions intensity of main pathway and future growth areas for lithium and nickel production

Source: International Energy Agency.

Note: LCE stands for Lithium Carbonate Equivalent.

The keys to sustainable expansion of critical minerals value chains

Establishing new mines, minerals processing and clean technology manufacturing will require significant amounts of capital, especially when factoring in additional investment required to decarbonise processes e.g., powering production with clean energy or utilising emerging low-carbon industrial processes, which may require the substitution of hydrogen for current carbon reductants or carbon capture solutions.

Funds are already flowing towards supply growth, with miners boosting spend on critical minerals exploration and production.6 Likewise, investment in EV battery production is on a steep upward trajectory globally.11 Governments are deploying public finance to support the emergence of domestic supply chains – the US is leading the charge with billions of dollars of loans and guarantees committed already.12 Downstream companies in the value chain, like EV and battery manufacturers, are also investing in upstream projects and companies to secure raw material supply.

However, to achieve and sustain the levels of growth in critical minerals value chains needed for net zero, the industry will need a broader pool of investors, greater liquidity support and hedging, stronger demand signals and increased incentives to invest in sustainability.

Growth in critical minerals value chains will require capital from a diverse pool of investors.

The vast runway for growth in the critical minerals value chain has attracted a host of new market entrants – from small exploration companies to manufacturing startups and oil and gas majors. Many new market participants have little in-house capital markets expertise or access to the funding they need for expansion. Larger diversified firms are also in need of external funding given the capital-intensive nature of growing across critical minerals value chains either organically or through M&A.

Financial institutions are well-poised to partner with market entrants to facilitate capital-efficient growth. They can provide advisory services in raising and structuring funding for business expansion, major projects, or M&A from a wide range of investors. Financial institutions can also directly provide equity or debt financing and facilitate access to capital markets. Meeting large capital expenditure (capex) requirements puts pressure on company balance sheets and financial institutions can assist to ease this by carving out non-revenue generating assets – e.g., utilities, mobile equipment, and real estate – and leasing them to operators.

 Supporting the growth of one of Australia’s largest copper producers

Macquarie Capital acted as sole financial adviser to Sandfire Resources on its $US1,865 million acquisition of the MATSA Mining Complex in Spain from Trafigura and Mubadala in 2022. It was also the joint lead manager on the associated $A1,250 million equity raising to part fund the acquisition. Macquarie Capital provided a comprehensive advisory and funding solution through its resources advisory and equity capital markets teams, working collaboratively with Macquarie’s Commodities and Global Markets Mining Finance team in its capacity as a lender in the $US650 million acquisition facility.

Beyond funding major capex, financial institutions can help companies in the critical minerals value chain to meet their operating expenditure requirements, especially in the early stages of a project when revenues lag spending. This is especially valuable for smaller firms with a limited financial buffer to weather the periodic cashflow pressure driven by cyclical swings in mineral prices. They can also help companies manage risks by hedging their exposure to other variables like FX and interest rate volatility. As more production comes online and liquidity grows in markets for critical minerals, they will be increasingly able to provide physical and financial hedging of minerals. 

Financing the development of battery chemicals production

In 2022, Macquarie’s Commodities and Global Markets group provided a $US90 million working capital facility, via a four-year prepayment structure, to support the development and ramp-up of Terrafame’s battery chemicals plant and production of battery-grade nickel and cobalt sulphate in Finland. The solution met the constraints of Terrafame’s existing capital structure while allowing them to retain full control over the marketing of their product. Macquarie will also provide physical execution and logistics expertise to intermediate cargoes of nickel sulphate between Terrafame and its end buyers.

Uncertainty on long-term critical minerals demand and prices can diminish investor appetite. Strong demand signals from governments and downstream mineral consumers will help to sustain investment flows.

Investment in mineral production is primarily driven by price signals. Commodity price volatility can deter non-specialist investors from making the large and long-term capital commitments required to develop upstream mineral extraction projects. Volatility in cobalt and lithium prices in recent years provide a stark demonstration of these swings.

Volatility in cobalt and lithium carbonate prices

Source: Fastmarkets

Commodity price volatility is not unique to critical minerals and investors can manage it when they have certainty of demand resilience. A greater challenge is overcoming the uncertainty of long-term mineral demand projections. Lithium-ion batteries used in electric vehicles are the biggest single driver of energy transition demand for key critical minerals like lithium, nickel, cobalt, and graphite.3 However, this technology is still rapidly evolving, and the automotive industry has a proven ability to engineer reductions in its demand for minerals in the face of persistent high prices or ESG concerns.

The market shift in recent years towards low or no cobalt EV battery chemistries like NMC 811 and LFP is a case in point of the impact technology advances can have on the long-term demand outlook for minerals. With progress being made on battery chemistries that favour cheap bulk metals over critical minerals (e.g., LFP and sodium-ion batteries13), analysts’ demand projections for other critical minerals could also become less bullish over time.

Decline in cobalt demand forecast over time

Source: BloombergNEF

Demand uncertainty significantly affects the long-term financial viability of projects across the critical minerals value chain. It could also have sustainability implications as lower demand drives down the price of a mineral and undermines the business case for recycling it. Therefore, demand signals from governments and consumers will be crucial to giving investors the confidence to commit the large volumes of upfront capital needed.

Governments have a keen interest in securing critical minerals access given the energy transition implications and can provide financial incentives to reduce project costs, as done in the US with the IRA. They can also provide demand signals to developers with mechanisms like guaranteeing offtake of minerals, as foreseen by the joint buying proposal in the EU Critical Raw Materials (CRM) Act.14 Public concessional capital – like government loans, grants and guarantees – can attract private capital to projects on the cusp of commerciality and unlock investment in new jurisdictions and technologies. However, it is crucial to note that public capital will be most impactful when deployed in a targeted manner that complements rather than crowds out private investment with uncompetitive scale and terms.

A ‘one size fits all’ policy approach is also unlikely to be successful, with different critical minerals having vastly different market fundamentals and challenges. For example, nickel and cobalt are oversupplied in the near term and have a high reliance on a single country, while lithium has a more diversified supply but faces a supply deficit.15

Downstream consumers of critical minerals, like auto and battery manufacturers, are already boosting the bankability of upstream projects by signing long-term offtake contracts for minerals. They are also going beyond this to directly invest in extraction and processing projects, with some even pursuing vertical integration.16

Supporting the launch of a high-performance battery gigafactory in France

Source: Verkor

Macquarie Asset Management, on behalf of its Energy Transitions Solutions fund, announced in 2023 that it will be the lead investor in Verkor’s Series C fundraise. Verkor, a French battery manufacturer, secured over €2 billion of financing following the signing of a minimum of €850 million Series C funding round, approval of the European Investment Bank for €600 million of debt support and French subsidies of approximately €650 million. The financing will accelerate the construction of Verkor’s first gigafactory in Dunkirk and the manufacture of high performance low-carbon battery cells. It will also support ongoing technological developments for new manufacturing technologies and strategic investments across the battery value chain.

Action from governments, consumers, and investors will help embed sustainability in critical mineral value chains.

Expanding critical minerals value chains should be sustainable by design. Reducing emissions by shifting energy supply from sources like coal and diesel to solar and wind with batteries is a fundamental aspect of this. Operators can also implement technology solutions to enable more efficient use (and reuse) of resources like water and the responsible storage or disposal of waste. Improving sustainability will increase the net environmental and social benefit of switching to clean energy technologies and could help speed project development by minimising a potential source of public opposition.

Beyond setting sustainability targets and mandates, governments can provide low-cost financing and guarantees to mobilise private capital for novel sustainable production methods. An example of this is the US Government’s $US700 million conditional loan commitment to the Rhyolite Ridge Lithium-Boron Project in Nevada on which Macquarie Capital advised.17 Governments can also streamline planning and permitting processes for the development of dedicated renewable energy infrastructure and give companies in the value chain priority access to brownfield sites to reduce initial capital requirements.

Large consumers of critical minerals products can incorporate sustainability criteria in procurement decisions to drive action from producers. Consumers can form alliances, leveraging their collective purchasing power to send demand signals to the industry. An example of this is the First Movers Coalition launched at COP26, whose corporate members pledged $US12 billion for scaling climate solutions in hard-to-abate industries such as steel, cement, and aviation.18

Financial institutions can help address the capital constraints that limit sustainability investment in the critical minerals value chain. As co-investors, they can share the risk and capital outlay on sustainable infrastructure and assets while enabling access to potential upside e.g., from selling excess power from dedicated renewable energy assets to the grid. They can also finance and lease sustainable assets to operators, eliminating the need for upfront capital.

Developing large-scale, low-cost clean energy supply for the minerals industry

Hydro Rein and Macquarie Asset Management entered into agreements to form a joint venture in 2022 to build and operate Feijão, a 586 MW combined wind and solar power project in the northeast of Brazil. The project will supply electricity to Paragominas, Hydro’s bauxite mine, and help further reduce carbon emissions from Hydro’s alumina refinery, Alunorte, by enabling it to switch away from coal towards 2030. The project will therefore be an important enabler in reaching Hydro’s target of a 30 per cent reduction of its own emissions by 2030. The wind farm is currently in construction while an investment decision for the solar project will be taken at a later stage.

Beyond the climate imperative, there is an increasingly strong business case for embedding sustainability in critical minerals value chains. Governments and consumers will tighten their sustainability requirements for critical minerals supply chains over time, making early investment in sustainability a future-proofing strategy. The EU is advancing on this front with policies like its Batteries Regulation and Carbon Border Adjustment Mechanism (CBAM). Policies like these will drive higher realised prices, or a “green premium”, for critical minerals products with cleaner supply chains.


Daniel Ogbonna
Manager, Climate Intelligence Unit, Macquarie

Dario Traum
Head of the Climate Intelligence Unit, Macquarie

  1. A critical mineral is a metallic or non-metallic element that is essential for modern technologies, economies, or national security, and has a supply chain at risk of disruption. Geoscience Australia, 2023 –
  2. In this piece, “Critical mineral value chains” refers to upstream (mineral extraction), midstream (refining and processing of raw minerals) and downstream (the use of refined mineral products in manufacturing finished goods like EV batteries)
  3. McKinsey, The raw-materials challenge: How the metals and mining sector will be at the core of enabling the energy transition, 2022 –
  4. IEA, The Role of Critical Minerals in Clean Energy Transitions, 2021 –
  5. IEA, Critical Minerals Data Explorer, 2023 –
  6. The full definition of each IEA scenario can be found here –
  7. IEA, Critical Minerals Market Review 2023, 2023 –
  8. IEA, Critical Minerals Policy Tracker, 2023 –
  9. OECD, Raw materials critical for the green transition, 2023 –
  10. S&P Global, Discovery to production averages 15.7 years for 127 mines, 2023 –
  11. Benchmark Source, Investment in battery gigafactories nears $300 billion since 2019 as China extends battery dominance, 2023 –
  12. US Department of Energy, Advanced Technology Vehicle Manufacturing Loan Program Portfolio, 2023 –
  13. Electrive, CATL and BYD to use sodium-ion batteries in EVs this year, 2023 –
  14. European Commission, Critical Raw Materials Act, 2023 –
  15. Macquarie Insights, Commodities Compendium - Hope for the best, prepare for the worst, 2023 –
  16. Tesla, Tesla Lithium Refinery Groundbreaking, 2023 –
  17. US Department of Energy, LPO Announces Conditional Commitment to Ioneer Rhyolite Ridge to Advance Domestic Production of Lithium and Boron, Boost U.S. Battery Supply Chain, 2023 –
  18. US Department of State, First Movers Coalition Announces Expansion, 2022 –