Morgan Stanley
  • Thoughts on the Market Podcast
  • Sep 19, 2023

Kickstarting the U.S. Mining Industry

With Ariana Salvatore and Carlos De Alba


Ariana Salvatore: Welcome to Thoughts on the Market. I'm Ariana Salvatore from our U.S. Public Policy Research Team.

Carlos De Alba: And I am Carlos De Alba, Head of the Metals and Mining Team in North America.

Ariana Salvatore: On this special episode of the podcast, we'll discuss what we see as an inflection point for the U.S. metals and mining industry. It's Tuesday, September 19th, at 10 a.m. in New York.

Ariana Salvatore: Since 1990, the U.S. has seen a significant increase in both the variety of imported minerals and the level of dependance on these imports. As of right now, U.S. reliance on imported critical minerals has reached a 30 year high, and simultaneously, investment in the industry is near its lowest point in decades. But as we're seeing the world transition to a multipolar model where supply chains are more regional than global, it's becoming ever more obvious that the U.S. needs to turn to reshoring in order to satisfy its growing need for these critical minerals. So, Carlos, before we get too deep in the weeds, let's start off with something simple. Can you define critical minerals for our audience?

Carlos De Alba: Yeah. So the Energy Act of 2020 defined critical minerals as those which are essential to the economy and the national security of the United States. They also have a supply chain that is vulnerable to disruption and serve an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economic and national security of the country. The Act also specified that critical minerals do not include fuel minerals, water, ice or snow, or common varieties of sand, gravel, stone and clay. The U.S. Geological Survey, or USGS, is a government agency in charge of creating the official list of critical minerals that are meet that criteria that I just mentioned.

Ariana Salvatore: So given the importance of these critical minerals, what are some of the factors that led to this prolonged underinvestment in the metals and mining industry? And who have been the major exporters of critical minerals to the U.S. over the last three decades?

Carlos De Alba: It is quite a complex issue, but the bottom line is that the US has scaled back its mineral extraction, processing and refining capabilities since the 1950s, because of environmental concerns and economic considerations like higher labor costs and lower economies of scale. As mining activities decline in the U.S., the country has increasingly relied on imports from China, Brazil, Mexico, South Africa, Indonesia, Canada and Australia, among others.

Ariana Salvatore: So it's obvious that China is clearly in a powerful position to influence the global mineral markets. It's the first one on the list that you just mentioned. What is China to doing right now with respect to its exports of minerals and what is your outlook when you're thinking about the future?

Carlos De Alba: Well, over the last 4 to 5 decades, China gradually took over the industry by heavily investing in exploration, mineral extraction, and more importantly, refining and processing capabilities. China's dominance over the world minerals processing supply chains has created, as you would expect, geopolitical and economic uncertainties can cause supply disruptions to crucial end markets such as green technologies and national security. A recent example of export curbs took place in July of this year, when China imposed export restrictions on two chipmaking minerals, gallium and uranium, citing national security concerns. The move was widely interpreted as a retaliation against the US and its allies for having imposed restrictions that caught China's access to Chipmaking technologies. Now this move by China was particularly relevant because the country produces over 80% of the world's gallium supply and 60% of germanium, and it is the primary supplier to the US representing more than 50% of these two minerals imports to the United States. But since we're on this topic Ariana, how are the US policymakers trying to help the strengthening of domestic supply chains?

Ariana Salvatore: Right. So most things that involve building up the domestic sphere in order to kind of build resiliency or counter China's influence are quite popular bipartisan priorities. So we're seeing policymakers on both sides of the aisle indicating support for reshoring the critical mineral supply chain. That's mainly accomplished through legislation that targets things like tax incentives, or subsidies for corporates. On the regulatory front, it really comes down to easing the permitting process, which can be quite backlogged and delay the project pipeline. For some more context on that point, permitting on average takes about 7 to 10 years in the U.S. without taking into account the time spent on litigation, compared to about 2 to 3 years in other countries. So relaxing the permitting process, we think, is one key way that lawmakers can try to accelerate this reshoring of critical minerals in an increasingly insecure geopolitical world.

Carlos De Alba: Now, the mining sector obviously has implications from an environmental point of view, and some of the aspects of the mining industry are at odds with sustainability business goals. So what would a significant increase in mining activity in the US will look like from a sustainability perspective?

Ariana Salvatore: So this is really just a question of opposing factors. We do think that there are some clear benefits from a sustainability perspective when it comes to onshoring. For example, you have better oversight and reduced risks relating to human and labor rights violations, a reduction in global greenhouse gas emissions, assuming the extraction process here in the U.S. is held to higher ESG standards, and shortened transportation or supply chain routes. However, there's also a flipside which contains some obvious ESG concerns. First, you've seen the mining industry in the past be associated with human rights concerns, specifically related to impacts to local communities and of course, the hard to ignore implications of mining on nature and biodiversity. So at the end of the day, as I said, it's really a question of where that net effect is, and we think it's more in the positive column specifically because of that better oversight around the ESG pillars that is facilitated by onshoreing. But putting that to the side for a second, Carlos, when all is said and done, assuming the U.S. is actually able to do this, does it even have enough of its own mineral supplies in order to satisfy all its needs domestically?

Carlos De Alba: Well, that's an interesting point, because in 24 of 50 minerals deemed critical by the USGS, the US either report less than 1% of the total global reserves or lack sufficient reserve data, which highlights the need for more comprehensive exploration and mining efforts. In the case of some battery making minerals like cobalt, nickel or vanadium, the US holds an average reserve level of only .5% of total global reserves. Now, on the positive side, the US ranks ninth in copper reserves, accounting for about 5% of total global reserves, and the country ranks sixth in rare earths reserves. Ariana, if we consider yet another relevant aspect for the discussion, what about the workforce? How is the US government addressing labor shortages in the mining industry?

Ariana Salvatore: When it comes to the sector there's definitely a shortage of skilled workers in particular, which is being tackled I'd say through two distinct avenues. First of all, you have corporates which are trying to change the public perception of mining, and they're doing that primarily by elevating their operating standards and focusing on reducing possible environmental impacts. And then to your point, the you just mentioned, you also have the government doing its part by launching workforce initiatives. Those are basically programs that are set up to incentivize higher education institutions to develop critical minerals education programs and research and training efforts. Those are funneled through legislation like the CHIPS and Science Act, which was signed into law late last year. A popular saying within the mining industry is, 'if you can't grow it, you mine it'. Given that mining is a critical source of raw materials which touch upon nearly every supply chain, Carlos, can you sketch out some of the broader industrial and economic implications of a potential mining boom?

Carlos De Alba: You're absolutely right. The development of a new domestic mine supply and the requiring processing capabilities will influence multiple industries here in the US. Beyond obviously, miners and exploration companies, a potential mining boom in the country will generate significant demand for equipment and machinery manufacturers, as well as engineering and environmental firms. It would also foster a more rapid and secure development of supply chains that rely heavily on minerals like batteries and electric vehicles companies.

Ariana Salvatore: Carlos, thanks for taking the time to talk.

Carlos De Alba: Thank you, it was great speaking with you Ariana.

Ariana Salvatore: And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review on Apple Podcasts, and share the podcast with a friend or colleague today.

A number of U.S. industries rely heavily on critical minerals that must be imported from other countries. Policymakers and business leaders are calling for investment and reshoring to manage that risk.