The new financing initiative aims to enhance collaboration amongst export credit agency and development finance institutions to support financing for critical mineral projects.

By Tom Bartlett, JP Sweny, Alexander Buckeridge-Hocking, and Samuel Burleton

The Minerals Security Partnership Finance Network (MSPFN), a joint financing body, was announced by the United States, the European Commission, the United Kingdom, Canada, Japan, Australia, and nine other nations on 23 September 2024 at the United Nations General Assembly in New York.

The MSPFN is a landmark financing initiative designed to diversify supply chains and combine sources of funding to support critical minerals (CMs) projects around the world that are essential for the energy transition.

What Are Critical Minerals and Why Do They Matter?

There is no universal definition of CMs. However, the UK’s Energy Act of 2020 defines them as “any non-fuel mineral, element, substance, or material that the Secretary of Energy determines: (i) has a high risk of supply chain disruption; and (ii) serves an essential function in one or more energy technologies, including technologies that produce, transmit, store, and conserve energy”. CMs include copper, lithium, cobalt, nickel, rare earth elements, and graphite; they are vital for manufacturing renewable and other technologies, notably electric vehicle batteries, solar panels, and wind turbines. The CM supply chain is, therefore, fundamental to the energy transition and to meeting net zero targets.

The demand for CMs is extremely high, and will need to increase significantly in the next decades to meet the steep growth in new technology applications required to hit, or get close to, net zero targets. The World Bank Group estimated that the demand for lithium, cobalt, and graphite could increase 500% by 2050 to meet the growing demand for clean energy technologies. Further, more than three billion tons of minerals and metals may be needed to meet future demand for wind, solar, geothermal power, and energy storage.

What Are the Key Aims of the MSPFN?

The MSPFN is a US-led financing initiative that stems from the Minerals Security Partnership (MSP); a framework established in 2022 by 14 governments and the European Commission to advance, diversify, secure, and sustain supply chains for CMs. The MSPFN was created to strengthen cooperation and promote information exchange and co-financing among participating institutions.

The MSPFN is the latest initiative by the US and other nations to address the Chinese domination of many existing CM supply chains, and to respond to Chinese government policy in this area (including the use of trade controls). For example, China currently dominates the production and processing of, and manufacturing using, rare earth elements (currently producing approximately two-thirds of the world’s rare metals), and has imposed trade measures to control the export of graphite from China. There are growing concerns amongst many other governments that China is in the process of establishing global dominance over the manufacture of batteries for electric vehicles, in the same way that it dominated the global market for solar PV panels by proactively subsidising that industry and undercutting competition. In early October 2024, and in response to these concerns, EU Member States backed import duties on Chinese-made electric vehicles of up to 45% on the basis of unfair subsidisation and to protect the European car industry.

In short, the MSPFN intends to provide greater access to debt financing for borrowers (primarily from participating nations) to fund CM projects across the mine-to-market value chain to address these issues.

Low metal prices, ESG concerns, and other macroeconomic pressures have reduced traditional investment in mining projects, which often demand a combination of both debt and equity for development and construction. This has resulted in less readily available traditional project finance debt and constrained liquidity. Given the volatile nature of many mining projects, and the fact that project finance structures typically require (potentially expensive) sponsor support, sponsors are seeking alternative finance methods alongside their equity investment. Alternative finance (including, but not limited to, private equity / funds, offtake prepayment arrangements, streaming, and royalty financing) has been used to help meet the funding gap for CM projects, particularly for preliminary stages of development. Notwithstanding this, export credit agency (ECA) support has gained ground for CMs. Traditionally, ECAs have revolved around the export of services, but ECAs are providing financing directly to new mine developments as a means of securing offtake for imports. They are also becoming more active in providing ECA cover (in the form of guarantees or insurance) for CM projects. For example, on 31 October 2024 as part of the UK budget announcements, the Chancellor announced that UK Export Finance — the UK government’s ECA — will offer financial support for overseas projects that supply CMs fuelling UK industrial growth and the net zero transition.

The MSPFN intends to bring together ECAs and development finance institutions (DFIs) to act as a lever for additional commercial bank financing and private capital for CM projects to help alleviate funding constraints and propel more of these projects to a final investment decision.

Who Are the MSPFN Members?

The MSPFN is the largest collaboration of its kind, boasting ECA members from the US, UK, Australia, India, Japan, Korea, France, Germany, and Italy. In addition, various DFIs participate in the existing partnership.

What Role Do DFIs and ECAs Play in CM-Rich Markets?

CMs are often found in resource-rich emerging markets (notably across the African continent) that sometimes pose higher risk for investors. ECAs and DFIs play a crucial role in providing credit to projects in developing countries where the political or credit risk renders the lending environment unfavourable to commercial bank lending. In recent years, certain nations in resource-rich emerging markets have received a large amount of Chinese funding. The MSPFN is seeking to provide more competitive and available financing to compete with Chinese financiers in CM-rich emerging markets.

Looking Ahead

Initial stakeholder reaction to the MSPFN is extremely positive. As demand for CMs continues to increase, enhanced collaboration and financial support from governments, ECAs, DFIS, as well as the private sector will be needed. Time will tell if the MSPFN will enhance investment for CM projects and achieve its intended goals.