Governments have finally recognised the strategic importance of critical minerals. The harder question is whether the projects being funded can ever stand on their own.
There was an interesting story out of Europe this week. Twenty-three companies behind projects selected by the EU as strategically important to its critical minerals ambitions issued what they called an “Urgent Call to Action.”
Their concerns were not particularly surprising: financing, market access and permitting.
What was more interesting was the timing.
The EU has already selected 60 strategic projects — 47 within Europe and 13 outside the bloc — and has established a €1.7 billion financing framework to support them. Yet 23 of those projects are now warning that some face immediate jeopardy. France’s Viridian Lithium, itself selected as an EU strategic project, collapsed earlier this year. (Reuters)
There is a temptation to look at this and conclude that Europe simply isn’t spending enough money.
I’m not sure that’s the right conclusion.
The West has spent the past several years correctly identifying a very real strategic vulnerability. China dominates the processing of many of the minerals that underpin electrification, semiconductors, defence systems and advanced manufacturing. Export restrictions have turned what was once largely a theoretical concern about concentration into something much more immediate.
Governments have responded.
According to the IEA, public-finance commitments for critical minerals in advanced economies reached around $65 billion in 2025, more than four times the level recorded just two years earlier.
And yet, in the same year, investment in critical minerals fell by 9%. Investment by battery-metals companies fell by more than 20%. Lithium companies cut capital spending by around 40%, while exploration spending across critical minerals declined by more than 10%
That is quite a disconnect.
Governments have never been more willing to back critical minerals.
Investors, apparently, are becoming more cautious.
The question is why.
I think part of the answer is that we have spent too much time treating the critical-minerals problem as a funding problem when, in many cases, it is an economics problem.
Strategic does not mean economic
This is something I keep coming back to.
A mineral can be strategically important without being particularly profitable to produce.
A deposit can be geopolitically attractive without being a good mine.
And a processing plant can be essential to Western supply-chain security while being fundamentally unable to compete with the incumbent producer on cost.
Those distinctions matter because governments and investors are solving different problems.
For governments, the objective is supply security.
For investors, the objective is return on capital.
Occasionally those two objectives align beautifully.
Often they don’t.
Consider what we are asking a new Western critical-minerals project to do.
It may need to develop a mine in a jurisdiction with substantially higher labour and construction costs. It may then need to establish processing technology that has not previously been deployed commercially at scale in that jurisdiction.
It needs power. Water. Reagents. Skilled operators. Infrastructure.
It may need to qualify a product with customers who already have established suppliers.
And ultimately it has to compete with an incumbent industry that, in China’s case, has spent decades building scale, technical expertise, infrastructure and downstream integration.
The cost differential isn’t trivial.
The IEA estimates that capital costs for refining projects outside the dominant supplier are between 20% and more than 150% higher. Operating costs are, on average, around 50% higher, driven principally by feedstock and energy costs.
A government grant can reduce the initial capital burden.
It doesn’t necessarily fix that operating-cost disadvantage.
And this, to my mind, is where the current critical-minerals debate becomes uncomfortable.
If a project needs government support to get built, that may be entirely reasonable. Governments subsidise strategically important industries all the time.
But if a project requires continuing government intervention simply to remain competitive once it is operating, then we need to be honest about what we are building.
It is no longer simply a mining investment.
It is strategic infrastructure.
There is nothing inherently wrong with that.
But the distinction matters enormously to the investor being asked to provide the equity.
We are Still Looking too Much at the Mine
There is another problem.
For all the discussion around supply-chain independence, much of the Western response remains remarkably mine-centric.
- Find the deposit.
- Define the resource.
- Complete the feasibility study.
- Secure government support.
- Build the mine.
But a mine is only useful if there is somewhere for its material to go.
This is particularly obvious in rare earths.
By 2035, the IEA estimates that existing and announced projects outside the dominant refining country could produce nearly 50,000 tonnes of magnet rare earths at the mining stage.
Refining and separation capacity is less than 40,000 tonnes.
By the time we reach metals, alloys and magnets, capacity falls to only around 18,000 tonnes.
In other words, we can conceivably succeed in financing more mines and still fail to build an independent supply chain.
I made a similar argument in our recent Rare Earths Outlook.
The industry doesn’t really have a resource problem. There are rare-earth deposits all over the world.
The difficult part is everything that comes afterwards.
Separation. Refining. Metals. Alloys. Magnets. Customer qualification.
And, critically, doing all of that at a cost somebody is prepared to pay.
China’s position illustrates the point.
In 2024, China accounted for around 60% of mined magnet rare-earth production.
That’s certainly concentrated.
But move one step downstream, and its share rose to 91% of refining.
Move further downstream into sintered permanent magnets, and it reached 94%.
The above chart probably explains the problem better than a thousand words could, namely that the strategic vulnerability isn’t simply what’s in the ground. It becomes progressively greater as we move downstream.
And the same problem becomes even more interesting when we move into some of the smaller strategic metals.
Gallium is not, for the most part, produced from a gallium mine. It is recovered principally as a by-product of aluminium and zinc production.
Germanium is similarly associated with zinc and coal.
Tellurium is recovered through copper and lead processing.
This means that higher prices do not necessarily produce the supply response one might expect from a conventional mined commodity.
If the economics of recovering the by-product don’t work, or if the relevant smelting and refining infrastructure isn’t there, having the geological resource is of limited use.
And here there is another statistic I think deserves far more attention.
Since 2005, China has accounted for more than 90% of the growth in global copper-smelting capacity.
Its share of global capacity has increased from around 15% to approximately 50%.
Meanwhile, utilisation rates at smelters outside China fell below 70% in 2025, compared with around 85% in China.
This matters for copper. But it also matters for all the smaller metals that can be recovered through base-metal processing.
We therefore need to stop asking only:
Where is the resource?
And start asking:
Where in the value chain can we build something that survives economically once the subsidy cheque has been spent?
Someone Still has to Buy it
This is perhaps the least glamorous part of the critical-minerals conversation, but arguably the most important.
Someone has to buy the material.
Not theoretically.
Not because a government has put the mineral on a critical list.
Not because an OEM has signed a non-binding memorandum saying it supports diversified supply.
Someone has to commit to buying a defined product, at a defined specification, in sufficient quantities and at a price that supports the economics of producing it.
This sounds obvious.
In practice, it is one of the biggest obstacles facing new projects.
Western manufacturers may want diversified supply. They may even regard it as strategically important.
That doesn’t necessarily mean they want to pay more for it.
And this creates something of a circular problem.
The producer cannot finance the project without demonstrating an economic route to market.
The customer doesn’t want to commit to a higher-priced product until the producer has demonstrated reliable commercial production.
The investor doesn’t want to provide capital without credible off-take.
And the government wonders why, having offered funding, private capital still hasn’t arrived.
This is why I think the next phase of critical-minerals policy has to look quite different from the first.
The first phase was about identifying the problem.
The second was about identifying the projects.
The third will have to be about creating markets in which those projects can actually survive.
The Cheapest tonne and the Strategic tonne are Not the Same Thing
For most of the past thirty years, commodity markets have been ruthlessly efficient at directing capital towards the lowest-cost sources of supply.
That is, after all, what markets are supposed to do.
Critical-minerals policy is now asking the market to do something different.
We want companies to buy material from a more expensive supplier because that supplier is located in a friendly jurisdiction, provides greater transparency, uses a different processing route or reduces dependence on a strategically dominant country.
Those characteristics have value.
The difficulty is that traditional commodity pricing doesn’t necessarily compensate the producer for providing them.
A tonne of material that improves national supply security is not economically the same thing as the cheapest available tonne. Yet in many markets we continue to price the two as though it were.
This is why simply throwing more capital at the supply side is unlikely to be enough.
If governments genuinely regard diversified critical-mineral supply as a matter of national security, then some form of demand support is probably unavoidable.
That might mean strategic procurement or stockpiling.
It could mean facilitated off-take.
It could mean sourcing requirements or tax incentives.
And in some markets it may require mechanisms that explicitly address the price disadvantage- price floors, contracts for difference or government-backed off-take.
Interestingly, this is increasingly where policy thinking is heading.
The IEA now distinguishes between the tools appropriate for different parts of the value chain. Grants, concessional finance, equity participation and loan guarantees can address the upfront capital problem. But refining projects, which are much more exposed to margins and operating costs, may require instruments that address price and volume risk instead.
It specifically identifies contracts for difference, price cap-and-floor mechanisms, off-take backstops and strategic reserves as potential tools.
That distinction is important.
A loan guarantee can help you build the plant.
It cannot guarantee that the plant makes money.
Not Every Critical Mineral Project Should be Built
There is however a danger here.
Once we accept that government intervention is necessary, it becomes very easy to conclude that every project carrying the label “critical minerals” deserves support.
It doesn’t.
Government money cannot turn a poor orebody into a good one.
It cannot fix the wrong mineralogy.
It cannot create metallurgical recoveries that don’t exist.
It cannot make an inappropriate processing route competitive.
And it shouldn’t be used indefinitely to protect projects whose economics only work because the strategic narrative around the commodity is compelling.
This is perhaps particularly important now.
The EU wants its domestic capacity by 2030 to meet 10% of its annual extraction requirements, 40% of processing and 25% of recycling.
Those are useful strategic objectives.
They are not investment criteria.
The challenge for governments is therefore not simply to deploy more capital.
It is to deploy it far more selectively.
The projects worth supporting are those that solve a genuine strategic bottleneck and have a credible path towards becoming economically sustainable.
And where permanent support really is required, the strategic value needs to be sufficiently important that governments are prepared to treat that asset as infrastructure rather than pretending it is a conventional commercial investment.
That distinction is going to become increasingly important as more money enters the sector.
Because there is now a great deal of capital chasing “critical minerals”.
There are far fewer genuinely good critical-minerals projects.
The Next Bottleneck is Economics
None of this means that the West’s effort to diversify critical-mineral supply chains is misguided.
Quite the opposite.
The concentration risks are real.
In 2025, excluding rare earths, the average share of the largest refining country across the key energy minerals actually increased to 72%, from 70% just two years earlier. In manganese, nickel and graphite, virtually all recent refined-supply growth came from the dominant producer.
And some of the smallest markets present the greatest strategic risks.
The IEA ranks gallium, magnet rare earths, yttrium, graphite, tungsten, tellurium, cobalt and germanium among the materials most exposed to supply vulnerabilities.
For gallium, graphite, manganese and rare earths, China accounts for more than 90% of refined supply.
These are not necessarily enormous commodity markets.
But the industries dependent on them are.
A relatively small disruption in a minor metal can therefore have an economic consequence vastly greater than the value of the commodity itself.
The case for diversification is compelling.
But the industry has moved beyond the point where simply identifying another deposit outside China constitutes a strategy.
We know where many of the resources are.
We know which supply chains are concentrated. Governments have demonstrated that they are prepared to provide capital.
The harder work starts now:
- Which projects actually make economic sense?
- Which processing facilities solve genuine bottlenecks?
- Which products have customers prepared to qualify and buy them?
- Where is government support capable of catalysing a competitive industry — and where is it merely postponing an economic problem?
Those are much less exciting questions than announcing another critical-minerals fund.
They are also the questions that will determine whether the billions now being committed produce genuinely independent supply chains-or simply a collection of strategically important projects waiting for the next cheque.
The West does need to spend money on critical minerals. It just needs to become much better at deciding where in the value chain that money can actually change the economics.
