U.S. mining needs major boost to meet surging EV demand

If the U.S. and other nations hope to achieve their targets on electric vehicle adoption, supply chains for critical materials such as lithium and nickel will need to be built up to a significant degree — and fast.

In order to meet carbon emissions goals set around the world, the auto industry needs about 50 more lithium mines, 60 more nickel mines and 17 more cobalt mines — just to meet EV demand projections for 2030, the International Energy Agency found in a July report.

As automakers look to sell more battery-electric vehicles and as governments move to reduce the number of gasoline-powered vehicles sold, passenger BEVs are expected to account for the bulk of rising demand for such critical materials, which are required for EV batteries.

Sourcing the necessary metals will be a daunting task, said J-P Martins, a partner at consulting firm Partners in Performance. Not only are some materials found in just certain corners of the world, when it comes to sourcing them locally, time will be an added challenge: Getting a new mine up and running in the U.S. can take as long as a decade.

"The big hurdle to meeting these goals," Martins said, "is where on Earth are all the materials going to come from?"

Over the past year and a half, the Biden administration has been attempting to answer that question by spurring more domestic mining and processing of critical battery materials, both of which are dominated by China and other nations. This year, the administration invoked the 1950 Defense Production Act to encourage companies to mine lithium, nickel, graphite, cobalt and manganese domestically, allowing companies access to federal funding to do so.

That followed the approval of $6 billion aimed at boosting the U.S. battery supply chain, part of last year's bipartisan infrastructure bill. It preceded the passage of the Inflation Reduction Act, which included incentives for companies to manufacture EVs and batteries in the U.S. and created local sourcing requirements for vehicles to qualify for EV tax credits.

The billions of dollars now being spent by private and public sectors amount to a "moonshot effort" to reduce the nation's dependency on fossil fuels and on other countries for increasingly important raw materials, said Thomas Goldsby, co-faculty director for the Global Supply Chain Institute at the University of Tennessee, Knoxville's business school.

"There seems to be this confluence of forces that make me think we just might be able to do this," Goldsby said.

But can the U.S. and its allies really get new mining projects underway quickly enough to meet the expected surge in vehicle demand? That might depend on whether governments are willing to overhaul their permitting processes, say mining executives and experts in the field.

"The biggest hurdles I see aren't about capital or resources," said Stephen Hanson, CEO of Acme Lithium, a mineral exploration company based in Vancouver, British Columbia. "It's a bottleneck at the permitting level."

Getting a mine operational in the U.S. can take upward of 10 years because of the long permitting process and the need to navigate litigation costs, which can run into the hundreds of millions of dollars "before a shovel even gets into the ground," said Jon Cherry, CEO of Canada-based Polymet Mining.

Speaking at the Battery Show in Novi, Mich., in September, Cherry told an industry audience: "We're excited about the financial incentives. But those incentives don't do you any good until you actually get through the litigation and the permitting process."

Automakers teamed with mining companies and a bipartisan group of legislators in September to urge lawmakers to cut the time needed to approve permits for a new mine in order to help boost domestic EV production, Reuters reported. The companies and lawmakers want to revise the General Mining Law of 1872, which governs hard rock mining on government land.

The Biden administration has been studying the issue since February. But how exactly federal regulators might overhaul the permitting process remains unclear.

Acme Lithium's Hanson said it will remain important for mines to be held to high environmental and sustainability standards to limit their impact on surrounding communities. To ensure that, he said, more resources should be put into "human capital" at the regulatory level.

"It's not about eliminating the boxes we need to tick," he said. "The best thing governments can do is to put a few hundred more people in the capacity of permitting at the community, state and federal levels.

"Invest in people to make sure the bureaucracy and red tape that it takes to advance these projects improves and are sped up."

Meanwhile, about 92 percent of the world's lithium is mined in just three countries: Australia, Chile and China, according to consulting company Roland Berger. Roughly 95 percent of the metal is processed in China and Chile, with the U.S. accounting for just 2 percent of all lithium processing.

Reliance on China for critical materials leaves the North American industry open to geopolitical risk as tensions rise between the American and Chinese governments, industry experts said. About 71 percent of the world's lithium is processed in China, along with 65 percent of its cobalt and 35 percent of its nickel, according to Roland Berger.

Navigating those waters is likely to be tricky, said Lewis Black, CEO of Toronto-based tungsten miner Almonty Industries.

"What will China's response be to defend market share? That's where questions get much more difficult," he said.

He pointed to tungsten as an example. More than four-fifths of the world's tungsten comes from China, he said. The country entered the tungsten market only in the 1980s by underpricing most of the world, offering very low-cost material to companies and developing an "extremely organized vertical supply chain" in the process, he said.

In response to new mining projects elsewhere, China could choose to restrict supply, hurting overseas vehicle production just as automakers want to ramp up EV assembly, Black said. China also might choose to lower prices further, potentially putting new mining and material processing projects in the U.S. and elsewhere at a financial disadvantage.

"If a new mine comes into a low-price environment and it's bleeding money, what are you going to do?" Black asked. "Or if, as it's being built up, your manufacturing base is now refused access to traditional sources of supply for tungsten, what are you going to do? You're stuck between a rock and a hard place."

But regardless of how China might respond, the U.S. will work to build up its domestic mining and refining capacity.

In September, for example, North Carolina-based Piedmont Lithium said it will spend $582 million to open a lithium hydroxide processing, refining and manufacturing facility in Etowah, Tenn., northeast of Chattanooga. Acme Lithium, meanwhile, also said in September it will move ahead on a project in Nevada after a lithium discovery there.

Acme's Hanson said Nevada has "the right environment" to discover lithium in, and it could become a hotbed of lithium mining. Active explorations are also underway in Utah and California, and there are known lithium deposits in Ontario, Quebec and Manitoba.

The U.S. and Canada are home to one of the world's only Class 1 nickel reserves, on the border of the northeastern U.S. and Quebec, said Martins, of Partners in Performance. Others are in Siberia and Western Australia, he said, along with some "undeveloped but very promising resources" in Minnesota.

But while the American and Canadian governments look to spur mining capabilities in those regions, Martins said uncertainty about which battery chemistries will win in the long run could limit the number of investments mining companies make.

Automakers and battery companies are pouring billions of dollars into the development of different battery chemistries, looking for those that might mean longer battery range at a reasonable cost. As an example that the commercial market is in flux, startup Our Next Energy said this month it will spend $1.6 billion to open a factory in Michigan, where it will assemble lithium iron phosphate cells and packs, which do not use nickel or cobalt.

A nickel miner, for example, might "wait to see how the EV market pans out a little more" before committing billions of dollars to a new mine or refinery, Martins said.

"You're talking billions of dollars in a market that does not yet fully exist with products that are not yet fully defined," he said. "It's not yet clear exactly what chemistries and what products you're going to need, and you have a supply chain with miners who are used to selling their products in a commoditized way where they are indifferent as to who their customers are."

Some automakers are looking to take the situation into their own hands.

Mercedes-Benz and Volkswagen, for instance, signed agreements with the Canadian government in August to secure access to the country's lithium, cobalt, nickel and graphite, helping to regionalize the supply chains for their U.S. operations. Critical materials mined or processed in Canada can count toward the Inflation Reduction Act's local sourcing requirements for U.S. federal EV tax credits.

Martins believes the best approach for automakers is to work through equity partnerships and joint ventures with companies up and down the supply chain, including mining companies.

General Motors has already made such a move. The company said this month it will invest up to $69 million and take an equity stake in Australia-based Queensland Pacific Metals to secure a source of nickel and cobalt.

"I think there is a growing realization that you have to have more control of your supply chain, and you need to adopt a partnership mentality," Todd Malan, head of climate strategy at metals company Talon Metals, said during last month's Battery Show.

"The days of looking at commodities supply as just a matter of just-in-time delivery are over. We're adjusting to this idea that this is an era of scarcity — and because of that scarcity, you have to take a different approach."

While industry insiders and analysts envision a rocky road ahead on these new supply chain issues, mining executive Hanson is hopeful that automakers will achieve their goals in the long-term — especially now that governments and businesses are pointed in the same general direction.

"There is a huge tail wind behind the industry right now," he said.