As the world transitions toward a greater focus on ESG, the demand for critical minerals, essential for various industries such as electric vehicle (EV) manufacturing, renewable energy and advanced technologies, has grown exponentially. However, ensuring a reliable and sustainable supply of these minerals has become a pressing concern. To address this challenge, partnerships between miners, car manufacturers and government entities are being forged in order to secure critical mineral supply chains. There is a strong emphasis on developing domestic or regional supply chains to reduce dependence on foreign sources and ensure a stable supply of these minerals. Advancements in technology and increased investments in mining operations are aimed at improving extraction efficiency, reducing environmental impacts, and promoting responsible sourcing practices.
In this article, we explore the significance of critical mineral supply agreements, collaborative efforts between automakers and mining companies, and government support in ensuring a steady and resilient supply of these essential resources in the auto industry.
Critical minerals
Critical minerals play a pivotal role in powering the future of transportation. Minerals such as lithium, cobalt, nickel and others have become increasingly vital due to their usage in EV batteries. Lithium, for instance, is a key component in the production of lithium-ion batteries, which are widely used in EVs. Cobalt and nickel are also critical elements in the battery chemistry, contributing to improved energy density and overall performance. The demand for these minerals has surged alongside the growing popularity of EVs, as they are essential for achieving longer driving ranges and faster charging times. The following paragraphs outline the uses of certain critical minerals in the EV process.
Lithium: Lithium is primarily utilized in the production of lithium-ion batteries, which are the key power source for EVs. These batteries offer high power-to-weight ratio, high energy efficiency, good high-temperature performance and fast charging capabilities.[1] Lithium also finds applications in other industries, such as portable electronics, renewable energy storage systems and grid-level energy storage.
Cobalt: Cobalt plays a crucial role in enhancing the performance and stability of lithium-ion batteries. It is used in the cathode material, where it improves energy density and extends battery life, as well as provides increased thermal stability.[2] Apart from EVs, cobalt is utilized in numerous commercial, industrial and military applications, including the manufacturing of superalloys, magnets and airbags for vehicles, among other uses.[3]
Nickel: Nickel is another vital element in the cathode chemistry of lithium-ion batteries. It helps increase the energy density and stability of the battery, enabling greater driving ranges and improved performance. Nickel is also widely used in stainless steel production, EV charging infrastructures and various industrial applications, including computer and medical equipment.[4]
Rare Earth Elements (REEs): REEs also play a role in the auto-mining sector. Elements like neodymium and dysprosium are utilized in the production of permanent magnets, which are essential components in electric motors, rather than electric batteries. These magnets enable high torque, efficiency and compact size in electric drivetrains.[5] Car manufacturers, such as Tesla, are trying to reduce REE usage in the production of EV motors, as it can be “hard to secure supplies of them, and a large majority of worldwide production is either sourced or processed in China.”[6]
Partnerships and agreements
In recent years, car manufacturers have been actively engaging with mining companies to establish binding, long-term, offtake agreements for critical mineral supply. These partnerships aim to secure a stable supply of minerals like lithium, cobalt, nickel and other rare earth elements. By establishing direct relationships with miners, automakers can reduce their vulnerability to supply disruptions, price volatility and geopolitical risks.
These offtake agreements often involve “take or pay” commitments from car manufacturers to purchase a certain guaranteed minimum volume of minerals over a specified period. In return, miners benefit from a guaranteed market for their products and potential investment in expanding their mining operations. This collaboration enables miners to make long-term investment decisions with confidence, and instills confidence in other stakeholders, including investors and financiers. These offtake agreements may also include significant advance payments, which foster the development of commercial production, thereby ensuring a sustainable supply of critical minerals.[7]
Numerous offtake agreements have been entered into between mining companies and car manufacturers in recent years. Financial information for these agreements have not been publicly disclosed and pricing, for the most part, will be based on an agreed upon market-formula. The average length of these “long-term” offtake agreements range from five to six years, with some extending up to 11 years. The average tonnage specified in the agreements ranges from 4,000 up to nearly 20,000 tonnes of critical minerals per year. Lithium carbonate and lithium hydroxide are the primary critical minerals being purchased under these offtake agreements, as these are essential components for lithium-ion batteries in EVs.
Geographically, these agreements are being entered into from North America, Australia and Europe. Some notable locations include Nevada in the United States, where ioneer’s Rhyolite Ridge Lithium-Boron operation is located. General Motors (GM) is making a “multi-million dollar” investment in Australia’s Controlled Thermal Resources (CTR) to bolster the mining company’s efforts to extract lithium from California’s Salton Sea Geothermal Field. GM said a “significant amount” of the lithium it needs for its EV batteries will come from CTR’s “Hell’s Kitchen” development site in the Salton Sea Geothermal Field, located in Imperial, California. The California Energy Commission estimates the area could produce 600,000 tonnes of lithium carbonate annually, worth US$7.2 billion.[8]
Germany’s Volkswagen has signed an agreement with Australia-listed lithium supplier, Vulcan Energy Resources Ltd, while Vulcan Energy Resources has also secured agreements with Stellantis and Renault Group. European Lithium Ltd. (EUR) has signed its first ever offtake agreement, teaming up with BMW through EUR’s Austrian subsidiary ECM Lithium AT GmbH (ECM) to supply lithium hydroxide from the Wolfsberg Lithium Project, in Austria. This agreement includes an advance payment by BMW to ECM of US$15 million, to be repaid through equal set-offs against lithium hydroxide delivered to BMW.
In Canada, Mercedes-Benz has entered into an agreement with Rock Tech Lithium in Ontario. Rock Tech Lithium will source its raw ore from the Georgia Lake region in Ontario, but eventually plans to build five high-tech lithium conversion facilities, one in North America and four in Europe, for a total production capacity of 120,000 tonnes of lithium hydroxide annually by 2029.Finally, Ford Motor Company (Ford) has established an agreement with Nemaska Lithium, whose project is planned to be the first to produce lithium hydroxide in Québec.
Government involvement
Government entities are also involved in the auto-mining sector, impacting the industry in various ways.
In March 2023, the Ontario government proposed changes to the law governing approval of mining projects to boost Ontario’s production of minerals essential to EV batteries. The changes are intended to speed up the licensing of new mines and make it easier for companies to obtain a permit to recover minerals from mine tailings and waste. Accordingly, the proposed amendments to the Mining Act (Ontario) are expected to “increase certainty for business planning and generate investment in northern Ontario” by simplifying the approval of mine closure plans.[9] The proposed amendments should also save mining companies time and money by allowing more flexibility in the techniques used to rehabilitate mines once they are closed, as well as create additional options for mining companies to pay financial assurance.[10]
On August 23, 2022, Volkswagen entered into a memorandum of understanding with the Canadian Government to provide a reliable and sustainable supply chain for the increasingly scarce raw materials that go into EV batteries, including nickel, cobalt and lithium.[11]
On March 28, 2023, Honda welcomed the critical minerals agreement signed by the US and Japan, which seeks to promote the adoption of EVs and strengthen and diversify supply chains.[12] The agreement was built on the 2019 US-Japan Trade Agreement. It establishes a series of joint commitments, aiming to ensure well-functioning supply chains for critical minerals and EVs. Honda offered its support to this effort, citing its goal of reaching 100% EVs sales by 2040 by facilitating access to critical minerals for EV battery components and materials.[13]
Conclusion
Overall, these binding offtake agreements are crucial steps toward ensuring a sustainable and secure access to critical minerals for auto manufacturers, helping them achieve their ESG goals of carbon-neutral emissions while also realizing on significant increases in EV sales. These offtake agreements are also key for miners and the development of mines to achieve commercial production, as these types of “take or pay” commitments are instrumental in obtaining financing to develop mines, and often include significant advance payments. As car manufacturers strive to meet the growing demand for EVs and sustainable energy technologies, strategic partnerships with mining companies and government entities will be key to reaching this goal.
[1] “Batteries for Electric Vehicles”, online: U.S. Department of Energy <afdc.energy.gov/vehicles/electric_batteries.html#:~:text=Lithium%2DIon%20Batteries,-Lithium%2Dion%20batteries&text=They%20also%20have%20a%20high,a%20challenge%20for%20the%20industry.>/
[2] “Batteries and Electric Vehicles”, online: Cobalt Institute <www.cobaltinstitute.org/essential-cobalt-2/powering-the-green-economy/batteries-electric-vehicles/>.
[3] Kim Shedd, “Cobalt Statistics and Information”, online: USGS <www.usgs.gov/centers/national-minerals-information-center/cobalt-statistics-and-information#:~:text=Cobalt%20is%20also%20used%20to,for%20porcelain%20enamels%3B%20high%2Dspeed>.
[4] Supra note 1.
[5] Dr. James Edmondson “Rare Earths in EVs: Problems, Solutions and What Is Actually Happening” (October 28, 2021), online: IDTechEx <www.idtechex.com/en/research-article/rare-earths-in-evs-problems-solutions-and-what-is-actually-happening/25071>.
[6] Jameson Dow “Tesla is going (back) to EV motors with no rare earth elements” (March 1 2023), online: electrek < electrek.co/2023/03/01/tesla-is-going-back-to-ev-motors-with-no-rare-earth-elements/#:~:text=The%20rare%20earth%20elements%20in,as%20additives%20in%20Neodymium%20magnets.>.
[7] Phoebe Shields, “European Lithium inks historic lithium offtake agreement with BMW” (December 20 2022), online: proactive <www.proactiveinvestors.ca/companies/news/1001824/european-lithium-inks-historic-lithium-offtake-agreement-with-bmw-1001824.html>.
[8] Andrew J. Hawkins, “General Motors strikes a deal to source lithium in the US for its electric car batteries” (July 2 2021), online: The Verge <www.theverge.com/2021/7/2/22559718/gm-lithium-ctr-ev-battery-investment-salton-sea>.
[9] Mike Crawley, “Doug Ford government wants to speed up mining permits in Ontario” (March 1, 2023), online: CBC <www.cbc.ca/news/canada/toronto/ontario-mining-act-amendments-1.6764906>.
[10] “Ontario Building a Stronger Mining Sector” (March 2, 2023), online: Government of Ontario <news.ontario.ca/en/release/1002766/ontario-building-a-stronger-mining-sector>.
[11] David Booth, “VW, Mercedes sign deals for Canadian EV battery minerals” (August 23 2022), online: Driving <driving.ca/auto-news/industry/vw-volkswagen-mercedes-benz-sign-deal-for-canadian-ev-electric-vehicle-battery-minerals-lithium-trudeau>.
[12] “Honda Statement on Agreement Between United States and Japan to Strengthen EV Battery Critical Minerals Supply Chains” (March 28 2023), online: Honda <hondanews.com/en-US/honda-corporate/releases/release-19e37853b1d887d7103343365706309d-honda-statement-on-agreement-between-united-states-and-japan-to-strengthen-ev-battery-critical-minerals-supply-chains>.
[13] Florence Jones, “US and Japan sign critical mineral agreement” (March 30 2023), online: Mining Technology </www.mining-technology.com/news/us-japan-sign-critical-mineral-agreement/>.
