The US Energy Department is proposing putting in nearly $1 billion to accelerate the development of US critical minerals and materials.
The move comes as part of the Trump administration's intention to offer funding to advance and scale up mining, processing, and manufacturing technologies in the critical minerals and materials supply chains. This would be to build up the US's semiconductor building capability.
This could be relevant to insurers and their investment portfolios as they look to diversify and find new sources of yield at a time of lowering interest rates that could make diversifying more attractive.
However, experts have said that whilst mining the rare and critical minerals could be easier than expected, the questions of where they would be processed and the supply chain could be a different story.
One of the key questions for insurers looking to invest in the critical minerals space would focus on whether any brand risk and violation of ESG principles they might adhere to could be overcome, or worth it?
According to the Energy Department’s statement, the main reason for this new funding is the US’s focus on reducing China’s dominance in the sector.
Recently, the critical minerals discussion became the focus of international attention after President Trump suggested a deal with Ukraine to guarantee security if the country gave the US unfettered access to its rare mineral deposits. The minerals are integral to the production of semiconductors, and localising that industry has long been a goal of the president.
“Trump, in his first incarnation, did some work to identify the problem, and then Biden did so a bit with the CHIPS Act,” said Chris McGoldrick, Senior Analyst at Stewart Investors, the first investment manager to join the Initiative for Responsible Mining Assurance.
McGoldrick said there were multiple issues with the plan, but that the US’s attempts to create a more resilient supply chain based on self-sufficiency appeared to be its main focus.
The Chinese dominance of the sector has long been a thorn in the side of US companies.
“One of the work topics that we're interested in was the supply chain
within the semiconductor supply chain."
While the US economy maintains its growth, China’s markets have faced a turbulent year, worsened by tariff wars led by Trump’s administration and retaliatory export restrictions on rare earth minerals.
“One of the work topics that we're very interested in was the supply chain within the semiconductor supply chain, because, at the roots of all the products that we use are things out of the ground,” said McGoldrick. “They are going to come into much sharper focus of late for the very unsettling issue of geopolitics.”
From the 1950s to the 1980s, the US led production and refining of rare earth elements (REEs), but now, most are controlled by China or Russia, where environmental laws are laxer. “The majority of owners of rare earth processors are Chinese. It goes back to a well-known quote by [then Chinese President] Deng Xiaoping, when he said, “The Middle East has oil. China has rare earths.”. In mid-June, it was reported that the US and China had provisionally agreed to a framework for both sides to ease export restrictions that have long threatened the viability of global value chains.
“For too long, the United States has relied on foreign actors to supply and process the critical materials that are essential to modern life and our national security,” said Energy Secretary Chris Wright on the announcement.
So, if the US can push critical mineral mining, and the issue of who owns the refineries and where they are located is mollified, it could lead to significant investment. This could rely on whether the long-term strategic benefits outweigh the potential risks. What will it entail?
The Energy Department said the move was aligned with Trump’s earlier executive order on maximising energy development.
The department’s Office of Manufacturing and Energy Supply Chains (MESC) said it intended to offer up to $500 million in funding to expand US critical minerals and materials processing and battery manufacturing and recycling.
MESC said it also intended to offer up to $135 million in funding to support the domestic supply chain for rare earth elements, focusing on refining and recovery.
The department’s Office of Fossil Energy and Carbon Management intended to announce about $250 million in financial assistance for plants, including coal facilities, which have the potential to produce mineral by-products from industrial processes, said a statement.
Other funding includes up to $50 million to support processes in the rare earth magnet supply chain, such as refining and alloying gallium, germanium, and silicon carbide for use in semiconductors.
There are already rare minerals mining operations, and investments are happening by well-known brands, such as BlackRock and Vanguard. Apple entered a $500 million supply agreement with MP Materials to obtain US-made rare-earth magnets and to co-develop a processing facility in Texas, including recycling initiatives in California.
This funding presents long-term investment opportunities as government backing increases through their financial support.
A key part of the critical minerals strategy is to “accelerate federal loan, equity, and grant financing to expand primary domestic critical mineral production (medium complexity, high impact, one to two years to implement)”. In a report on the proposals, Deloitte said this was possible through “Expanding domestic critical minerals production and processing will require significant public and private investment in capital and innovation”.
“For 40 of the 50 mineral commodities considered critical by the
government, the US imports all or a majority of what it consumes."
“Given the relatively high risk and upfront costs of mining investments, expanded use of public finance can play an increasingly catalytic role in mobilising private investment,” it said.
Despite ESG concerns and potential challenges, investor interest remains strong.
“For 40 of the 50 mineral commodities that are considered critical by the government, the US imports all or a majority of what it consumes,” said Ariana Chiu, wealth management analyst in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank. “Rising geopolitical tensions may lead to a rethinking of supply chains and a greater commitment to expanding mining and refining capabilities at home,” she adds.
Elsewhere, Canada is also trying to strengthen its mining capabilities. Last year, RBC said the “capital is there, but there are hurdles to access”. For insurers, this growing market may offer long-term opportunities to invest.
However, insurers may be constrained due to environmental concerns and strict regulations that don’t impact other sectors.
For many investors, being signatories of the United Nations Principles of Responsible Investing (UN PRI) means that investing in certain areas is largely a no-go.
“[This is because] a lot of the minerals are currently mined in Africa and processed in parts of Africa and Indonesia, and attendant to all sorts of social injustices,” he said. “Investors are interested in that. It does add a reputational risk.”
“Part of the difficulty from a reputational risk perspective is how
strongly people believe in their consumer brand."
Reputational risk is important to these large companies. McGoldrick said many have concerns around potential in fear of supply chain controversies involving human rights and environmental abuses in the global south.
“Part of the difficulty from a reputational risk perspective is how strongly people believe in their consumer brand,” he said, naming several large tech companies, from car manufacturers to mobile phone companies, which desperately need the supply of semiconductors that critical minerals are used for, but don’t want the public attachment to them.
With faceless semiconductor companies, this issue is reduced due to less media attention, yet they could still feel the effects if a global scandal erupts.
McGoldrick was apprehensive about the US critical minerals plan, warning long-estimated timelines for completion could deter investors. Delays on returns add more hesitation, along with reputational risks and ESG frameworks.
“A lot of the problem is how long it takes to build plants,” he said. “It’s a medium, medium to longer-term issue that Americans are focusing more upon.”
“It leaves companies with space to decide if they want to drag their feet, but the
high-quality [companies] are the ones that are pushing the agenda."
This means the plants will have to be built either in the US or somewhere deemed acceptable and secure, i.e., away from China’s sphere of influence, if the end goal is US dominance and energy security for large brands and consumers. But gaining public support could take decades.
“It leaves companies with a space to decide if they want to drag their feet, but the high-quality [companies] are the ones that are pushing the agenda,” said McGoldrick.
