Critical choices: How to seize Australia’s critical minerals opportunity

Australia has the chance to generate more than $170bn in gross domestic product (GDP) and create almost 330,000 jobs by 2040 if we capitalise on our first-class endowment of critical minerals and other energy transition minerals.¹ 

That’s the size of the prize according to recent modelling, which explores four alternative futures for Australia’s critical minerals sector. From developing downstream capabilities to shaping international markets, we’ve projected what could be unlocked if governments, industry, and stakeholders take bold, coordinated action on critical minerals. Moreover, drastic action (see Scenario 4 outlined below) is needed to both maximise Australia’s economic potential and reach net zero emissions in a timely manner.

The conclusion? All of us need to think differently and act now.

In this article, we’ll explore the potential benefits in each of these four future scenarios. We’ll also outline five solutions so that Australia remains and expands its role as a ‘go-to’ for global demand. First, let’s start with the current landscape so we understand the extent – and the urgency – of the challenge. 

Australian resource and energy commodity exports grew to a record $467bn (up 11%) in FY23 in large part due to the continuing war in Ukraine and a strong US dollar.² Prices have moderated, but we expect they’ll remain above their (pre-COVID-19) long-term average.

Looking ahead, the sector is set to contract. Yes, China is emerging from prolonged lockdowns. However, domestic economic pressures in China (including slower economic growth and a housing downturn) are impacting the purchasing power of Australia’s biggest export customer. Add to this tighter monetary policy across most major economies, plus slowing economic growth and improving supply conditions, and exports are forecast to fall (down to $390bn in FY24, and $344bn in FY25).³

Against this slowing external backdrop, Australia’s critical minerals present a great opportunity.

Australia has among the world’s largest supply of critical minerals, which are pivotal to the world’s path to net zero.⁴ As the global energy transition gains momentum, and demand for critical minerals and other energy transition minerals surges, Australia’s (abundant) supply gives us an unparalleled economic and strategic advantage.

True, obstacles and competitors exist. But if we act quickly, Australia can position itself as the leading ethical and reliable source of critical minerals for the rest of the globe.

In June 2023, we modelled the economic potential of Australia’s critical minerals – and the results show just how great the size of the prize could be. The scenarios range from Australia continuing activities to maintain our current market share, to more aspirational scenarios that require true step changes if they are to be realised.

Scenario 1: Maintaining market position

Under this scenario, Australia increases production in line with global demand but remains primarily an exporter of raw materials (i.e. no real development of downstream capabilities). Even so, just by upping production we could add $71.2bn in GDP and an additional 115,100 full-time equivalent (FTE) jobs between now and 2040 (compared with a base case of maintaining the current status quo).

Scenario 2: Value adding

Here, we see the value of moving beyond a ‘dig and ship’ mentality to capture more of the downstream processing supply chain. Scenario 2 estimates we’ll achieve a $69.9bn uplift in GDP and an extra 143,000 FTE jobs by 2040, where government policy leads to increased investment in onshore processing and manufacturing. (For example, materials purification and refinement, or component manufacturing for EV batteries.) 

Scenario 3: Shaping international markets

This scenario sees Australia shape international markets by influencing standards, attracting a green price premium for being an ethical supplier. We also progress government-to-government and business-to-business partnerships to secure greater market share. The upshot? An additional $72.5bn in GDP and 121,100 jobs by 2040. 

Scenario 4: Building capabilities and international market share

Combining scenarios 1-3: by adopting a deliberate policy focus on downstream processing capabilities (Scenario 2) and securing greater international trade and investment (Scenario 3), we could achieve an additional $139.7bn uplift in GDP and an extra 262,600 jobs by 2040. If we foster earlier consumer tech adoption and faster project development times too, this could rise as high as $170.8bn in GDP and 329,000 jobs.⁵

Clearly, it’s not overstating it to say Australia has an opportunity to simultaneously grow our economy and propel the world towards net zero – but only if we make critical choices about our critical minerals right now. 

Maximising Australia’s critical minerals opportunity relies on swift, coordinated action from governments, industry, and critical minerals stakeholders to ensure we:

1. Focus on supply

We need a concerted focus on supply today if we want to meet tomorrow’s demand. Specifically, we need to further boost exploration efforts and pre-production, and accelerate project pipelines. There’s scope for governments to play a more active role via incentives, co-investment, and connecting market partners. With 26 minerals already on Australia’s critical minerals list, but up to 80% of the continent still underexplored⁶, we need to sharpen our assessment of the opportunity in front of us.

In short, we must leverage our natural advantage.

2. Attract investment

Maximising our mining and downstream opportunities requires substantially greater – and faster – investment and financing. How big? Our modelling assumed up to $10.4bn in investment from now until 2035 to generate $170.8bn in GDP (Scenario 4).

To achieve this, we need to look beyond traditional sources of mining finance and tap into new sources of capital, including superannuation and infrastructure funds, governments, international capital, and debt and equity capital markets. 

This requires better communication with the broader investing market. How many investors, for example, know the average post-tax internal rate of return for investment-ready critical minerals projects can be up to 26% (versus 5-8% for fully contracted development projects)?

3. Coordinate our approach

Critical minerals success requires a shared vision – and a coordinated ecosystem. By creating critical minerals hubs or precincts, for instance, we can promote collaboration along the supply chain to develop processing and manufacturing facilities, delivering synergies and competitive advantages. Think: shared infrastructure, shared costs, and shared financial, operational and innovation risks. Critical minerals projects can face initial outlays of $1bn+, so any way to materially reduce the pre-production capex burden on any individual organisation can incentivise significant investment.

4. Choose growth-oriented policy settings

We only need to look to the Quadrilateral Security Dialogue (the Quad) Investors Network to see how the government can help position Australia as a secure supplier of critical minerals. Government support can validate and de-risk projects in the eyes of potential investors, improving access to financial and non-financial support (such as accelerating land access or fostering market access by linking producers to global supply chains).

Currently, critical minerals are firmly on the government’s radar. However, the sort of success suggested in Scenario 4, for example, requires a reset in policy thinking. 

We need bold government policy aimed at: 

1. building efficiencies into our existing critical minerals sector (e.g. accelerating approvals and development timelines),

2. providing additional support for smaller companies to progress and develop projects, and to less established critical minerals markets, and

3. focusing on energy availability (such as Renewable Energy Zones linking decarbonised energy sources with heavy industry).

5. Develop our social licence

When we talk about the size of the critical minerals prize, it’s a prize to be shared by all Australians in the form of more jobs, better economic outcomes, and a faster path to net zero. In the same way, all stakeholders need to be engaged in meaningful dialogue to manage potentially competing social and environmental outcomes – even as we strive for rapid action. This includes:

• Delivering for communities: Including greater focus on social and environmental impacts in line with rising community expectations, sharing social value, engaging authentically, and providing support and opportunities for impacted communities.

• Decarbonising operations and creating circular outcomes: Deploying renewable energy and storage at scale, recycling materials (especially those facing supply constraints, such as nickel), and seeking efficiencies such as reuse/recovery/recycling opportunities for mine waste.

• Maintaining high operating standards: From supply chain transparency to the provenance of our minerals, Australia has a proven track-record of delivering to the highest operating standards. We must maintain this as the energy transition picks up pace if we want to compete for global talent.

^{1 Department of Industry, Science and Resources and PwC, The economic potential of Australia's critical minerals and energy transition minerals, June 2023. Available at: https://www.industry.gov.au/sites/default/files/2023-06/economic-potential-of-australias-critical-minerals-and-energy-transition-minerals.pdf
2 Department of Industry, Science and Resources, Resources and Energy Quarterly, September 2023. Available at: www.industry.gov.au/sites/default/files/2023-10/resources-and-energy-quarterly-september-2023.pdf
3 Department of Industry, Science and Resources, Resources and Energy Quarterly, September 2023. Available at: www.industry.gov.au/sites/default/files/2023-10/resources-and-energy-quarterly-september-2023.pdf
4 Department of Industry, Science and Resources, Resources and Energy Quarterly, June 2023. Available at: www.industry.gov.au/sites/default/files/2023-07/resources-and-energy-quarterly-june-2023.pdf
5 Note, scenario 4 models the cumulative impact of realising scenarios 1-3. The cumulative quantitative impacts of scenario 4 are not equal to the sum of scenarios 1-3 due to the nature of the economic modelling undertaken. Computable general equilibrium (CGE) modelling is a sophisticated method that models the direct and indirect impacts of a given scenario - including both positive and negative impacts.
6 Treasury, Intergenerational Report 2023. Available at: treasury.gov.au/sites/default/files/2023-08/p2023-435150.pdf}