Minerals, like lithium, cobalt, nickel, and ‘rare earth elements’ (REE) are essential for most of our daily tech like smart phones and laptops, as well as technology for green tech like solar panels, electric cars, and renewable energy storage. Thanks to demand from these sectors, especially renewable energy, critical minerals investments and exploration spending has surged in recent years, with the global market size for transition minerals doubling from 2017 to 2022 to USD 320 billion.
With the importance of these minerals for powering the present and future, and the value of their market size, many countries are taking action to make their development easier while also protecting them as parts of national security.
Canada, the United States, and Australia have all set out guidelines and policies to support critical mineral development and supply chains, while also limiting who can invest in the sector. For example, in 2022 the Canadian government updated its foreign investment policy to increase due diligence of foreign state owned enterprises seeking to acquire critical mineral companies or their suppliers, with geostrategic criteria considerations making up one review factor. While these and other countries protect investments in critical minerals, China, the leading processor of REE, has banned exports on processing technologies.
While governments develop new policies to manage increased risk around critical minerals, mining companies have long been trying to manage risk in the sector. Many of the minerals being sought are in some of the poorest performing countries on Transparency International’s Corruption Perception Index. The Democratic Republic of Congo (DRC) has the highest concentration of cobalt, a mineral needed for green tech like batteries and wind turbines. The DRC also ranks 162 place out of 180 on the CPI.
In high-risk jurisdictions, mining operations face potential bribery issues in anything from importing equipment, to acquiring licenses and permits, to sourcing local goods. Major mining companies need to thoroughly scrutinize the conduct of junior mining operators that they acquire to ensure they are not also acquiring a legacy of corruption.
In the pursuit of critical minerals for green tech, the mining industry is also itself being scrutinized for its ESG impact. As examples, investors will continue to expect ESG reporting to manage their own risks, and mining communities are pushing back on improved social licenses with companies.
The urgency, promise, and risk that critical minerals represent can be considered a focal point for what we at Moody’s call the era of Exponential Risk. Risks in supply chains, climate change, ethics, and geopolitics feed off of each other, often creating unforeseen challenges.
How Moody’s Can Help
We provide a range of data sets, tools, and services that can help companies and countries navigate many of the exponential risks that the mining sector faces in order to help advance that responsible development of critical minerals that so many us do and will rely on.
Moody’s flagship database, Orbis, provides infographic data on 489 million entities around the word that can help countries and companies screen investors and investments. Orbis paired with insights tools such as Grid, Supply Chain Catalyst, M&A, and our new Shell Company Indicator help governments and companies conduct the intense due diligence they need.
As an example using public source data in Orbis on January 15, at surface level, the biggest M&A investor in REEs is a Singapore company, Shenghe Resources (Singapore) PTE Ltd. But looking through the web of ownership structures, one finds the influence of a Chinese state-owned company. In fact, in 2023 the parent Shenghe set up 16 subsidiaries all outside of China.
Figure 1: Offshore companies facilitating Chinese pursuit of REEs
Figure 2: Shenghe Resources (Singapore) PTE Ltd control structure
Figure 3: Shenghe subsidiaries
Additionally, Moody’s can help governments and companies conduct ESG reviews through our ESG tools that have primary data on the 10,000 largest global firms as well as score predictions for small and medium enterprises.
To learn more about how Moody’s can help you navigate the exponential risks of the mining sector, contact us.
James Cohen - Industry Practice Lead – Canadian Government
Qing Liu - Head of KYC and Data Specialists
