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US mining sector at inflection point – Morgan Stanley

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By Colin Hay - 

Leading global financial institute Morgan Stanley believes the US metals and mining industry has reached an inflection point with the country desperately needing to increase its critical minerals output while managing its environmental, social, and governance (ESG) commitments at the same time.

In a recent webinar, Morgan Stanley’s Wall Street analyst Carlos De Alba noted that a number of US industries are heavily reliant on critical minerals that must be imported from other countries.

This has led to policymakers and business leaders calling for investment and reshoring to manage that risk.

Historical trends and current challenges

The Morgan Stanley presentation noted that since 1990, the US has seen a significant increase in both the variety of imported minerals and the level of dependence on these imports.

“As of right now, US reliance on imported critical minerals has reached a 30-year high.

However, at the same time, investment in the industry is near its lowest point in decades. “But as we’re seeing the world transition to a multipolar model where supply chains are more regional and global, it’s becoming ever more apparent that the US needs to turn to reshoring to satisfy its growing need for these critical minerals.”

Government and ESG concerns

Mr. De Alba said while the US government has recognized it needs to find the minerals which are essential to the economy and the national security of the nation, it is being held back by ESG and other concerns.

“The bottom line is that the US has scaled back its mineral extraction, processing, and refining capabilities since the 1950s. Because of environmental concerns, and economic considerations, like higher labor costs and lower economies of scale, as mining activities decline in the US, the country has recently relied on China, Mexico, South Africa, Asia, Canada, and Australia among others,” he said.

However, Morgan Stanley noted that US policymakers on both sides of the aisle have indicated support for reshoring the critical mineral supply chain.

“That’s mainly accomplished through legislation that targets things like tax incentives or subsidies for corporations. On the regulatory front, it really comes down to easing the permitting process, which can be quite backlogged and delay the project pipeline. For some more contracts, on average, it takes about seven to 10 years in the US, without taking into account the time spent on litigation, compared to about two to three years in other countries.”

Mr De Alba said relaxing the permitting process is one key way that lawmakers can try to accelerate the reshoring of critical minerals in an increasingly insecure geopolitical world.

Mining and sustainability

“Now, the mining sector obviously has implications from an environmental point of view, and some of the aspects of the mining industry are at odds with sustainability business goals.

“So, this is really just a question of opposing factors. We do think that there are some clear benefits from a sustainability perspective when it comes to offshoring. For example, you have better oversight and reduced risks relating to human labor rights violations or a reduction in global greenhouse gas emissions, assuming the extraction process here in the US adheres to higher ESG standards and shortened transportation or supply chain routes.”

At the same time, he noted there is also a flip side, which contains some obvious ESG concerns.

“First, you see the mining industry in the past be associated with human rights concerns, specifically related to impacts on local communities. And, of course, the hard-to-ignore implications of mining on nature and biodiversity. At the end of the day, as I said, it’s really where that net effect is. And we think it’s more in the positive column specifically because of that better oversight around the ESG pillars that is facilitated by onshoring.”

The Morgan Stanley report also noted that the US also has a supply chain that is vulnerable to disruption, while it serves an essential function in the manufacturing of a product, the assets, which will have significant consequences for the economic and national security of the country.