"Let's rekindle the essence of extraction"
Stefan Müller, CEO of the German Mining, Geology and Resources Association (DGWA), has proposed the establishment of a dedicated investment facility to address the reservations of German and European investors regarding engagements in exploration and development projects for rare earths.
Müller believes that the selection of strategic projects under the Critical Raw Materials Act should be based on strict scientific criteria, not political ones. He emphasizes the importance of this approach to ensure the success of rare earth projects, which are considered to have above-average potential due to their high risk.
The EU Critical Raw Materials Act aims to accelerate licensing procedures, but there are concerns about a lack of personnel among mining authorities. Müller points out that the first phase of exploration and evaluation is crucial for the success of the project, requiring financing of up to €25 million for feasibility studies.
The investment facility, supported by a public development bank, would provide financing for these feasibility studies, making rare earth projects more attractive to investors who are typically cautious due to the high uncertainties and long development timelines associated with these projects.
Banks and companies are hesitant about potential reputation damage from financing or involvement in mining projects. Müller argues that Europe should take responsibility for rare earth extraction and proposes a financing format that could attract further investors. This format could involve straight equity or a royalty agreement structure, potentially tradable.
Müller expresses optimism that such a financing format could encourage more investors to participate in the exploration and evaluation phase of rare earth projects, where financing is currently difficult because proof of economic feasibility has not yet been provided.
The EU Commission has presented a first selection of strategic projects within the framework of the Critical Raw Materials Act, but there is room for debate about some of the projects on the list. Müller critically evaluates the EU Critical Raw Materials Act, expressing concerns about the EU's ability to meet its targets, particularly the 10% annual consumption target by 2030.
Despite these concerns, Müller believes that the targets for processing and recycling under the Critical Raw Materials Act are "somewhat more realistic" compared to the annual consumption target. He also notes that European investors are cautious about rare earth projects due to the high risk and long time horizons.
The feasibility studies in the first phase of rare earth projects open the door to project financing and commodity extraction. DGWA's proposed investment facility aims to address this issue and help Europe meet its strategic objectives in the field of rare earth extraction.
Investors often exhibit caution towards rare earth projects due to high uncertainties and long development timelines, but the establishment of a dedicated investment facility, backed by a public development bank, could offer financing for these feasibility studies, making them more appealing. This investment format, potentially involving straight equity or a royalty agreement structure, may incentivize more investors to participate in the critical initial exploration and evaluation phase of these projects, thus helping Europe meet its strategic objectives in rare earth extraction.
