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Joint Standing Committee on Foreign Affairs, Defence and Trade
Implications of the COVID-19 pandemic for Australia’s foreign affairs, defence and trade

MUDD, Dr Gavin, Co-founder, Critical Minerals Consortium, Monash University

WHITTLE Dr David, Co-founder, Critical Minerals Consortium, Monash University

YELLISHETTY, Dr Mohan, Co-founder, Critical Minerals Consortium, Monash University

Evidence was taken via teleconference—

CHAIR: Welcome. These are public proceedings, although the committee may agree to a request to have evidence in camera or may determine that certain evidence should be heard in camera. I remind witnesses that in giving evidence to a committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee. It is also unlawful for a witness to give false or misleading evidence to a committee. Thank you for your submission and for making yourselves available today. I invite you to make a brief opening statement, and then the committee will go to some questions and discussion.

Dr Whittle : I do have a brief opening statement. The Critical Minerals Consortium's submission to this inquiry recommends that two scoping studies be carried out. These scoping studies are the first steps in pursuit of two bigger goals, which I'll now outline. The first goal is to conduct critical minerals assessment from the perspective of the Australian economy. Such an assessment has not been done before, and we believe it's a gap that should be filled. If this first goal is achieved then we will have identified and prioritised vulnerabilities to Australia's economic and security interests with respect to Australia's US$15 billion of imported minerals and mineral-derived materials. These imports are spread across some 600 commodity codes. Some of these minerals or materials will surely be critical to Australia's economy or security. There's already a prima facie case for potash, for example, to be considered a mineral critical to the Australian economy; however, that needs to be confirmed and prioritised against all the other 600.

The second goal is to develop and implement a rational framework and system that allow consolidation and analysis of global minerals criticality information. The purpose of this is to inform the development of Australia's policies with respect to critical minerals. That is in large part to inform the work of the Critical Minerals Facilitation Office as well as those in government that the CMFO advises. The publication of this analysis would also provide valuable information to decision-makers in Australia's minerals and processing industries as they seek to direct their capital to highest-value opportunities.

CHAIR: Thank you very much. Do any of the other two witnesses wish to provide any opening comments?

Dr Mudd : I'd just like to emphasise that some of the previous research we've done collaboratively with Geoscience Australia has been looking at what we have in terms of resources—what the potential supply options are for Australia actually exporting to the world and things like that. One thing we've realised more recently is that it's about not just what Australia can supply but what Australia imports, and therefore what that means. We could look at issues such as the chemicals used to process various minerals. We could look at xanthate, which is used in the flotation process to produce concentrates for copper, zinc, nickel and so on, or we could look at cyanide, which is used in goldmining and so on. It's that analysis of what we are actually importing to support our minerals industry and translating what we have in terms of resources to potential supply and therefore the economic value. That's an issue that we realise needs a lot more work. Hopefully that helps to clarify things.

CHAIR: Sure. I'll kick off with a couple of questions and then go to my colleagues. One thing we have come up against a number of times in this inquiry is the concept, whether we're talking about medical equipment or critical minerals or other supply chains, that some inputs to Australia's system capabilities—products, medicines—are critical. But there doesn't appear to be a consistent or recognised or repeatable way of assessing which of those inputs are actually critical and therefore where we need to understand the supply chain and its vulnerabilities and take some steps to increase resilience. In this area of critical minerals, are you aware of anyone who has done that analysis? If not, who would be the group who have a broad enough view of the role of critical minerals to do the analysis and provide recommendations as to the particular products—or indeed services that use the products—that are reliant on critical minerals and where Australia should be concerned about ensuring the resilience of the supply chain?

Dr Whittle : The process of critical minerals assessment really got a kick-start in 2008 with the US Geological Survey. They, on behalf of the United States government, have been conducting critical minerals assessments fairly regularly since that time, and in fact are increasing their investment and activity in that regard. Indeed, there is a US Senate inquiry going on right now into the impacts of COVID-19 on the supply of minerals. The early methods were looking at criticality from two dimensions. The first is the risk of a supply disruption occurring and the other is the impacts should it occur. What they do is survey a broad set of minerals and rank them on those two dimensions. The ones that are high on both of those dimensions are termed 'critical', and they are the ones that require the most attention.

Those early methods were pretty much as simple as that, briefly speaking. More recently, there have been agent based models developed which are much better at predicting how various actors behave in a marketplace and also how supply chains work. I know that the question of the complexity of supply chains has come up several times during this inquiry. Also, there has been quite a lot of research in Australia. Most recently, that started with DSI funded projects evaluating critical raw materials supply for Australia's defence sector. Mohan Yellishetty and Gavin Mudd, among others, have contributed quite a lot to the literature—firstly, as Gavin mentioned earlier, in terms of understanding what resources Australia has which could help to ease criticality on the global scale but also in terms of developing some of those extremely advanced methods for doing very complex evaluation. These methods, I think, are still going to be in development in another 10 years time, but they're certainly getting to a level of sophistication that is very useful. I would say that the leaders in this area are the US Geological Survey and, dare I say it, the various members and contributors and members of the Critical Minerals Consortium right here in Australia.

CHAIR: You've been very modest. You haven't mentioned the Monash methodology developed right here. Is that something that is broadly accepted not only by the extraction industries but right through the supply chain as a model that would give a set of recommendations for, if needed, intervention that people would say justifies the additional costs? Part of the reason I ask that question is that, as we've asked some other witnesses about things like the agreement between Australia and the US around critical minerals, the constant emphasis has been on the fact that the market has been very much dominated by large players like China and Russia in many areas such that the price point they can achieve is substantially below what a startup in Australia might need to extract and process an input to a fairly long supply chain. With many of the companies that we speak to here in Australia, and certainly the government procurers of their products, their eyes almost glaze over in terms of saying, 'It's so far down the supply chain we don't really control that. You're better off talking to industry.' So I'm just trying to understand whether the work you've done at Monash with that methodology is regarded broadly enough to actually drive a result that would have broad acceptance from the level of procurer, through to the final systems integrator and right down the manufacturing chain.

Dr Mudd : If we simplify the supply chain: you've got the mineral deposits or the resources in the ground, we mine and process that at a mine and then, say, concentrates will go off to a smelter or refinery and so on. One of the key problems with a lot of critical minerals is that they are often only extracted at a smelter or a refinery. Often the miners may not get paid any value for that. We can look at indium, cadmium, tellurium and other examples. For some, like rare earths, because of their geology and processing, sometimes the opportunities there are different. You get this disconnect from the mining. The miners are not paid for that, so they're not incentivised to report on that or optimise for some of these metals; they do get paid for the copper and gold. A zinc refinery can add an extra circuit in their refinery, and that's how they extract indium or maybe gallium and germanium and cadmium. But there is that disconnect between the mining stage and the smelting and refining stage. That's where a lot of the problems really exist. China has 50 per cent of the zinc refining capacity around the world. That means they have a strong foothold on what that means for all of these metals derived from zinc. That's certainly part of the problem. When we're looking at how to solve some of these problems, we have to make sure we're looking at the smelting and refining stages as well as the mining stages. That is a key point there. Hopefully that helps.

Dr Whittle : Chair, going back to your question about the Monash methodology and whether it has been accepted by industry, I can't say it has. The reason is that this has been developed on the basis of a very careful examination of the methods that have been used globally overseas, which is principally not a process that engages industry very much. It's looking very much at the resource base. It's engaging economists and using things like multi-criteria decision analysis and fairly esoteric tools to do the analysis. So what I would say is that this is one of the potential leading-edge tools. The recommendation in our submission is not to go out and directly apply that but to do the engagement, understand the problem to a deeper level and then come up with recommendations as to what the right process going forward would be.

As scientists, we have to remain objective about this. The Monash methodology exists. We're also cognisant of some significant steps forward that have been made in the US in papers that are in preprint at the moment. And there are going to be cases where just simple methods are entirely appropriate. We ought to be able to, for example, take in the analysis work that's being done by the Future Battery Industries CRC—and, on behalf of that CRC, the CSIRO has been doing work. So I think we need to take a very broad view in these scoping studies and figure out what the best way forward will be. No doubt, it will be not a single 'forever solution' but a progression of developments and analyses which, over a longer period of time, puts Australia on a stronger and stronger footing in this regard.

As mentioned, the US have been quite active in this area. So have South Korea, Japan and the European Union. It has taken decades to get to where we are at on a global stage. We can't expect to, the very first time we do critical minerals assessment in Australia, get it 100 per cent correct in the first case. I think we should take a methodical approach to this, get some early results and work out how to do it better the next time.

Dr Yellishetty : Until we proposed this agent based approach, in the majority of the criticality methods that were proposed by various research groups around the world there was a lot of subjectivity. The first time we looked at the methodologies proposed around the world, one of the important shortcomings we noticed was: how do we bring more objectivity in our evaluations so that [inaudible] some of the issues that are hidden which are not very apparent. That's where we came up with this agent based modelling approach. These models are able to understand the intricate connections between different agents—whether it is suppliers, regulators or consumers—and how that is going to impact the criticality of a particular metal at a particular time. We combine that with game theoretical modelling. Coming back to your question: we were the first proponents of this particular approach and there is quite a bit of uptake of that worldwide, as we can see with the number of papers being published worldwide around concept similar to those David alluded to.

Dr Mudd : Big manufacturing companies around the world—BMW, Boeing, Volkswagen and many others—have their own internal variations of their own assessments and thinking about how they assess their own supply chains for their own needs as well. So there is certainly broad adoption of a lot of these types of processes and assessment within industry.

CHAIR: You talk in your submission about reducing administrative barriers to starting up production of critical minerals. You cite Senator Kruse, in the US, who has introduced a bill. Putting aside economic barriers, are there any legislative, regulatory or other administrative barriers that we should be alert to here in Australia that are holding back the development of this industry sector?

Dr Whittle : We've included some examples there. We want to stay in our swim lane and not make direct recommendations as to the exact format of government intervention. My general advice would be that you have to look at the thing that's making a mineral critical. If there is a high risk of supply disruption, is that because it's all coming from one region or one country? In that case, obviously—and it has been mentioned many times in this inquiry—that's a risk associated with single sourcing and we ought to look for alternative sources. That could be some other places in the world or it could be within Australia. If it's within Australia, the question is: what's holding it back? You mentioned earlier that eyes glaze over when people consider the cost structures in Australia. One of the issues there is: how could things be helped? Think of the basic cash flows: do you attempt to make the capital more inaccessible or cheaper? Do you seek to reduce the cost of operations? Or do you seek to somehow reduce the revenues or reduce the uncertainty? Those are the various types of things that can be done. And reducing barriers to entry is also part of that mix. I don't think it's appropriate to suggest one single solution across the board. It's a case of looking at each particular mineral and seeing what the issues are there.

Mr PEARCE: Thanks for your work and for your submission. I want to pose a question to you relating to some of the mechanisms by which it may be appropriate for government to provide support. In the case of heavy rare earths—like disprosium and other substances—almost all of that production currently happens in China. So, for a potential miner of a commodity like disprosium, it's incredibly difficult to enter the market because the price can easily be controlled. Of course funding becomes another major issue, because it's unattractive to the free market to invest in a new player when complete market dominance is centred elsewhere. Investment from China in something like heavy rare earths—this has been observed recently—poses a foreign investment risk, which is unlikely to make it workable. What consideration have you given to heavy rare earths as critical minerals? I am interested to hear your thoughts on that.

Dr Whittle : Gavin Mudd has recently done some analysis of this, so I'll ask him to respond around the mineral endowment of heavy rare earths in Australia. I think that would be a good starting point.

Dr Mudd : While I was listening to your commentary there, I was thinking of Lynas. Part of the way Lynas was able to get started and has survived to date is it had support from its customers; principally, they were Japanese customers that guaranteed contracts, purchases and so on. That way, Lynas was able to continue. In a lot of ways, that's the sort of thing we can potentially look at for other projects that include rare earths. There's the Browns Range project, right near the NT-WA border, east of Kimberley—that is run by Northern Minerals, from memory. There are a range of mechanisms.

As David highlighted, the potential ideas that could be applied to help break some of these monopolies, near-monopolies or duopolies will vary enormously, depending on the potential metal or mineral you're looking at. Certainly for rare earths, yes, China is the absolute dominant force, but Australia has been able to at least start that process. That was done principally because we had strong support from Japanese customers, in terms of big companies in Japan that needed dysprosium and other elements coming from that. There are certainly opportunities there, and there are many other deposits around Australia. The rare earths sector is also complicated, because the amount of dysprosium versus lanthanum or cerium and all the other elements in the rare earths sequence can be highly variable. That makes it very difficult.

Certainly there are other projects. The Dubbo project, in Toongi near Central New South Wales, is probably the most advanced project ready to go. It has zirconium and hafnium—which is another critical metal—associated with it. So it will be the next rare earths project after Browns Range, and it could potentially be an important supplier. There are probably a range of mechanisms, as David said, that you could look at. Thinking about what's happened out there in the industry and the way that things have worked, I think we should be supporting the big manufacturing companies and linking them through to the miners, and making sure that the miners have more certainty over what the cost is going to be if they produce so much product. There will be sales there to keep them going. Hopefully that helps.

Mr CONNELLY: Yes, linking with markets is one element. But it seems to me that that hasn't proved sufficient to materially move forward the critical mineral sector in Australia. I'm not sure that more of the same will have better results. Is there a tie-in point that you see with respect to capturing more of the value chain—so doing more onshore processing of critical minerals to get more market ready for customers like Japan? Also, are there high-tech industry types which Australia could enter? That might require government support initially, particularly in this environment where jobs and new high-tech manufacturing are strategic opportunities for Australia. I feel like this is the sort of thing we should be looking at in the scope of the framework for resilience into the future. I'm interested if you guys have explored, or if you may be exploring, not only the risk that an absence of critical minerals provides to Australia but also the potential opportunities, even if they're not opportunities that exist currently.

Dr Mudd : As I was saying earlier, I think one of the easier opportunities is looking at our existing metallurgical facilities—things like the zinc refineries we already have. There's one in Hobart and one in Townsville. There are also copper smelters at Mount Isa and Olympic Dam, and two copper refineries—one at Townsville and one at Olympic Dam. The Olympic Dam expansion is also adding tellurium. It is proposing, with the next expansion of Olympic Dam, to extract tellurium, which is a critical metal. Looking at ways the government can support some of those sorts of facilities to extract and get the value from some of those different critical metals or minerals would be really, really important.

Also, as you're sort of alluding to, what are the next high-tech industries? It's certainly a good thing with tellurium that one of those is of course the cadmium telluride based solar panels. I know there's some work internationally some colleagues of mine have been involved in, looking at the geology of tellurium and where you get it from. So where can a solar panel company that manufactures cadmium telluride based solar panels get their tellurium supply? That's the sort of thinking, but no-one's done that level of assessment yet.

Our previous work to date has always focused on what's in the resources and what's potentially available for mining and potential supply. I guess that's the sort of point of our submission. We need to connect that to the manufacturing and looking at what's needed to extract some of those critical minerals and things like that. There are certainly many, many opportunities there. That's a big area of work and that's part of the scoping study as we see it.

Mr CONNELLY: Fantastic. Thank you.

Dr Whittle : If I could just add an example, one of the members of the consortium, Dr Mahdokht Shaibani, has done a considerable amount of work on the lithium value chain. We certainly produce lithium here in Australia, but our share of the overall end value of a battery is about two per cent, and the rest of the value is in the processing of the lithium into battery materials and the assembly of the batteries. I think, from memory, China has about 90 per cent of the global market share of the lithium battery materials, and Japan has about 60 per cent of the battery assembly. She's done some analysis, and I'd certainly be able to forward that to the inquiry afterwards.

Mr CONNELLY: Thank you.

Mr PEARCE: Thanks, gentlemen. My question isn't so much around critical minerals. I'm from Tasmania, and we've got, as you'd be aware, a diverse range of critical minerals here in the state. My question is back to: who is digging this stuff out of the ground and where are they selling it? I'd like to know, from your perspective, from your department: what due diligence do you conduct on mining enterprises—that is, foreign ownership—and who owns that stake hold in that business? Anecdotally, down here we're seeing foreign ownership—particularly Chinese ownership—is becoming quite heavy-handed in takeover bids for certain mining companies. I want to know: what equation or what interest you place on that as to the viability and bona fides of a particular mining enterprise?

Dr Whittle : I think we would see the analysis that we would conduct on critical minerals assessment as informing government decisions relating to those matters which would be considered by, for example, the Foreign Investment Review Board. We would see ourselves as not making a decision or even necessarily recommending a particular decision, but laying out what the situation is in terms of a market and the potential risks for the supply disruption and the impact such a disruption could have, and where the sources of those risks and losses are coming from. It would then be a question for the Foreign Investment Review Board or some other relevant government authority to look at that particular case and decide whether it would be appropriate, for example, for a critical minerals mine in Australia to be wholly or largely controlled by an overseas entity—one would think, on the face of it, not: it's not a good idea; let's keep control here. But that's not our judgement in the end; that would be a judgement for the government, informed by our analysis.

Dr Mudd : It's always tricky in the online world, the way we do these things now. If I can add some extra thoughts there as well: if you look at Canadian companies, they're operating in Australia, and you look at Indian companies, there are certainly Indian interests in Tasmania. Whether it's Chinese, Indian, Australian, South African or British—in the case of Rio Tinto, for example—they're all still expected to follow Australian law, whether that be the jurisdiction of Tasmania or others. That's one point. We can find examples in various places where there've been failures or whatever.

I suppose the other part of that goes to your question about where we send our stuff currently. A lot of our concentrates go to Japan. A lot go to Korea or China and elsewhere. There are a lot of statistics available for things like that. I guess it's not something we've analysed in detail ourselves. Certainly there are statistics—there was the Office of the Chief Economist based in Canberra and also in conjunction with the Australian Bureau of Statistics—where that information could be examined. Then it is also about looking at, if we're sending copper concentrates or zinc concentrates or things that potentially have rare earths in them, for example, where that is going. It is about looking at that and helping to inform Australia's position on how much more value adding or processing we can do in Australia versus sending concentrates overseas.

Mr PEARCE: Thank you.

Senator FIERRAVANTI-WELLS: I'd like to ask a question following on from what you've just said. We know that we have quite a number of Chinese state owned enterprises operating here in Australia, right across the spectrum of activities, and that includes subsidiaries of those companies. Would you envisage that, as part of any analysis that you would do, you could identify which one of those companies and subsidiaries could potentially be in a position to take over or purchase corporate entities that would be involved in strategic minerals, and is that what you envisage any study you would do could cover?

Dr Whittle : As part of the scoping study, we were looking for exactly this kind of input and question. So, if we are to set up a rational decision-making process—one that informs good government policymaking—then we need to understand what the concerns of government are and how they see that influencing their development of policy, and then we push those considerations back into the analysis that we do so that we can inform appropriately. So, certainly, yes, if those are concerns of government, then, to be successful, we really must take those things into account and do that analysis and present that information.

Senator FIERRAVANTI-WELLS: In relation to the state owned enterprises which have a presence in Australia, they have a presence across most industry sectors, of course including in the mining/minerals sector. So you would certainly have knowledge and visibility of those even though there's no—we predominately know the names of these companies, but we don't really know their corporate structures, because often they're not on a public register and so, therefore, we don't actually know. We don't know what their assets are. We don't have the sort of visibility—bearing in mind that they are companies, which, going to the point you made earlier, because of their Chinese parents have Chinese control and, therefore, Chinese influence in their corporate structures.

Dr Mudd : I will add some extra comments there. I think one of the things that can be really difficult in this area—and you see it not just with Chinese companies you see it also with a lot of other companies—is you've got the primary name of a company. Randomly we could choose BHP as an example. Then you have got all the subsidiaries within BHP. Not only that, you've also got all the shareholdings of people who are invested in BHP as a company as well. We can certainly identify the primary operating company. It's our standard practice associated with a lot of the databases and assessments that we do. Then going further than that in terms of tracking into whether the capital is coming from the financing and the shareholdings, that's probably something that I think is not normally what we do. But certainly if it's a concern, I guess, that's something that should be added into a scoping study.

Mr CONNELLY: Following on from Senator Fierravanti-Wells' question and your response where you said if that's important to government then that can be fed into your model and, hence, future recommendations can be made—hopefully back to us as well. I'll just highlight two points. One is jobs and the other is the economy. These are the two things our government is going to remain deeply focused on. So if in your work there's any way to factor in those as outcomes, that is if support for this critical mineral in this way helps jobs and the economy into the future—even, as I said earlier, if that's in newer high-tech manufacturing or other value added processing—then I think I could speak on behalf on government and say that that would be very welcome for guidance back to us on what ways government can support the critical minerals sector, so that we achieve outcomes in those two areas.

Dr Whittle : Sure. We certainly have economists as part of our consortium. I'm sure we could help there.

CHAIR: Thank you very much for making yourselves available and for your evidence, and more particularly for the work that you are doing in this critical area. I think you have been asked to provide some additional material. If you could get that back to the secretariat by 2 October, please, that would be useful. You will be sent a copy of the transcript of your evidence, and if you believe there are errors please feel free to suggest corrections. Thank you again to the team from CMC.