For years, governments have talked about the need to secure critical mineral supply chains.
Now they are increasingly putting money behind those ambitions.
Two deals announced in the past week show how quickly the relationship between government and mining is changing.
In the US, government support for Brazilian rare earth producer Serra Verde has expanded into a structure involving hundreds of millions of dollars of capital, long-term purchasing commitments and guaranteed minimum prices.
In the UK, the National Wealth Fund has committed up to £71m to help restart Tungsten West’s Hemerdon tungsten and tin mine in Devon.
The commodities and jurisdictions are different, but both deals point to the same trend. Critical minerals are increasingly being treated as strategically important infrastructure, with governments prepared to invest accordingly.
From policymaker to participant
The Serra Verde arrangement is particularly significant.
Serra Verde operates in Brazil and produces both light and heavy rare earths outside the dominant Asian supply chain.
A special purpose vehicle established to purchase its production has secured an upsized US$1.55bn capitalization package.
That includes a US$750m commitment from the US Department of War, a commitment for up to US$500m of senior debt from a Tier-1 institutional bank and at least US$300m of forward purchases by the US government.
The structure of the deal is arguably as important as its size.
Serra Verde has entered into a 15-year agreement covering 100% of its Phase I production, with guaranteed floor prices for four magnetic rare earths: terbium, dysprosium, neodymium and praseodymium.
If market prices rise above the agreed floors, the company and the US government share in the upside.
This addresses one of the fundamental problems facing Western critical mineral projects.
Governments want alternative supply chains, but investors still need projects capable of generating acceptable returns.
Those objectives do not always align when a market is dominated by a major producer with significant influence over supply, processing capacity and pricing.
A guaranteed floor changes the calculation.
It does not remove operational or development risk, but it provides greater certainty around future revenues and could make projects easier to finance.
The UK is moving too
The same week brought another example much closer to home.
The UK’s National Wealth Fund announced an investment of up to £71m in Tungsten West to support the restart of the Hemerdon tungsten and tin mine in Devon.
The package comprises a £36m equity investment alongside up to £35m of lending.
The investment also gives the UK government an exclusive negotiation period for the right to procure up to 50% of Hemerdon’s annual tungsten production.
This goes considerably further than identifying tungsten as strategically important. The government is providing capital while also seeking access to future production.
A changing investment case
For mining investors, government participation can change the risk profile of a project.
Access to capital has been one of the largest barriers facing critical mineral developers.
Commodity prices can be volatile, processing infrastructure is geographically concentrated and projects often require substantial upfront investment before a market has developed sufficiently to support them.
Government-backed financing can help address some of those problems.
Long-term offtake provides greater demand certainty. Price floors can reduce commodity price risk. Government equity or debt can help projects reach construction when conventional financing is difficult to secure.
There is also a signalling effect. If a government identifies a project as strategically important enough to commit substantial capital, other investors and lenders may look at it differently.
Government involvement, however, does not make a poor project a good one.
Geology, metallurgy, operating costs, management and execution still matter.
Nor does strategic importance guarantee shareholder returns.
Investors need to understand the terms attached to government support, including offtake pricing, ownership dilution, restrictions on future buyers and how any upside is shared.
A new source of competitive advantage?
For mining companies, the implications may be even bigger.
The ability to demonstrate strategic relevance could increasingly become part of the financing proposition.
Companies developing tungsten, rare earths, antimony, lithium, graphite and other critical minerals are no longer pitching solely to traditional equity and debt markets. They are also pitching into national industrial strategies.
That could influence which projects get built.
A deposit that looks marginal when assessed purely against today’s commodity price may look very different when viewed in terms of defence, energy security or supply chain resilience.
Companies able to secure government backing, long-term offtakes or minimum pricing could therefore gain a financing advantage over peers without those relationships.
What it means for investors
• Government backing can reduce risk, but it does not eliminate it. Investors still need to focus on project economics, execution, geology and management.
• Price floors could affect valuations. Greater revenue certainty can reduce financing risk and improve the economics of projects that struggle under volatile spot pricing.
• The terms matter. Government investment may bring dilution, offtake obligations or restrictions on where material can ultimately be sold.
• Strategic importance is becoming financially relevant. A project’s role in defence or industrial policy can increasingly affect its access to capital and route to production.
What it means for mining companies
• There is another source of capital available. Governments and state-backed investment vehicles are increasingly prepared to finance strategically important mineral projects.
• The investment pitch is changing. Companies need to explain not only resource size and project economics, but where they fit into national and allied supply chains.
• Offtake strategy matters earlier. Securing the right government or industrial partner could materially improve project bankability.
• Jurisdiction could become an even bigger valuation driver. Projects located within or aligned with strategic Western supply chains may have access to capital unavailable to comparable projects elsewhere.
The critical minerals race has been discussed for years in terms of geology, resources and who controls them. Increasingly, capital is becoming just as important.
If governments are prepared to invest directly, guarantee demand and provide protection against falling prices, their role in the sector is changing.
For mining companies and investors, that could have a significant influence on which projects secure financing, which reach production and where the next generation of critical mineral supply comes from.
