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One of the big misconceptions about the Trump Administration’s critical mineral policy was that as the investment narrative changed from ESG to national defense, this would somehow mean a very different future for the metals crucial to reindustrialization.
This is, for the most part, untrue with the exceptions being antimony and tungsten, two metals likely more suited to the national defense narrative than to ESG. Plenty of the traditional battery metals like lithium and cobalt are needed under a national defense narrative as well.
In the wake of last night’s Democratic drubbing here in the US midterm elections, it’s worth asking how (if at all) critical minerals policy will change. Are we in for another narrative shift, and if so what does it mean for investors and policymakers?
There are no definitive answers to this yet, but I think it’s fair to say that the policies around critical materials investment are going to come under more scrutiny. Companies looking for government support could face tougher conditions. This is an important point for investors to consider. Support such as price floors for rare earths has provided a clear guide on revenue, effectively allowing companies like MP Materials to hedge price risk and create a two-tiered pricing structure. Despite the disgust many feel with government being so closely involved in financial markets, these tools are necessities (for now) to allow domestic projects to compete and scale. That said, I also think that critical minerals policy in Washington is one of the few areas where there is some bipartisan agreement.
As I said in my longer piece released last week, strategic need and investment returns aren’t necessarily correlated. Bridging those two issues determines success as an investor going forward.
I think there are several takeaways from last night’s political earthquake here in the US. The investment narrative may or may not change in 2027 (are we going back to ESG?) but there is a case to be made that the shift of power in the halls of Congress could alter critical mineral calculus.
To start, the current funding model (equity stakes, in particular) is likely to come under greater scrutiny. A non-binding LOI always had questionable value, in my opinion. This just became even clearer. You can expect to see greater scrutiny by Congress of not just a project, but who is invested in a project. The investments by President Trump’s sons in various deals are a case in point.
Separately, given the low success rate of projects, could the funding of brownfield assets or expansion of existing plants be the clearest way forward for critical mineral projects? Perhaps, but when much of that infrastructure doesn’t exist domestically to begin with, it argues for more risk capital in greenfield mines and plants. This all points to a slower disbursement of funds, regardless of what form it takes.
Second, interest rates and the cost of capital remain the main determinants of what gets built and ultimately, of investor returns. It’s important to remember that monetary policy doesn’t directly dictate what gets built, and Congress doesn’t control this (the Federal Reserve does, indirectly). The important question to consider here is whether gridlock in Washington has any impact on rates and the cost of capital and if so, in which direction?
Third, maybe we’ll start to play nice with our friends again and leverage the benefits of allied scale in building critical mineral projects. Even as the dust settles in Washington, members of Trump’s team like US Trade Representative Jamieson Greer are pushing to re-engage with allies like Canada around a more conducive trade relationship. This will certainly include critical materials. While negotiating thorny issues is part of the job, it’s refreshing to see diplomats push for closer ties with allies to break China’s stranglehold on supply chains.
Fourth, policy changes. A vote on permitting reform scheduled for November 9th could be a favorable signal towards bringing private capital back into a battered critical material sector. Additionally, any rollback or more careful targeting of tariffs could alter project economics, likely advantageously. Also, the current continuing resolution funding the government runs out on December 11th. This is critical for appropriations and could slow down the disbursement of loans or grants.
Several years ago, I started wondering aloud about how to “price” geopolitical risk. It was never considered as important as currency or price risk, but given the dramatically increased importance of critical materials as the building blocks of reindustrialization and supply chain concentration, that calculus has changed.
The critical materials thematic remains intact. The election results don’t materially derail the momentum around what we need to do in the West. What is important is watching to see what sort of (hopefully) bipartisan framework emerges after the current lame duck Congress. This will determine the speed of any domestic buildout. Political and geopolitical risks will ebb and flow and the best management teams and projects will navigate these choppy waters regardless. As investors, it’s our job to navigate policy and commercial environments in tandem regardless of the political noise. More Congressional oversight is a given, but this is a speed bump with modest impacts on the overall critical materials thesis. We all know what we need to do – so let’s get after it.
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