Global demand for critical minerals continued to climb in 2024, although prices fell in response to supply out-pacing the rate of demand for these materials.
Even so, the industry is expecting to see more M&A activity in 2025, as macroeconomic drivers for critical minerals such as investment in low emission technology, supply chain security and the levelling of interest rates underpin optimism in the industry for longer, sustained growth.
Traditionally, the supply of critical minerals (and the processing and manufacturing of those minerals) has been highly concentrated in a handful of countries. However, more economies across the globe are introducing policies to secure supply of minerals crucial to support their decarbonisation targets and drive the energy transition. As these policies are put into practice in 2025 (and beyond), we expect to see investment and M&A activity in the sector increase as countries try to improve self-sufficiency in the industry, promote their domestic downstream capabilities and safeguard their critical mineral supply chains.
Australia is expected to follow this trend. As outlined in our 2024 market update, the Australian Federal Government published its Critical Mineral Strategy for 2023-2030 (Strategy) in June 2023: a national framework designed to bolster the country’s critical mineral sector and strengthen Australia’s role in the global supply chain. Last year, the Federal Government enacted some of the initiatives set out in the Strategy, most notably its ‘Future Made in Australia’ (Plan) and the passing the Future Made in Australia (Production Tax Credit and Other Measures) Bill 2024.
Future Made in Australia Plan
Announced as part of the 2024-25 Federal Budget, the Plan focuses on attracting investment to Australia to improve downstream processing and manufacturing capabilities and strengthen our role in the global critical minerals supply chain. The Plan is made up of an array of initiatives and strategies, focusing on developing the following core areas: skills and training, renewable energy, supporting investment, natural resources and minerals, and industrial innovation and technology.
Examples of such initiatives include:
- Battery Breakthrough Initiative: An announced $523.2 million investment by the Federal Government, aimed to prompt the development of battery manufacturing capabilities and assist manufacturers to extend operations down the battery value chain. The objective of the initiative is to fund projects that contribute to: (1) enhancing Australia’s battery manufacturing capability to improve supply chain resilience and support emissions reduction; and (2) commercialise battery manufacturing processes and technologies that can contribute to emissions reduction. The program is being designed by the Australian Renewables Energy Agency (ARENA) and the Department of Industry, Science and Resources (DISR). The program will be delivered by ARENA, and will eventually set out a framework used to assess eligibility and merit of funding applications.
- Critical Minerals National Productivity Initiative: A $10.2 million investment by the Federal Government to establish the Critical Minerals National Productivity Initiative, the aim of which is to partner with states and territories to identify common user facilities for critical mineral processing. The focus of the initiative will be on small scale projects that create the enabling environment for facilities that could be quickly established to support multiple minerals and mining companies. Some examples of the investments which will form part of this initiative are listed here.
- Australian Made Battery Precinct: A $100 million investment to establish the Australian Made Battery Precinct in partnership with the Queensland Government.
- Australian Critical Minerals Production Tax Incentive: A tax incentive of 10% of relevant processing and refining costs of Australian critical minerals (see below).
A full list of the initiatives that are encompassed by the Plan is available here: Future Made in Australia.
Production Tax Credit
On 11 February 2025, the Future Made in Australia (Production Tax Credit and Other Measures) Bill 2024 (Bill) passed through the Senate. This legislation sets out two tax incentives:
- a Critical Minerals Production Tax Incentive (CMPTI) worth 10% of relevant processing and refining costs for Australia’s 31 critical minerals, for critical minerals processed and refined between 2027-2028 and 2039-2040, for up to ten years per project; and
- a Hydrogen Production Tax Incentive worth $2 per kilogram of renewable hydrogen produced between 2027 and 2028 and 2039-2040, for up to ten years per project.
The CMPTI will operate as a new refundable tax offset designed to support the critical minerals processing sector. According to the Explanatory Notes for the Bill, the intended effect of the CMPTI is to facilitate private sector investment, work to maximise Australia’s opportunities in the global net zero transformation and support the global shift toward renewables and low carbon technologies.
The CMPTI tax offset is only available for income years that start on or after 1 July 2027 and will end on or before 30 June 2040. According to the criteria set out in the Explanatory Note, a company will be eligible for the CMPTI tax offset in an income year if, at all times in the income year in which it is carrying on a registered CMPTI processing activity, it is a constitutional corporation and not an exempt entity. The company will also have to comply with any rules implementing the community benefit principles for the CMPTI made by the Treasurer.
A constitutional corporation is a tax resident of Australia that has an ABN or is a foreign resident with an Australian permanent establishment through which the relevant production activities will be carried on and has an ABN. Of note, the Explanatory Note provides that a constitutional corporation may be eligible for the CMPTI tax offset for an activity it is carrying on through an unincorporated joint venture. However, the corporation would only be eligible for the CMPTI tax offset for expenditure it incurred, and it cannot claim the tax offset for expenditure incurred by other participants in the unincorporated joint venture.
The CMPTI is modelled off similar tax credits introduced in the United States under the US Inflation Reduction Act (IRA), which was enacted in 2022 and introduced a manufacturing production tax credit to subsidise the refining of critical minerals and the development of downstream products as well as a range of tax and production credits, loan facilities and grants designed to support all levels of the critical minerals supply chain. Although the status of the initiatives introduced under the IRA has been called into question following President Trump’s inauguration, it’s likely that Australian State, Territory and Federal Governments will look to adopt more initiatives to support critical minerals especially if the United States reduces its policy support.
Support for industry
In addition to the CMPTI, the Federal Government directly invested substantial funds towards manufacturing and processing critical minerals in 2024, all aimed at developing Australia’s self-sufficiency in the supply chain. For example:
- The $4 billion Critical Minerals Facility – which provides financing to critical minerals projects aligned with the Critical Minerals Strategy – continued to be administered by Export Finance Australia. In April 2024, $400 million in loans was provided to Australian company Alpha HPA to deliver Australia’s first high-purity alumina processing facility in Queensland.
- National Reconstruction Fund Investments – Queensland based mining equipment firm, Russell Mineral Equipment (RME), was the first to receive taxpayer investment under the National Reconstruction Fund (NRF) in November 2024. The NRF is a fund that was established on 18 September 2023 by the National Reconstruction Fund Corporation Act 2023 (Cth), designed to facilitate increased flows of finance into priority areas of the Australian economy, such as critical minerals. RME is an equipment manufacturer with a focus on mill relining technologies used within the mining and minerals processing industry. The company has advised that the NRF investment will help to ensure RME continues to manufacture its machinery in Australia, enabling it to upscale its operations.
- The Resourcing Australia’s Prosperity program was announced on 8 May 2024, which will invest $566.1 million over ten years from 2024-25 for Geoscience Australia to deliver new precompetitive geoscience data, information, and decision support tools. The program will focus on mapping critical minerals, strategic materials, groundwater, naturally occurring hydrogen, potential sites for geological storage of hydrogen and carbon dioxide, and suitable sites for renewable energy infrastructure.
- The Australian Critical Minerals Research and Development Hub (Hub) was established in October 2022 and is essentially a collaboration of three key Australian science agencies, including Australia’s Nuclear Science and Technology Organisation, Geoscience Australia, and CSIRO. The Hub has been working to commercialise critical mineral research and development, coordinate and prioritise critical minerals research, and support strategic international critical minerals collaboration. In July 2024, the Hub announced a $2.5 million grant to fund international R&D collaboration scan, strategic R&D projects across critical minerals technologies, international science delegations, scholarship networks and a critical minerals research summer school for domestic and international researchers.
The increasing support from the Federal Government is indicative of its commitment to ‘walk the talk’ and inject the capital needed to achieve the objectives set out in the Critical Mineral Strategy.
Of course, government funding alone is insufficient support for an industry that struggles with longstanding issues such as significant upfront capital costs, State and Territory regulatory constraints and approval delays, limitations on traditional bank lending, and commodity price fluctuations. With this in mind, greater efforts are still needed to attract investment, particularly foreign investment, to the sector. Australia’s Foreign Investment Review Board (FIRB) will continue to play a pivotal role in the success of attracting foreign investment, with FIRB making clear statements that investment in the sector will face greater scrutiny as a national security issue and with Chinese investment effectively banned from the sector, usual sector sources of equity are somewhat harder to find.
Notwithstanding these barriers, there was still notable M&A activity for critical minerals in 2024, including:
- Western Australia’s Pilbara Minerals’ acquisition of Latin Resources, which owns the Salinas Lithium Project in Brazil, for AU$560 million;
- The well-covered take-over offer by BHP to acquire Anglo American, aimed to secure Anglo’s copper assets;
- Rio Tinto’s acquisition of Arcadium Lithium, which will see the company add to its portfolio lithium mines in Argentina and Australia, as well as processing facilities in the United States, China, Japan and the United Kingdom; and
- Australia’s Sayona Mining acquisition of US-based Piedmont Lithium aimed to strengthen its exposure to the North American electric vehicle sector.
Securing investment for Australia’s critical minerals industry
The industry is at a critical juncture and large scale investment into critical mineral projects is desperately needed to ensure their long-term success. While we expect to see continued government support and financing into these sectors, greater certainty of costs, prices and regulatory appetite is required to attract the capital from domestic and foreign investors. Further, if the policy support increasingly focuses on expanding downstream processing, an underperforming area for Australia in recent times, additional financial assistance will likely be required.
We anticipate that the industry will find creative ways to bridge this funding gap (much like traditional energy industries have had to do in the past), such as unincorporated joint venture structures as well as bespoke funding from financiers, offtakers and other stakeholders in the form of prepayment arrangements and convertible notes and other quasi equity structures.
