Disrupted supply chains in the wake of the recent pandemic and the ongoing war in Ukraine have raised concerns over the supply of raw materials in many industries worldwide. The green transformation relies heavily on technology for renewable energy production and electric transportation, where certain key metals and rare earth minerals play a crucial role.
To secure access to strategic raw materials for Swedish companies – many of which enjoy a world-leading position in green technology – the Swedish government has mandated EKN to issue a new type of guarantee.
“The objective of the new raw material guarantee is to guarantee financing of long-term contracts for the supply of raw materials that are critical to Swedish industries,” explains Maria Mattsson, Senior Underwriter at EKN, adding that, “A stable and reliable supply of raw materials is instrumental to the competitiveness of Swedish industry and to sustain the transition to a carbon-free society.”
The applicant – as well as the beneficiary – of the new guarantee is the bank that finances investments in the expansion of existing facilities or the opening up of new sites by the raw material exporter. To be eligible for the guarantee, the raw material supplier must enter into an off-take contract with a Swedish importer.
“The raw material guarantee is an opportunity for producers to gain access to attractive financing of major investments in connection with a long-term contract with a Swedish buyer,” says Mattsson.
Copper is key
The size of the loan and the credit period should be related to the project’s commercial nature and to the off-take contract.
Louise Ahlén, Senior Legal Counsel at EKN, explains: “The concept of raw material covers, in this case, unprocessed or partly processed raw materials, typically metals and minerals, used as input by Swedish manufacturers and as such of significant interest to the Swedish economy and society at large.”
Copper is a raw material that is crucial to key technologies necessary for the energy transition. The rapidly growing demand has left importers competing for supplies, while a rising copper price incentivises the opening of new mines.
Boliden is one of Sweden’s largest importers of copper, which is treated at the Rönnskär plant and then sold to domestic wire and equipment manufacturers. Boliden produces about 250,000 tonnes of copper every year, 75 percent of which comes from mined copper concentrate and the remainder from recycled scrap.
Patrick Ammerlaan, Director Raw Materials at Boliden Smelters, highlights the importance of having a large and stable supply: “It takes volume to achieve the economies of scale required to compete with state-subsidised raw material buyers across the world, who are bidding aggressively for copper concentrate contracts.”
Economies of scale and a steady supply of virgin copper raw materials are also required to maximise the recovery of copper from the gigantic – and growing – flow of scrap from, above all, used electric and electronic devices: “The scrap metal is dissolved in the big copper flow to remove any impurities, and recover the copper and other precious metals such as gold. At Rönnskär we run the biggest electronics scrap recycling plant in the world and we need a big flow of primary copper in order to be able to treat the scrap and reuse the copper.”
“Helps us compete”
Next year, some 75 percent of Boliden’s copper requirements will be met by imports of scrap as well as virgin copper from mines in Portugal, Chile, Peru, Brazil and Canada. Ammerlaan greets the introduction of EKN’s new guarantee: “With the new raw material guarantee we will get a very good tool to compete for crucial supplies on a level playing field. The guarantee will help Boliden Rönnskär to remain competitive in the future and to ensure that Sweden and Europe have the capacity to produce the equipment required for the energy transition. It also helps us circulate and reuse more waste.”
There is no current shortage of copper, but the rising prices support the extraction of lower-grade copper and incentivises the opening of new mines. Opening a new mine, however, is a costly undertaking with a long payback period and significant risk in the eyes of would-be financiers. “Starting a new mine takes billions of dollars. And capital has become much more expensive in today’s world, and not easily available, especially for projects seen as risky by creditors,” says Ammerlaan. “Mining companies and project owners need access to capital. And buyers who can assist in attracting capital for these investments receive priority when new supply contracts are signed.”
To put it simply, EKN’s raw material guarantee de-risks financing of mining facilities in exchange for long-term contracts. As Ammerlaan puts it, “The loans that finance new mines are guaranteed by EKN if Swedish buyers get a share of the output from the new mine.”
To minimise the risk of environmental and social impact from extraction and production of the raw materials, EKN will ensure that projects under consideration will be thoroughly assessed according to relevant international sustainability standards.