Making up the deficit:
the Critical Minerals Strategic Reserve and Australia's
unrealised critical minerals production potential
In April 2025, the Albanese Government pledged A$1.2 billion to establish a Critical Minerals Strategic Reserve (Strategic Reserve). Currently in early stages, the Strategic Reserve is anticipated to be operational in the second half of 2026, following a taskforce finalising its scope and design. Prime Minister Anthony Albanese has said the Strategic Reserve will give the government “ the power to purchase, own and sell critical minerals,” meaning Australia can “deal with trade and market disruptions from a position of strength”.
In this article, we take a look at what the reforms could mean for project proponents, particularly in relation to bankability of key project documents.
Could the Strategic Reserve bolster Australian project development and help the country to realise its critical mineral production potential?
The reforms
The proposed Strategic Reserve has two key elements:
- National offtake agreements: a partially or wholly owned government entity enters into voluntary critical mineral offtake agreements with private entities to acquire agreed volumes, or otherwise establish an option to buy at a given price (National Offtake); and
- Selective stockpiling: through the above offtake arrangements, establishing Australian stockpiles of certain key critical minerals for sale to global markets or key partners.
Project development, bankability and offtake agreements
Australia's unrealised critical mineral production potential
Australia has a wealth of critical mineral deposits. As of 31 December 2022, it has documented deposits of 26 of the 31 commodities in Australia's Critical Minerals List and has established itself as a global producer of certain critical minerals, being the world's largest lithium producer and a top 5 producer of manganese, cobalt, nickel and rare earth elements.1
However, as of 31 December 2022, over 75% of these deposits have yet to be developed and there is a significant discrepancy between Australia's actual production and its potential to produce.2 While it is the case that many deposits never proceed through the project lifecycle for various reasons, developers of critical mineral deposits face specific issues in securing adequate project finance, particularly debt financing,3 to develop the resource into an operating project.
Bankability and critical minerals project development
Mine production and operation are capital intensive and project developers must source finance to build the infrastructure necessary to reach commercial production for a deposit. This financing may include contributions of cash or an equity investment. However, third party debt finance is typically relied upon in part as it provides additional optionality for managing corporate finances.
Bankability generally refers to project developers' ability to satisfy its lenders or financiers of the future revenue and market stability of its project, both of which are important indicators of a developer's ability to repay its debts.
Achieving bankability in the critical minerals space has been a key obstacle to project development, given many critical minerals (rare earths in particular) do not have an established market, experience high price volatility, and require high levels of initial capital investment. These issues create an increased degree of uncertainty in evaluating revenue forecasts for undeveloped projects, which can undermine financiers' confidence that the debt will be repaid. Comparatively, commodities such as copper, iron ore and coal are commonly sold under long-term offtake agreements with transparent benchmarking and pricing in the form of published indices. These commodities also each have an established spot market and can be hedged, providing additional flexibility in revenue forecasting.
Offtake agreements
Offtake agreements are contracts between a producer (Seller) and a purchaser (Buyer) where the Buyer agrees to purchase certain quantities of product over a period of time.
Long term offtake agreements are commonly sought by project developers prior to the development and construction of a project for the purpose of securing future revenue for a portion of the forecasted supply. In this regard, long-term offtake agreements involving financially reputable counterparties, and which contain clear and defined “take or pay” obligations, can strengthen a project's bankability; by providing lenders or third-party financiers with assurance that a project will have predictable revenue when it reaches commercial production. It follows that securing long-term offtake agreements for all, or substantially all, of the forecasted product supply increases the prospects of obtaining finance, and the deposit consequently being developed into an operating mine.
The implications of a Critical Minerals Strategic Reserve
Effect on bankability: reputation, contractual terms and price
National Offtakes may increase bankability as a government entity will provide financiers comfort that a developer has secured a purchaser for a portion of its offtake that is credit-worthy and solvent. This form of assurance will likely assist in addressing lender concerns relating to the immature price market for critical minerals by potentially providing pricing stability while the project is in its initial development phases.
Certain critical mineral projects (particularly rare earth minerals) have experienced commissioning delays related to the complexity of the processing infrastructure. While the key terms of National Offtakes are not yet known, if termination rights are limited in circumstances where projects experience delays in construction and commissioning, governmental involvement (by way of a National Offtake) may provide lenders some comfort that significant delays or cost overruns are less likely.
Additionally, politico-social risks are typically considered as part of due diligence by financiers. In this respect, Australia's established and predictable regulatory frameworks are likely to be favourable in assessing the bankability of critical minerals projects relative to other jurisdictions, which have seen examples of unexpected regulatory tariffs imposed or the threatened expropriation of project assets by a government entity. Addressing this risk has been key to unlocking project finance for infrastructure development in Latin American jurisdictions, such as Chile.4
That being said, the effect on bankability will also depend on the contractual terms agreed. Offtake contracts which impose long-term “take or pay” obligations onto the counterparty are relatively rare in the critical minerals space. From our experience, a short-term offtake with a term of three to five years and optionality to purchase additional quantities or extend is more common. As it is anticipated the Strategic Reserve will only involve ‘modest and time-limited' stockpiles of priority critical minerals, it is possible that National Offtakes will mirror the latter rather than former contractual model.5 If that were the case, it may be that project proponents may require additional support or other offtake agreements to improve bankability.
Critical mineral project developers will also need to consider the inclusion of exit rights that are customary in government contracts. In our experience, it is common for government entities to insist upon termination rights which trigger on short notice upon (among others) a material change in government policy or an anticipated or probable breach of certain laws.
Lastly, bankability will be moderated by price. There has been criticism over a National Offtake's ability to undercut private competitors. A price floor on certain critical minerals is also under ‘active consideration' by the Australian government.6 However, if, as Resources Minister Madeleine King states, the Strategic Reserve will only house ‘small' and ‘temporary' volumes of critical minerals, the pricing of National Offtakes themselves may have limited effect on the wider market.7
Effect on bankability: potential synergies with existing government policy
A key benefit of public-private partnerships is the ability for government involvement to create synergies that expedite project development.8 Here, a potential benefit of the Strategic Reserve may be its ability to facilitate access to debt financing provided by government entities such as Export Finance Australia (EFA) and Northern Australia Infrastructure Fund (NAIF). Most of these loans are conditional (with the notable exception of Iluka Resources' Rare Earths refinery) and will only come into effect upon, among others:
- the project entity entering into offtake agreements; and9
- the project and its ancillary agreements being consistent with the Australian government's Critical Minerals Strategy.10
Theoretically, entrance into National Offtakes can help satisfy both of these conditions. There may also be further regulatory and financial synergies with other government incentives such as the Critical Minerals Facility and Critical Minerals Production Tax Incentive; all of which were all flagged for further investment upon the Labour Government's re-election.11
Practically, however, the ability for National Offtakes to help burgeoning project developers finalise access to government debt financing is arguable. As above, the Strategic Reserve is expected to require a modest and time-limited supply of certain strategic critical minerals. This may realistically mean National Offtakes are only viable for certain critical mineral projects that are able to meet supply needs on a short-term and likely short-notice basis; the majority of which will necessarily be projects which are already established or have already obtained unconditional government funding.
Conclusion
New mining, processing and manufacturing projects can take more than 10 years to reach commercial production.12 This, combined with the emerging demand for critical minerals in domestic supply chains has created an influx of novel investment methods, including an increasing role for State-based support (for example by establishing price floors on critical minerals, expediting permitting procedures, and providing tax incentives).13
In relation to critical minerals stockpiles, the European Union has recently announced its intention to establish a ‘stockpiling network', the Business Council of Canada is actively campaigning for a strategic minerals reserve and the US government has announced it is drafting an executive order for a stockpile to ‘create large quantities' of critical minerals for the future.14
While the Strategic Reserve and its associated National Offtakes are in early stages, its ability to provide support for Australian project development and bridge the gap between Australia's actual and theoretical production capacity is debatable.
Although the Strategic Reserve may theoretically increase project bankability, this will be moderated by the contractual terms agreed and the ability for National Offtakes to effectively unlock synergies with other government policies for burgeoning critical minerals projects.
Footnotes
1. C Spandler and C Yeats, ‘The Role of Geoscience in Australia's Critical Mineral Future' (2024) 71(8) Australian journal of earth sciences 1013; Colclough, H., & Pheeney, J. (2024) Australian Critical Minerals Map 2023, Geoscience Australia [https://doi.org/10.26186/147741].
2. AF Britt and K Czarnota, ‘A Review of Critical Mineral Resources in Australia' (2024) 71(8) Australian journal of earth sciences 1016.
3. Britt and Czarnota (n 2) 1029.
4. Laura C Loaiza, ‘Financing of Chilean Public-Private Partnerships: the Shaping of Chile's Public Policy for Economic Development' (2018) International Program Papers 92.
5. ‘Albanese Government to establish critical minerals strategic reserve', Anthony Albanese PM (Web Page, 24 April 2025) [ https://anthonyalbanese.com.au/media-centre/albanese-government-to-establish-critical-minerals-strategic-reserve].
6. Brad Thompson, ‘Resources minister Madeleine King flags rare earths floor price and national offtake agreements', The Australian (Article, 4 August 2025) [ https://www.theaustralian.com.au/business/resources-minister-madeleine-king-flags-rare-earths-floor-price-and-national-offtake-agreements/news-story/55530151bb5276d250ea7aa11cb033d5].
7. Tom Rabe and Peter Ker, ‘King reveals details of critical minerals stockpile, vows it will pay up', Australian Financial Review (Web Page, 21 May 2025) [ https://www.afr.com/companies/mining/king-reveals-details-of-critical-minerals-stockpile-vows-it-will-pay-20250520-p5m0oc]; Adam Orlando, ‘King puts boot into critical minerals stockpiling', Mining.com.au (Web Page, 18 July 2025) [ https://mining.com.au/king-puts-boot-into-critical-minerals-stockpiling/].
8. Eduardo Engel, Ronald Fischer and Alexander Galetovic, ‘Finance and Public-Private Partnerships' (2014) Reserve Bank of Australia [ https://www.rba.gov.au/publications/confs/2014/pdf/engel-fischer-galetovic.pdf].
9. Lian Sinclair and Neil M Coe, ‘Critical Mineral Strategies in Australia: Industrial Upgrading without Environmental or Social Upgrading' (2024) 91 Resources policy 1.
10. Peter Ker, ‘Forrest's Wyloo declares solvency concerns over Hastings rare earths', Australian Financial Review (Web Page, 14 November 2024) [ https://www.afr.com/companies/mining/forrest-s-wyloo-declares-solvency-concerns-over-hastings-rare-earths-20241114-p5kqpt].
11. ‘Albanese Government to establish critical minerals strategic reserve', Anthony Albanese PM (Web Page, 24 April 2025) [ https://anthonyalbanese.com.au/media-centre/albanese-government-to-establish-critical-minerals-strategic-reserve].
12. Australian Government Department of Industry, Science and Resources, ‘Critical Minerals Strategy 2023-2030' (Publication, June 2023) [ https://www.industry.gov.au/sites/default/files/2023-06/critical-minerals-strategy-2023-2030.pdf].
13. John Zadeh, ‘Understanding America's Strategic Rare Earths Stockpiling Initiative', DiscoveryAlert (Web Page, 28 April 2025) [ https://discoveryalert.com.au/news/us-rare-earths-stockpiling-initiative-2025/].
14. Reuters, ‘Trump plans to stockpile deep-sea metals to counter China, FT reports', Reuters (Web Page, 12 April 2025) [ https://www.reuters.com/world/us/trump-plans-stockpile-deep-sea-metals-counter-china-ft-reports-2025-04-12/]; Alice Hancock, ‘Europe to stockpile critical minerals due to a risk of war', Australian Financial Review (Web Page, 6 July 2025) [ https://www.afr.com/world/europe/europe-to-stockpile-critical-minerals-due-to-risk-of-war-20250706-p5mcvg]; ‘Selling to our strengths' Business Council of Canada (Report, 10 July 2025) [ https://www.thebusinesscouncil.ca/report/selling-to-our-strengths/].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
