Investment project pipeline The European Minerals Investment Platform DISCUSSION PAPER

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1 Investment project pipeline The European Minerals Investment Platform DISCUSSION PAPER 1. Background a. The Juncker Plan The European Commission adopted a Communication on "An Investment Plan for Europe" 1 on 26 November 2014, followed by a Regulation proposal on the "European Fund for Strategic Investments" 2 adopted on 13 January The proposed Regulation is currently being discussed by the Council and European Parliament. The objective of the European Commission is to have the Regulation adopted by mid-2015 and the European Fund for Strategic Investments (EFSI) up and running by September The Investment Plan for Europe will be a package of measures to unlock public and private investments in the real economy of at least 315 billion over the next three years. b. The challenge of raw materials security of supply The security of raw materials supply is of key importance for the competitiveness of the European industry. Price volatility of some raw metals and minerals (e.g. rare earth elements) has highlighted the vulnerability of some European supply chains, leading to a real shift in companies strategic thinking on their need to secure supply from different sources. These strategic sectors are indeed subject to high price volatility, whilst at the same time being highly capital-intensive industries, making investments in these sectors less attractive. More generally, Europe is lacking investment, with a gap towards the historical sustainable level of investments of around 300 billion euros. There is a need to secure the supply of raw materials along the value chain and to foster investment at EU level in these sectors, including by lowering/sharing the risks. c. Raw materials in the Juncker Plan The final report of the special task force (Member States, Commission, EIB) on investment in the EU issued in December 2014 explicitly called for investments to secure the supply of raw materials. There is a potential for projects in the field of raw materials, which needs to be explored. In particular, in the tentative list of projects opportunities, the special task force identified several projects, that are relevant to the raw materials sectors, including the idea of a European Minerals Joint Venture. The report stated that "the joint venture shall bring together public and private stakeholders to invest in raw materials supply projects to help our industrial base to remain 1 COM/2014/0903 final: 2 COM(2015) 10 final:

2 competitive. Possible activities could range from exploration through investments in mine development to recycling projects and the deployment of pilot technologies". In the meantime, the concept of Investment Platforms has emerged in the proposed EFSI Regulation. Article 5 states that "the EU guarantee shall be granted for support of dedicated investment platforms and national promotional banks, via the EIB, that invest in operations meeting the requirements of this Regulation. In that case, the Steering Board shall specify policies regarding eligible investment platforms". The Council position and the EP report support the importance of Investment Platforms as a means to pool funding from third parties and create synergies around projects with common characteristics. It is thought that the above-mentioned joint venture could therefore be developed as a European Minerals Investment Platform. The objective of this discussion paper is to set the ground for the development of such an Investment Platform. 2. EFSI Investment Platforms On the basis of the proposed EFSI Regulation, National Promotional Banks (NPB) of Member States can receive the support of EU Guarantee, via the EIB, for operations meeting the requirement of the Regulation. Third parties, including NPBs, may participate in Investment Platforms which benefit from the EU Guarantee, and/or may co-finance with the EIB on a project-by-project basis. The EFSI Steering Board 3 will specify the policies regarding eligible Investment Platforms, and the Investment Committee 4 will be responsible to approve the use of the EU Guarantee for each NPB's or Platform's proposal. In any case, an agreement with EIB will be necessary, and the beneficiaries of the Guarantee need to ensure delivery of results, leverage, and compliance with the Regulation. As is the case with individual projects, decisions to enter into an agreement with an NPB or to invest in an investment platform will have to be based on merit, irrespective of geographical considerations. The above is subject to possible changes during the on-going Council-EP legislative procedure, although it is expected that the key principles will remain as per EC proposal. Investment Platforms can be special purpose vehicles, managed accounts, contract-based cofinancing or risk-sharing arrangements, or other arrangements via which entities channel a financial contribution in order to finance a number of investment projects. The proposed EFSI Regulation allows the granting of the EU Guarantee, via the EIB, to Investment Platforms related to specific geographic or thematic sectors. 3 "The EFSI shall have a Steering Board (Article 3) which determines the strategic orientation, the strategic asset allocation and operating policies and procedures, including the investment policy of projects that EFSI can support and the risk profile of the EFSI. [ ] Members of the Steering Board are appointed by the contributors of risk bearing capacity with voting power proportional to the size of contributions." 4 "An Investment Committee, consisting of independent professionals, shall be responsible for examining potential operations and approving the support for operations irrespective of the geographic location of the project concerned. [ ] Members of the Investment Committee shall consist of six independent market experts and a Managing Director."

3 Third parties, including Sovereign Wealth Funds (SWFs) and private investors (infrastructure funds, investment banks) have shown interest in the EFSI and in the possibility to invest in Investment Platforms and discussions are ongoing. At this stage, three complementary options can be envisaged: a. Co-financing and risk-sharing agreements NPBs, EBRD, Institutional investors or SWFs could consider to have a co-financing agreement with EIB (similar to what is done by IFC with China), whereby they would commit to co-invest with EIB the entire (or specific subset of) portfolio of operations under EFSI, with appropriate risk-sharing provisions. b. Thematic Investment Funds Thematic Investment Funds with specific sectorial focus could be focused on Energy interconnections, Trans-European Networks, research programs with a multi-country features. These Funds would offer the benefit of pooling of resources from third parties, higher impact and visibility, compared to a more fragmented approach. The Funds would act as a co-financing vehicle to ensure the bridge between EIB/EIF financing and the target investment of EUR 315bn. c. Geographic Investment Funds Geographic Investment Funds could be focused on a group of countries willing to pool resources to address their common investment needs (for instance Baltic or ES-FR-PT interconnections). At MS level, the MS may wish to consider establishing national Funds to coordinate their country's involvement in the EU Investment Plan. 3. Towards a European Minerals Investment Platform a. Current state of preparation A number of initiatives have paved the way to the European Minerals Investment Platform. Several stakeholders, at different levels, have engaged in a reflection on their raw materials supply risk and have developed strategies to address these challenges. An EU list of Critical Raw Materials has been developed in 2010 (renewed in 2014). The solutions can focus on innovation/r&d (develop innovations/technologies to improve exploration, extraction, processing recycling or substitution) or on procurement strategies (diversification of sourcing). In particular, at EU level, several actions have started to address the challenge of raw materials supply via increased efforts on innovation and R&D. The European Innovation Partnership on Raw Materials, launched in 2013, has led to the identification of key priority actions to bring innovation to the market in the raw materials sectors (i.e. exploration, extraction, processing, recycling, substitution). The European Innovation Partnership on Raw Materials is a key instrument to secure Europe s raw materials supply for its industry, having already mobilised approximately 700 partners (industry, governments, academia, NGOs) from all over Europe, ready to deliver innovation in raw materials sectors.

4 The priorities for innovation defined by the Partnership are largely reflected in R&D funding (Horizon 2020) with a budget of approximately 600 million euros over the 7 years of the financial perspectives. This will help to reach one of the key targets of the Partnership, which is to launch up to 10 pilot plants, by 2020, in raw materials exploration, extraction, processing, recycling, substitution. Very recently, and building on the work of the EIP, a Knowledge and Innovation Community (KIC) on Raw Materials was designated by the EIT (European Institute of Innovation and Technology) Governing Board. It brings together more than 100 partners from leading businesses, research centres and universities from 20 EU Member States. Its mission is to boost the competitiveness, growth and attractiveness of the European raw materials sector via radical innovation and entrepreneurship. Moreover, several individual companies (e.g. Airbus Group, Renault, PSA-Peugeot Citroen) have also identified critical raw materials (CRM) from the point of view of their value chain and developed innovation strategies (e.g. substitute, reduce use) to address the supply risk. However, innovation/r&d strategies are only parts of the solution. Raw materials procurement strategies (i.e. diversification of sourcing) also have an important role to play. This is what the German Rohstoff Allianz 5 or the French Compagnie nationale des Mines de France (CMF) 6 have focused on. Dedicated investment funds, such as the Finnish Industry Investment (specific Mining Cluster investment programme) 7, are other means of addressing the challenge raw materials supply security. b. The strategy of the European Minerals Investment Platform The European Minerals Investment Platform would benefit from the EU Guarantee, via the EIB, and invest in raw materials supply projects, thereby contributing to securing supply for European industry. It would invest in exploration activities; mine development and recycling installations, in Europe. This Investment Platform could also develop a capacity to invest in projects in third countries 8. It would take stakes in or grant loans to existing companies/projects or future ones. Depending on their stage of development, size and type, projects could range from 4 million to 1 billion (based on average investments costs for mining projects, including processing (i.e. 5 The Rohstoff Allianz model is a financing by private investors: shareholders are companies with significant industrial value creation in Germany that require raw materials for their own use (i.e. Aurubis AG, BASF, Bayer AG, BMW AG, Bosch, Evonik Industries AG, Georgsmarienhütte Holding GmbH, Rockwood Lithium GmbH, SHS - Stahl-Holding-Saar GmbH & Co. KGaA, ThyssenKrupp AG (represented by ThyssenKrupp Metallurgical Products GmbH), Volkswagen AG, Wacker Chemie AG). 6 The CMF model is a financing by public investors: two public shareholders have been identified, the French geological service (BRGM - Bureau de Recherches Géologiques et Minières) and the Agence des participations de l'état (special agency of the French government managing the state's holdings). 7 Finnish Industry Investment enhances the investments and internationalisation of the Finnish mining cluster through the EUR 30 million investment programme. They invest in Finnish and foreign mining companies projects that are located in Finland. ( 8 The draft regulation enables projects between one or more MS and third countries within the Pre-Accession, Neighbourhood or OCT regions.

5 exploration, mine development and production)). If infrastructures for transport were to be covered, budget would need to be increased. Interested National Promotional Banks (NPBs), Sovereign Wealth Funds (SWFs), Institutional investors or EBRD could channel their financial contribution via this Investment Platform. As a first step, the European Minerals Investment Platform could identify on-going competitive projects, in which it could invest, following an opportunistic approach. In order to do so, it would need to have adequate economic (both market and financial) and geological knowledge, necessary for strategic investments. As for the CMF, geological surveys could help in this identification. The 700 companies and entities involved in the "Raw Materials Commitments" of the EIP on Raw Materials would also be a powerful tool in this respect. Existing EU consortia (e.g. EIP, KIC, ERAMIN), national initiatives (e.g. DE, FR) and individual companies (i.e. European manufacturers 9 ) having defined strategies on raw materials supply risks could also have a role in this European Minerals Investment Platform, in order to help define the needs (i.e. which raw materials should be subject of investments, in view of their criticality and return on investment) and include the cost factor, in line with the German Rohstoff Allianz. 4. Questions a. Refining the concept i. Who Who should contribute? Financially? With expertise? National Promotional Banks (NPBs), Sovereign Wealth Funds (SWFs), Institutional investors, EBRD, existing EU consortia (e.g. EIP, KIC, ERAMIN), national initiatives (e.g. DE, FR) and individual companies (i.e. European manufacturers), geological surveys, Raw Materials Commitments" of the EIP on Raw Materials What would be their incentives? How to ensure EIB involvement? ii. What (scope) Which sectors should/could be covered? What budget should/could be foreseen? What should/could be the geographical coverage? iii. How (governance) How would the Investment Platform governance work? How would decisions-making work? What would be the role of each stakeholder? Who would define risk profiles? 9 According to a PwC 2011 report ( Minerals and metals scarcity in manufacturing: the ticking time bomb, Sustainable Materials Management, PwC, 2011), the following sectors have already experienced the unstable supply of minerals and metals and could therefore have an interest in supporting the Investment Platform: aerospace, automotive, chemical, energy and utilities, high tech, infrastructure, renewable energy.

6 Which of the three complementary options (i.e. co-financing and risk-sharing agreements, Thematic Investment Funds, Geographic Investment Funds) seem most appropriate / realistic? b. Operational plan How to secure political support? What would this support entail for the political level? Business logic, but also wider objectives to secure the security of supply and contribute to European growth. How to secure support/commitment from the private sector? Link with the EIB? Who could/should take the lead in developing the European Minerals Investment Platform? Who else could help refine the concept of European Minerals Investment Platform? What should be the next steps to put forward the proposal for a European Minerals Investment Platform to the EFSI governing bodies (Steering Board, Investment Committee)?