Reed Smith In-depth

Key takeaways

  • Negotiating contracts for the supply of critical minerals requires consideration of distinct factors that are relevant to producers (as sellers) and OEMs or other manufacturers (as buyers). Key factors include:
    • The steeply increasing demand for critical minerals, driven by the ongoing energy transition, which has made ensuring security of supply of critical minerals of paramount importance for OEMs and other buyers.
    • The increasingly stringent ESG obligations – whether mandatory legal obligations or voluntary commitments under buyer ESG policies – with which suppliers are asked by their customers to comply.
    • A trend toward protectionist measures by national governments around critical minerals production and supply chains, creating geopolitical risks for the performance and economics of supply contracts.


1. This client alert identifies key considerations for producers, traders and end-users (including auto manufacturers and original equipment manufacturers or “OEMs” that supply devices produced using critical minerals to manufacturers of finished products, including electric cars, solar panels and wind turbines) when negotiating contracts for the sale and purchase of critical minerals.

2. The term “critical minerals” where used in this client alert refers to minerals used in the production of clean energy technologies, including cobalt, nickel, lithium, copper and rare earth elements. Other terms commonly used for this group of commodities, which are the key raw materials used in the production of batteries and other technologies associated with the energy transition, include “green minerals”, “focus minerals” and “energy transition minerals”.

3. Both OEMs and their manufacturer customers are direct and indirect buyers of increasingly large quantities of critical minerals. Contracts for the supply of critical minerals to OEMs and other manufacturers are subject to economic, regulatory, social and political factors, and this means that their negotiation can be complex and fraught with challenges not otherwise affecting commodity supply contracts. These challenges include:

a) High market demand for the critical minerals – both current demand and anticipated future demand – such that ensuring security of supply is of paramount importance to buyers.

b) Volatile market pricing as the world moves through the ongoing transition to clean energy sources, and supply and demand for critical minerals fluctuate.

c) An increasingly stringent legal and regulatory framework of ESG obligations and commitments concerning the production and provenance of critical minerals, driven by government policy in different jurisdictions.

d) ESG considerations driven by buyers’ own internal policies and commitments to their customers and investors, which may surpass obligations under applicable laws.

e) Geopolitical risks that can affect supply chains for critical minerals in sudden and unexpected ways, especially given the concentration of certain critical minerals in a small number of countries, many high-risk.

4. How these surrounding factors are increasingly affecting the terms of contracts for the supply of critical minerals to OEMs and other manufacturers that buy critical minerals is discussed below. We consider the areas where tensions arise in negotiations between the interests of sellers and buyers, and how these tensions may be resolved in practice.