What Does ‘Value Addition’ Mean Amid Surging Global Mineral Demand?
As global demand for minerals surges, so does interest in “value addition”—the idea that mineral-producing countries should do more than export raw materials. But what does value addition really involve? Why does it matter? And how can it work in ways that deliver real benefits for people?
We asked two NRGI colleagues to share their perspectives. Thomas Scurfield, Africa senior economic analyst, offers a global overview. Dorjdari Namkhaijantsan, country manager for Mongolia, brings insights from a key mineral-producing country.
What is ‘value addition’ in mining and why is it getting so much attention now?
Thomas Scurfield: Historically, many low- and middle-income countries have typically extracted and exported minerals with little processing, with China being the obvious exception. This approach has often limited benefits for people in these countries. Governments and civil society in lower-income producer countries have therefore long prioritized value addition—that is, the processing of minerals and manufacturing of semi-finished and finished products using them.
Calls for value addition are growing louder today as countries and companies race to secure more minerals for the energy transition, digitalization and defense and as minerals become more integral to geopolitical competition. Producer countries, such as Mongolia, therefore have more bargaining power and they are determined that this time will be different.
Encouragingly, there has also been increasing recognition internationally of the need for more equitable global mineral value chains—evidenced by the United Nations Secretary-General’s Panel on Critical Energy Transition Minerals, of which NRGI was a member. However, high-income countries are also ramping up their own value addition domestically—with Trump making that focus more explicit since he came into office—making it unclear how much that supportive rhetoric will be matched by action.
So what might value addition look like in practice, particularly in a country like Mongolia? And what benefits could it bring for its citizens and long-term development?
Dorjdari Namkhaijantsan: While Mongolia has become a major mining country over the last three decades, it mostly exports minerals, including copper ore and concentrate, to its next-door neighbor China for processing. China is not only the biggest consumer of copper and other transition minerals, but also has the largest processing capacity. While Mongolia has long aimed to prioritize value addition in copper, ambitions to build smelting and refining capacities have failed to materialize. However, as demand for copper is increasing, there’s renewed interest.
By processing copper domestically, Mongolia could earn higher revenue from exports and access a more diverse buyers’ market—an important issue for a landlocked country like Mongolia. It would also create some jobs at smelters and refineries, and could better link the sector to the rest of the economy, including through the development of related industries that use byproducts of copper smelting and refining, something the government is currently exploring. If people were to see such benefits—like jobs and industry growth – domestic value addition could help ease tensions around mining.
However, benefits from value addition aren’t guaranteed. The processing industry requires significant capital investment and is highly competitive, particularly with China’s dominance—so there’s a need for analysis to determine whether copper value addition could mean higher prices but lower profits. The government will also need to improve environmental safeguards, and deal with risks tied to greater dependence on copper and other minerals if, for example, smelting and refining divert energy from other sectors.
What are the obstacles and risks that lower-income producer countries are facing?
TS: As Dorj noted, value addition will not always be viable or beneficial for people in mineral-producing countries. While proximity to mineral deposits play only a minor role, success depends on the amount of minerals that a country has access to, availability of competitively priced, reliable clean energy, and—depending on the product—proximity to end markets.
When value addition isn’t viable, the opportunity costs can be steep. For example, our recent analysis of Ghana’s lithium refining ambitions showed that building a refinery could cost the government hundreds of millions of dollars through subsidies or lost revenue—money that could be better spent on other development priorities. This hit on public finances is worth it if the refinery generates a lot of jobs or stimulates the growth of other industries. But this highlights the importance of governments doing rigorous cost-benefit analysis to inform their value addition plans—also factoring in environmental and social risks, as Dorj mentioned. Chile, for example, is closing some of its copper smelters due to environment and public health impacts. A study suggested that the environmental and social harms of Indonesia’s nickel smelting could ultimately outweigh its economic benefits.
In short, value addition isn’t always going to be the best way for a country to try and maximize the benefits from its minerals. To avoid these pitfalls, governments need to cut out the noise and resist the public pressure for a blanket approach, and instead focus on specific minerals and stages of the value chain. When a government has identified a value addition project that would generate meaningful benefits for the country, it should develop targeted industrial policy. And if the government needs help to bring the project to life, development partners should put their money where their mouth is and offer financial support.
What are the key challenges Mongolia faces in adding value to its minerals—and what’s needed to overcome them?
DN: To go ahead with more value addition, especially in copper, Mongolia needs to attract investments not only in the actual smelting and refining capacities, but also in exploration and mining to ensure a reliable supply of raw materials for future processing. In addition, Mongolia’s infrastructure to support processing, especially that of energy, remain weak and needs substantial investments.
To attract funding, the government may rely on state-owned companies to access global financial markets. However, these companies are often criticized for weak governance and susceptibility to corruption, making their reforms a government priority. At the same time, the government needs to communicate its plans—not only to potential investors but also to the general public—and foster open and honest dialogue with all stakeholders on the various environmental and public health risks and other potential trade-offs associated with processing. Only by involving the public in navigating these complex decisions will the government ultimately increase how much people benefit from their minerals.
