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US efforts to diversify its supply of graphite—critical for batteries, steelmaking, and more—away from China took a major hit this month, as civil unrest in Mozambique led Australian miner Syrah Resources to close a graphite mine and default on US government backed loans. The episode demonstrates a truth US policymakers will increasingly confront as they seek to de-risk US supply chains for critical minerals: De-risking is a misnomer. What the United States is doing is new-risking: substituting familiar risks from China for murkier, less understood risks in frontier markets.
The graphite mine, Balama, was clearly a centerpiece of US attempts to diversify critical mineral supply chains, which are dominated by China and have been increasingly weaponized in the context of US-China tech competition. Between the Mozambican mine and a graphite processing facility in Vidalia, Louisiana, Syrah Resources had been loaned nearly $250 million by the US International Development Finance Corporation and the Department of Energy.
President Joseph R. Biden Jr. himself announced $150 million in US loans for the Balama mine at the 2023 G20 Summit in New Delhi. The loans, just finalized in November 2024, are now in default. Syrah’s stock price has fallen from a high of $1.80 in November 2022, on the heels of the Inflation Reduction Act and record high critical mineral prices, to 12 cents as of December 12, 2024.
Mozambique was critical to US aspirations of reducing dependence on Chinese graphite. Despite Chinese export restrictions, the United States has continued to source the bulk of its graphite imports from China. Though still providing only a fraction of US graphite imports, Mozambique had seen its total graphite exports to the United States quadruple from 2021 to 2022 and double from 2022 to 2023.[1]. But strong headwinds emerged in 2024. As of September, Mozambique had only produced 11% of its 2024 target for graphite destined for EV batteries.
Mozambique’s elevated risk profile
With the benefit of hindsight, pinning US hopes on the Balama mine was always a risky proposition. Located in Cabo Delgado, Mozambique’s northernmost province, the mine is nearly 1,400 miles by car from the capital Maputo, roughly the distance between New York City and Dallas, Texas. Cabo Delgado, far from the seat of power, has long been one of Mozambique’s poorest regions, despite its wealth in rubies, graphite, and natural gas. Marginalization began under Portuguese rule and continued during the Mozambican Civil War (1975–92), which effectively cut northern Mozambique off from the rest of the country. As recently as 2018, its infant mortality rates were substantially higher than those in southern and central Mozambique.
Cabo Delgado was the site of vicious fighting during the Mozambican War of Independence (1964–74), during which Cabo Delgado and neighboring provinces in Tanzania were the operating base of FRELIMO, the Marxist-Leninist insurgent group that has ruled Mozambique since independence. The province is also marked by often tense relations between the predominantly Catholic Makonde and predominantly Muslim Mwani ethnic groups, neither of which is well represented by Tsonga-dominated FRELIMO. Since 2017, the region has been home to an Islamist insurgency being waged by a local franchise of the Islamic State. Insurgent operations caused the Balama mine to suspend operations on several occasions.
Research on the resource curse demonstrates that the cocktail of valuable mineral resources located far from the capital and dominant ethnic groups, a history of underdevelopment and political marginalization, and strained relations between locally prevalent ethnic groups and the national government is quite combustible. Yet ultimately, it was not the Islamic State that was the Balama project’s undoing. Rather, Syrah Resources pointed to the confluence of local farmer protests over land use and resettlement—an all-too-common conflict in areas affected by extractive industries—and the wave of national protests following contested presidential elections that has so far claimed at least 110 lives since October. The insurgency did not help matters, but ultimately it was not the decisive factor.
The declaration of force majeure, used in the closure of the Balama mine, implies unforeseen circumstances or an “Act of God.” However, any reasonable assessment (including my own) would have concluded that the Cabo Delgado region posed significant challenges as an operating environment. East Africa is rich in graphite resources, particularly in Madagascar, Mozambique, and Tanzania. Among the three, Tanzania presented the lowest risk and Mozambique the highest, primarily due to the armed conflict dynamics in Cabo Delgado. While I misdiagnosed the specific vector, I correctly identified the region with the most challenging governance context.
These circumstances drive home a sobering reality: Just as there is no free lunch, there is no true de-risking. Rather, there is substitution of the known risk associated with a dominant, mature—albeit increasingly antagonistic—producer (China) for the less understood risk of emerging and frontier markets and producers.
Despite being the world’s largest producer of natural graphite, China nevertheless imports graphite to feed its even more dominant processing industry. Its graphite refiners have developed long-term purchasing arrangements with more established producers in East Africa and Brazil. As the latecomer, the United States is thus pushed on margin to more frontier projects and contexts, contexts that are much less understood.
At a recent conference hosted by the Colorado School of Mines, I asked the audience—dominated by Western mining majors, smaller players, and a smattering of academics and nongovernmental organizations—whether they or their teams had substantial experience doing business with and in China. Nearly every hand shot up. I asked the same about Mozambique. Three hands were raised, all belonging to African students. Western mining companies, the US government, and civil society will all have to adapt to this new, more diverse, and potentially more challenging risk landscape on the fly. And they will not have a particularly deep bench of expertise on which to draw. This is one of the many reasons why diversifying the mining workforce is so critical to the future of US mineral security.
Some variants of the adage “better the devil you know than the devil you don’t” have been around at least since the 16th century. As the United States seeks to diversify critical mineral supply chains, it seems apropos five centuries later—and provides a compelling rationale for toning down both the rhetoric and the reality of US attempts to remove China from its critical mineral supply chains.
Note
1. Author’s calculations based on US Census trade data (HS 2504).
Data Disclosure
This publication does not include a replication package.
