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Stephen Hall was en route to Windsor Castle to receive an international business award from King Charles last month when his phone rang. Lloyds Bank was rejecting an application to refinance his critical minerals group that supplies blue-chip customers including engineer Rolls-Royce.
The UK lender’s head of credit had found a red flag that prevented it from backing Advanced Alloy Services: the company’s exposure to the volatile nickel price, after a short squeeze on the London Metal Exchange caused prices to surge by more than 200 per cent in one day in 2022.
“The debacle with Lloyds has consumed an enormous amount of time, energy and resources. It’s traumatic to come out of it with nothing,” said Hall.
The financing troubles of 31-year-old AAS echo those of other UK metals groups, underscoring how the government’s critical minerals strategy is at odds with the approach of British banks, which act as gatekeepers for a crucial state support mechanism.
First published in 2022, the UK’s strategy for critical minerals aims to diversify supply chains beyond China — the industry’s monopolistic force — for metals deemed essential to clean energy, electric cars and defence.
London has singled out 18 minerals with “high criticality” to the economy, including cobalt, graphite and tin. Five more, including nickel, are on a watchlist of metals that could trigger economic vulnerabilities in the event of sudden supply shocks.
Yet even as the UK’s lack of domestic resources means its focus is supporting processing businesses such as AAS, companies say support mechanisms offered by UK Export Finance (UKEF) require domestic lenders to increase their tolerance for the risks associated with commodities markets.
Guarantees offered by the government’s export credit agency are designed to increase the risk appetite of private lenders but can only be accessed via approved banks and other financial institutions.
The government’s other main financing tool to support critical mineral projects is the UK Infrastructure Bank (UKIB), which provides a range of businesses with equity and debt.
Hall said AAS — which has doubled turnover since 2021 to an estimated £60mn and been profitable for 30 out of 31 years — had wanted to refinance with Lloyds in order to reduce annual financing costs of £1.3mn after completing a management buyout.
A deal would also have given the company more room to tap into support through UKEF. But after seven months of meetings and audits, as well as AAS serving notice with its existing lender, Lloyds denied financing at the final hurdle.
The supplier of high-purity metals has no direct exposure to LME nickel prices but does make more margin in a rising market and less during a falling market.
The bank later clarified that it had concerns over the future value of inventory that was not yet backed by customer orders, according to Hall.
“For the UK government to support development of a more resilient critical supply chain then the banks need to be prepared to provide the support too,” said Hall, who is also chair of the Minor Metals Trade Association.
He added that lenders should “not prevent access to UKEF solely on the basis of being ‘exposed’ to those same markets that the UK government wants to develop”.
Jeff Townsend, founder of the Critical Minerals Association, a trade group, said several other producers had faced similar funding challenges with the UK banks and would encounter more problems as Beijing sought to manipulate prices of strategic metals.
“The government’s critical mineral strategy has limited influence on the way the City of London and the finance sector operates,” he said. “It really is a problem and it’s going to be increasingly so. How does the government get the financial sector to come onboard?”
One executive at another UK metals group, who asked for anonymity, said another major high street bank axed its financing lines last year without explanation, prompting it to cut over half its workforce and pull back on expansion plans.
“They rubbed me into the carpet,” the person said. “UKEF can only push [support] down one route. They need to find a way to circumvent the banks.”
Advisers working on financing packages for critical mineral projects said that most UK banks were cautious of backing commodities businesses because of the risk of price swings. By contrast, European lenders such as Société Générale, ING and ABN Amro were more comfortable with such risks, they said.
Lloyds said it did not comment on specific cases but said it provided banking services to about 1mn small and medium-sized enterprises in the UK, “supporting businesses across different sectors and sizes with the products and expertise they need to fulfil their ambitions to grow”.
The government said: “A secure supply of critical minerals is vital for our industrial strategy, economic growth and clean energy transition.
“We’re backing our critical minerals industry with UK Export Finance support” and investment by UKIB, it added.