Fireside chat with Han Ilhan
This fireside chat between Rebecca Burton and Han Ilhan offers a detailed and insightful exploration into the concept of friendshoring and the role of Uzbekistan’s technological metals complex (TMK) in the European supply chain for critical raw materials (CRMs).
Setting the Stage: Uzbekistan’s Position
Han Ilhan sets the stage by explaining the unique position of Uzbekistan in the global supply chain for critical raw materials. TMK (Uzbekistan’s Technological Metals Complex), established in 2024, is a state-owned enterprise that operates across the full value chain of critical raw materials. This includes everything from upstream mining to mid-stream metal production and downstream end product manufacturing. The key advantage of TMK is that it controls over 100 assets, half of which are in R&D, and the other half are in the development phase.
In a world dominated by China in the supply of critical raw materials, TMK’s model of controlling the full value cycle is rare. It places Uzbekistan in a strategic position to supply Europe and other regions with critical raw materials necessary for high-tech industries.
The Concept of “Friendshoring”
The conversation shifts towards the concept of friendshoring, where supply chains are relocated to trusted jurisdictions that are politically stable and aligned with ESG (Environmental, Social, and Governance) standards. This is particularly relevant for Europe, which is facing supply chain vulnerabilities due to geopolitical tensions and the dominance of countries like China in the critical raw materials market.
While Han admits that he initially didn’t understand the term friendshoring, he explains that it essentially refers to relocating sourcing and processing to countries that are considered reliable and trustworthy partners. The challenge then becomes defining partnership in this context, which is not just about transactional agreements, but true collaboration across multiple pillars.
Key Elements of a True Partnership
For Han, a true partnership must involve the following four elements:
- Risk Sharing – Both sides need to share the risks associated with mining and resource extraction, rather than placing all the burden on the supply side.
- Co-investment and Co-financing – There must be a financial commitment from both sides to ensure the success of the project.
- Technology Sharing – As critical raw materials extraction can be complex, sharing technology is key to ensuring sustainable and efficient production.
- Human Resources and Capacity Building – Investment in local human resources, training, and capacity building is crucial for long-term success.
Without addressing these pillars, a partnership can easily devolve into a transactional agreement—one where the demand side simply provides capital in exchange for the end product. This would not be a sustainable model for developing critical raw materials.
The Role of Finance in Critical Raw Materials Development
Han talks about how financing models need to evolve, especially in the context of critical raw materials. He highlights that public capital should play a key role in de-risking projects, especially in the early stages. Public funds can then crowd in private equity, allowing for larger investments in critical projects.
Han mentions examples from the U.S., where government agencies like the Department of Energy and the Department of Defence (current name is “The United States Department of War”) have invested directly in mining companies to reduce the risks associated with critical raw materials supply. In one case, the Department of War became the largest shareholder in a rare earth company to secure critical materials for defence applications. This is an example of how public-private partnerships can help accelerate the development of strategic materials.
The Importance of Standards and ESG in Attracting Investment
Rebecca discusses how investors are increasingly seeking assurance that mining projects meet ESG standards, particularly in terms of environmental and social impacts. This is where organizations like IRMA (Initiative for Responsible Mining Assurance) play a vital role. They help assess the social, environmental, and governance aspects of mining projects, which can give investors the confidence they need to invest in these ventures.
Han agrees that ESG standards are not just regulatory requirements but should be deeply embedded in the business culture of mining operations. For countries like Uzbekistan, which is still developing its mining sector, adopting and implementing ESG practices from the outset is key to building trust with global partners and ensuring the long-term sustainability of projects.
Challenges in Governance and Business Culture
A significant challenge is changing the business culture around governance in Central Asia. Han notes that it’s not just about implementing regulations, but about changing the way business is done. This cultural shift takes time and requires understanding from both the demand and supply sides. Effective governance is not easy to implement, especially in countries where business practices are still evolving.
Looking Ahead: Opportunities for Uzbekistan
As the conversation closes, Han emphasizes that Uzbekistan is ready for partnerships and that it has critical raw materials to offer Europe. He invites further dialogue between the supply side (Uzbekistan) and the demand side (Europe) to turn these opportunities into win-win partnerships.
Key Takeaways:
- Uzbekistan’s Position: Uzbekistan is uniquely positioned to supply critical raw materials to Europe through TMK, which controls the full value chain from mining to end product manufacturing.
- Friendshoring and True Partnerships: Partnerships must be more than transactional; they should involve risk-sharing, co-investment, technology sharing, and human resources development.
- Financing Models: Public capital can help de-risk critical raw material projects and crowd in private equity. The U.S. model of involving defence and energy departments in funding mining projects is a useful example.
- ESG and Standards: ESG standards must be deeply embedded in mining projects, not only to meet regulatory requirements but because it’s the right thing to do for the long-term sustainability of the region.
- Business Culture: Changing governance and business culture in Central Asia is key to achieving long-term, sustainable mining operations.
This conversation highlights the need for cooperative models to tackle the pressing issues in critical raw materials supply and sustainability. The alignment of Uzbekistan’s resources with Europe’s technological needs is a strategic opportunity that requires careful, long-term planning and collaboration.