Hasarel Gallage
Sri Lanka’s new National Mineral Policy presents a zealous ambition. By calling for a ban on exporting minerals without value addition, it provides an appealing target to maximise Sri Lanka’s profits earned from its mineral resources. But a closer look beyond the buzzwords reveals a more complicated picture marred by industrial realities and structural constraints. Unlike the common misconception, Sri Lanka is not, in fact, exporting raw ore. Its graphite and mineral sand exports already undergo some processing. Instead, the real questions worth asking are what “value addition” actually means. How much value is Sri Lanka already adding? Can it realistically add more? And if other resource-rich developing countries have tried the same model of export restrictions, what can Sri Lanka learn from them?
A goal without a definition
To begin with the first and most important question of definition, the government is yet to provide a standard, precise, and official definition of “value addition”. The new National Mineral Policy’s glossary describes it in vague, qualitative language as “systematic enhancement of the economic, functional, and market value of a mineral resource through processing, transformation, and product development, beyond simple extraction and sale of the raw material. It encompasses primary value addition, which improves the mineral’s physical and chemical characteristics, and product development, which converts minerals into market-ready, higher-value products tailored to specific industrial, commercial, or consumer applications” without any technical benchmark like the purity percentage or a specific processing stage that a producer or customs officer could check against. This vagueness matters because not all minerals are alike. Each mineral has its own natural grade and processing requirements, so a single undefined standard cannot meaningfully apply across all minerals. Adding to the issue, the new mineral policy doesn’t even specify which minerals Sri Lanka considers strategic or critical in the first place, as many other countries have already done in their own mining codes, a prior step that any meaningful value-addition threshold should ideally depend on. Sri Lanka’s Mines and Minerals Act No. 33 of 1992, nor its 2009 amendment, the binding mining law as of now, contains the term “value addition,” let alone a definition, highlighting that the concept the new mineral policy places in its epicentre has no legal backing.
The government’s own recent documents also don’t appear to agree with each other. The National Export Development Plan 2026-2030 (NEDP), released roughly a month before the Mineral Policy took effect in June, states that five minerals quartz, mica, mineral sands, dimension stone, and graphite can be exported raw, with everything else needing processing first. The Mineral Policy, issued a month later by the same ministry, instead states that export policy should move to prohibit “minimal or non-value-added” export generally, without acknowledging the NEDP’s exemption. This discrepancy in two strategic documents, one month apart, from the same ministry, suggests the government’s own internal position on value addition remains unsettled, even as it prepares to make the concept legally binding.
So how much value is Sri Lanka actually adding right now?
Unlike the popular “raw exporter” narrative and the national mineral policy’s own rhetoric, Sri Lanka doesn’t export raw ore. For instance, Sri Lanka’s naturally high-purity vein graphite is already exported by producers like Bogala Graphite Lanka PLC and the state-owned Kahatagaha Graphite Limited at over 95% carbon content, which is a processed product, although short of the 99.95%+ purity battery-grade graphite requires. With the lack of mineral-specific benchmarks, it is unclear whether 95% carbon graphite is considered “value added”. The same ambiguity applies to mineral sands. State-owned Lanka Mineral Sands Ltd, which is currently the only actively producing mineral sand company, already separates and grades heavy mineral sand into products like ilmenite, but the policy never specifies whether that qualifies as value-added, or whether “value addition” implicitly means the downstream processing like smelting and pigment-production stages much further down the value chain.
Source: Sri Lanka Mineral Sands Association, 2026
Why hasn’t Sri Lanka gone further?
A main reason why Sri Lanka is confined to upstream to midstream value addition is that the economics of advanced value addition are ineffective. For example, Sri Lankan graphite is extracted manually from underground mines, while most of the world’s graphite, including China’s, comes from open pits that enable mechanical extraction. This means Sri Lanka’s graphite, despite its naturally occurring exceptionally high carbon content, is not really cheap. When Chinese flake graphite sells for around 1,800 USD per tonne after multiple processing stages that upgrade its carbon content from around 3-15% to 90% carbon, Sri Lankan vein graphite sells for around 2,000 USD per tonne despite requiring minimal processing. If Sri Lanka were to push towards battery-grade purity, this gap widens further. Battery-grade production requires acid washing, and with no domestic chemical manufacturing base, Sri Lanka must import chemicals like hydrochloric acid at seven to eight times the freight cost China pays as a consequence of small order volumes and the hazardous-goods handling the chemical requires.
Volume has its own constraint. Industry figures put viable scale for a battery-grade graphite facility at around 10,000 tonnes of annual production, whereas Sri Lanka produces roughly 3,000 tonnes. Mineral sands share the same challenge, as a mineral separation plant (MSP) typically needs more than ten years of mine life to justify its high cost, while Sri Lanka’s deposits offer an estimated seven to nine years.
Then there is capital where policy uncertainty adds to the economic difficulty. Mineral projects typically take 16 to 18 years from exploration until they start making profits, which is a long lead time that could deter investors. Dominant mining producers like China could take the risk due to their early strategic investments and the state-owned enterprise model, which possessed enough capital to absorb the mineral industry’s early costs until they started making a profit. For a country like Sri Lanka recovering from a debt distress, this could be a far greater challenge. Sri Lanka’s high investment risk profile, high royalties, and inconsistent policies could similarly discourage willing foreign investors, reducing the chances for Sri Lanka to secure foreign capital that it desperately needs to develop the domestic mineral industry. A notable example is Iluka Resources, an Australian mineral sands miner, which left Sri Lanka in the late 2020s mainly due to the delay in processing their mining licence for Puttalam mineral sand mine. More recently, in August 2026, the GSMB launched a review of the 471 exploration licences that they themself issued over the past 30 years, alleging that holders were exploiting the licences for speculative stock market gains instead of actual mineral exploration. This includes some companies that have already invested substantially in exploration and local operations, who now remain in limbo with no confirmed timeline for the outcome of the review.
What does the rest of the Global South tell us?
Sri Lanka is not the first resource-rich developing country to try forcing value addition through export restrictions. A 2025 Organisation for Economic Cooperation and Development (OECD) survey found that more than 20% of trade in certain key minerals for the green transition faced at least one export restriction over 2021-23. Indonesia is the commonly cited case for export restrictions on raw ore. After banning raw nickel ore exports in 2014 (with a brief relaxation in 2017, followed by the full ban in 2020), it ended up as the world’s largest nickel producer by a wide margin. However, despite the top spot, today the smelting facilities built for nickel processing draw sustained criticism over deforestation and severe environmental pollution. And Chinese-owned or Chinese-invested firms are estimated to control roughly 75% of that smelting capacity, meaning although the ban was meant to keep value onshore, in reality, it may not be captured domestically. The Philippines also tried replicating Indonesia’s model in 2025 and abandoned the plan within the year, even before the bill became law, after industry pressure over electricity costs and regulatory bureaucracy that the government could not resolve.
The lesson for Sri Lanka is not that export restrictions never work, but that they worked for Indonesia largely because of leverage. Indonesia’s nickel is critical enough, and its market share large enough, that the rest of the world had to adapt to its terms. But Sri Lanka’s position is substantially different. Although Sri Lanka’s vein graphite is a prized product, it is not commercially mined elsewhere in the world at scale and only accounts for less than 1% of global graphite production. The single-source status heightens its supply risk, while the marginal global share fails to give Sri Lanka the chokepoint leverage that nickel gave Indonesia.
The honest picture?
Sri Lanka’s ambition to move up the value chain is understandable. But ambition alone doesn’t constitute a plan, and the plan as it stands now has real gaps. The definition of “value addition” that not even the government’s own recent documents agree on, cost structures that make further processing economically unviable, a discouraging investment environment made riskier by regulatory uncertainty, and comparative lessons from the rest of the Global South collectively suggest that Sri Lanka has got more work left to complete before aspiring to downstream value addition. Getting the policy right will require listening to industry perspective, acknowledging the commercial and economic realities, and answering the questions Sri Lanka’s own strategic roadmaps have left unanswered.
Note: This article summarises the second of five policy briefs that Factum is publishing on Sri Lanka’s mineral industry. The second brief focuses on the realities of downstream value addition to minerals in Sri Lanka, while later briefs will address policy and institutional frameworks, energy and environmental sustainability, and community and social impact.
Hasarel Gallage is an independent researcher, specialising in critical minerals and the political economy of resource-endowed states in the Global South.
Factum is an Asia Pacific-focused think tank/consultancy on Diplomacy, Tech-Plomacy, Digital and Energy Futures accessible via www.factum.lk.
The views expressed here are the author’s own and do not necessarily reflect the organization’s.
