Next steps that could move the countries toward formal negotiations on the partnership will be discussed when Indonesian President Joko Widodo visits the White House for a meeting with U.S. President Joe Biden on Monday, according to one of the people.

The Biden administration is still concerned about environmental, social and governance standards in Indonesia and is examining how a deal might work, the sources said. The administration also plans further consultations with U.S. lawmakers and labor groups in the coming weeks, one of the sources said.

"There's a lot of work to do before we are able to formally announce negotiations on a critical minerals partnership," the person said.

The White House did not respond to a request for comment.

Indonesia, which has the world's biggest nickel ore reserves, in September asked the United States to begin discussions for a trade deal for critical minerals so that exports from the Southeast Asian country can be covered under the U.S. Inflation Reduction Act (IRA).

Most of Indonesia's nickel is processed into crude metal but the government is keen to develop an EV supply chain to use the vast reserves of nickel, which can be processed into battery materials.

ENVIRONMENTAL IMPACT

The Biden administration discussions, which include U.S. Trade Representative Katherine Tai as well as the White House, focus on making sure that any potential nickel supply be produced with as little environmental impact as possible, according to one of the sources, who directly advised the administration and was not authorized to speak publicly.

"The overall momentum is promising, but (we) don't want to minimize the fact that there is a fair amount of work to be done here," one of the people said.

Indonesia's nickel supplies are the world's largest and nickel mining there has been blamed for heavy deforestation and water pollution.

Under guidelines for the U.S. law issued in March, Washington has required that a certain amount of critical minerals in EV batteries be produced or assembled in North America or a free trade partner, for EVs sold in the United States to be eligible for tax credits. Indonesia does not have a free trade agreement with the United States.

The Biden administration is also discussing ways to carve out any nickel that is extracted from Indonesia but processed in China from receiving the IRA credits, one of the sources added.

One estimate puts the global market value for the nickel industry at $33.5 billion in 2022, though the market is over-supplied.

The only U.S. nickel mine is set to close in a few years, and the country has no nickel smelter, a risk to Biden's goal for the United States to lead in EV manufacturing.

The government last year gave nearly $115 million to Talon Metals (TLO.TO), to partially fund a nickel processing plant in North Dakota that will supply Tesla Inc (TSLA.O).

Talon is seeking permits for its proposed Minnesota nickel mine, but has faced opposition from Indigenous people. Many U.S. miners have said that the Biden administration should focus more on approving domestic projects than seeking international supply.