Introducing the latest installment of the Critical Minerals Pragmatist, written by Olimpia Pilch, a newsletter that provides you with a unique perspective on the global critical minerals landscape.
Hoped for a quiet summer? The Democrat’s presidential candidate exclusively speaks in riddles and rhyme, the UK has been engulfed by riots and Kier is proving to be Trudeau’s double. Putin is claiming provocation by Ukraine…again, Hamas has a new unhinged leader, Iraq contemplates marrying off nine-year-old girls as legal, a Thai court dissolved the opposition party, and markets took a tumble… suddenly living in a cave doesn’t sound so bad. In the land of critical minerals things have been looking up…slightly…(the bar is pretty low):
- Glencore has been fined $152 million by Swiss authorities for failing to prevent a business partner from bribing a Congolese public official in 2011. More here. Yet, Amos Hochstein is advocating for the US to let off Gertler lightly… Glencore as a company, is no angel, and the Swiss operate independently of the US…but the optics of the Swiss going after corruption and the US promoting it are not good.
- Warner and Rubio teamed up on proposed bipartisan legislation to ensure a diverse, secure supply of critical minerals with a focus on greater diplomatic support and expanding EXIM’s and DFC’s financial toolbox. Bill here. The Bill seems to get the basics in order – understand who’s doing what and where within the network of departments and offices and force them to talk to each other. Better diplomatic support which has been lacking across producer nations, competing for offtake and providing EXIM support to secure it, and working with allies are all a good start. The emphasis seems to be on critical materials, research and mapping, and collaboration with allies. Yet still, America remains reluctant to make it easier to extract its own resources…
- US Department of Defense sprinkled $11.8 million at Lithium Americas to crack on with processing of lithium carbonate.
- China’s CCP and State Council announced a carbon dual control policy that aims to establish a new system focusing on total emissions and intensity.
China leads critical minerals production
Data recently published by the United Nations Conference on Trade and Development (UNCTAD) shows that China accounts for around two-thirds of the world’s processing/refining capacity for critical minerals. While the extraction of these materials takes place all around the globe, China currently accounts for more than half of the world’s refining of aluminium, lithium and cobalt, around 90% of that of rare earth metals and manganese and 100% of that of natural graphite. In addition, more than a third of the world’s copper and nickel processing is carried out in China.
While China is in the lead for critical minerals production, the nation is losing its dominance. For example, the United States and Australia have increased their production of rare earths from 2010 onwards and most recently, Myanmar and Thailand have started to mine far more than before.
Ah if only it were true. The devil is always in the detail. US-mined rare earths from Mountain Pass were being shipped over to China, given that the company has been just about surviving thanks to Shenghe Resources, a Chinese state-owned entity. Although things are looking up for the mine thanks to significant DOD backing to process US-mined rare earths in-country. Commercially, the mine stands no chance without government life support.
Australia has Lynas thanks to Japanese intervention to create a backup to China’s monopoly and several over-hyped projects raising billions in debt, meanwhile, Myanmar is China’s sandpit.
To say that China is losing its dominance is nothing more than wishful thinking. Monopolies are not just limited to geographies.
WA gold companies shine but critical minerals pull index down
A special 2024 Diggers and Dealers edition of the Deloitte WA Index reveals Western Australia-based listed companies succumbed to an overweight exposure to lithium and rare earth elements in 2024, with producers among the top 20 with exposure to carbon reduction and battery-associated minerals losing an aggregate of A$23-billion in market capitalisation.
Lord, pray for all the critical mineral miners Down Under.
“We can still trust gold to shine in a world of uncertainty, with silver and platinum also delivering, up 22%, 29% and 13% price growth respectively, and plenty of optimism around uranium, with a rise of 49% in 2024,” he said.
“After riding the carbon reduction and battery storage wave in recent years, 2024 saw lithium prices fall 74%, with rare earth elements coming off 20%, nickel down 16% and cobalt down 19%, resulting in several mines facing mothballing and others seeking funding to stay the course,” Andrews said.
This is precisely why investors are not willing to stick their money into critical minerals. Uncommoditised, high-risk, unclear routes to market, volatile and vulnerable to geopolitical tit-for-tat are just some of the turn-offs.
“Interestingly, critical minerals associated with a wider range of clean energy initiatives such as copper, zinc and aluminium, weathered pricing volatility more favourably. Tech stocks, of which the WA Index is underweighted, led other global market indices to outperform the WA Index this year.”
Commodities perform better as they have easier routes to market, and access to finance and are relatively de-risked in comparison to critical minerals where the Chinese monopoly plays the tune to which Western miners dance to.
‘Too big to fail’ lithium to remain crucial amid market uncertainties, says IGO’s Vella
Lithium will continue to play a key role in the future of battery technology and in the broader energy transition, despite significant market uncertainties, according to Australian miner IGO MD Ivan Vella.
Too big to fail when bankrolled by China and crucial to daddy Xi’s masterplan.
Vella also addressed China’s dominant position in the battery and EV markets, attributing it to the country’s substantial investment in R&D. He cited BYD as a prime example, a company with about 48,000 patents developed in less than 20 years. This level of investment and innovation, he suggested, is positioning China to extend its influence globally.
R&D is only part of the story. It’s worth remembering that China thieved technology from the West and has been lagging behind when it comes to pure R&D of new tech but excels at commercialisation and scale-up. The two are not the same. Successes in commercialisation are however linked to CCP policies and incentives, and strong-arming of naïve Westerners to hand over tech and know-how to keep operating in China for a fraction of the price.
Vella also pointed out that China had already built or committed to battery production capacity that was double its domestic requirement by 2030, while Western commitments remained uncertain.
China’s grand plan is to rescue its growth trajectory with EVs and other “green” tech to prevent the collapse of China.
IGO plans to transition its Forestania nickel/cobalt mine to care and maintenance while continuing to maximise the performance of its Nova operation. “We need to build businesses that can withstand imbalances and volatility in prices.”
Finally, some common sense.
Australian Mineral Exploration Review 2023
Highlights:
- Exploration spending is on the rise – $4.3 billion spent in 2023, the greatest amount since the mining boom of 2012.
- 77 maiden resources were announced Down Under of which:
- 47 contained critical minerals; and,
- 12 contained rare earths.
- Brownfields and greenfields expenditure is up by 5% in comparison to 2022 but greenfields exploration has seen a 14% decline in meters drilled compared to 2022.
- Gold remains king but exploration budgets are increasingly directed to critical minerals (aside from copper which also gets its healthy dose of spending).
However, the question we need to be asking is how long this will be sustained. Nickel and lithium prices have taken a battering over the past year. Mining finance is drying up. Investors only speak the tongue of gold, coal, and uranium (depending on the geography). The data from 2024 might be less optimistic.
The end of the fantasy demand cycle in critical minerals
In the realm of critical minerals, we’ve witnessed an extraordinary correction in the market. This shift has profoundly impacted the commodity cycle, which has been heavily influenced by the transition to alternative energy sources, including electric vehicles. For years, companies have been securing substantial financing for critical minerals and materials. However, the market had surged far ahead of genuine demand, primarily due to excessive government intervention.
Yes and no. Blanketing 50+ metals and minerals with one statement is like saying the Earth’s water is boiling because there are hot springs in the Yellow Stone. There are commoditised critical minerals such as copper, aluminium and PGMs which seem to be performing better than EV battery metals on which China’s grand survival strategy relies on – lithium, nickel, graphite, REEs.
The commodity cycle remains mostly unaffected by the measly expenditure on critical minerals, or the very very few Western operations producing uncommoditised critical minerals. Lithium ventures were scaling up and down, flourishing and going under before critical minerals became sexy. Coal, iron ore and gold in particular are still doing well.
The market has not surged ahead of genuine demand either since very few critical minerals mines have been brought online in the past five years and Western governments have done very little to intervene in the markets. Where they have intervened, is to set out unrealistic targets in response to chasing after China’s tail rather than by setting out a robust re-industrialisation strategy that is better suited for the lifestyle of Westerners or the economic realities of sovereign nations. Where market intervention has been evident is by the Chinese Communist Party, systematically and unscrupulously. However, it is important to remember that for many specialty critical materials derived from scandium, graphite or antimony there is only the Chinese market that the rest of the world relies on.
The other challenge of comparing critical minerals “markets” to bulks like coal, iron ore or to precious metals that shape the mining cycles is that the two are completely different. The key differentiator is volume. Most critical minerals have strategic value as speciality critical materials in small quantities without which defence and tech quickly fall on their arse – rather than truck loads and ships filled to the brim with coal or iron ore. Therefore, to anticipate drastic increases in demand is a simple lack of common sense.
Governments around the world have set ambitious targets—electric car penetration by a specific date, net zero emissions by another. The industry embraced these goals, assuming their feasibility. Yet, the reality has proven otherwise. These targets were essentially fantasy demands conjured by policymakers and bureaucrats, and the public has not wholeheartedly embraced them. Consequently, we’ve reached the end of this fantasy demand cycle, and now supply is adjusting accordingly.
Zero sympathy for companies that blindly follow the blind. Governments have plucked out targets from the thin air, despite lobbying by OEMs against these. Now, the OEMs have switched sides and are partnering up with Chinese companies – if you can’t beat them, join them, and in five years, you’ll have no IP and be completely taken over. But tunnel vision execs have made their bed.
The major problem with the net zero fluff is that the customers do not want to trade convenience for a more expensive net alternative. No customer, no demand. No demand, no mining. Vicious cycle. The only solid (used loosely as it’s built on shifting sands) market is in China which itself relies on the Western world’s appetite to gulp up Chinese goods. Had the market been allowed to develop organically, driven by what consumers want, or what great marketing strategies can convince them to purchase, maybe there would be a greater uptake in EVs, instead mandates are having the opposite effect.
The green revolution and net zero targets appear increasingly distant. Major producers, the lowest-cost players in the market, are scaling back investments because they cannot produce into a vacuum. The timeline for these transitions now seems much further away than previously anticipated.
Again, for many critical minerals, there are no majors to be seen on the horizon. It’s a small game of mining, processing, refining and selling small quantities of strategically valuable powders or alloys. Vale, Glencore, Rio and others that dabble in commoditised critical minerals or those that are close to becoming commodities (e.g. nickel) play a different game. Critical minerals however typically form a small share of their portfolio in comparison to bulks. And by the very definition and heightened geopolitical risk, critical minerals are not exactly profitable. Otherwise, they’d just be minerals.
Governments, already stretched thin, cannot perpetuate subsidies for alternative energy projects indefinitely. Subsidies, after all, are funded by taxes. As the cost of these technologies rises, so too does the tax burden, which is unsustainable in struggling economies. The notion that subsidies are a form of free money is a fallacy. Ultimately, governments will be unable to continue subsidising these ventures, and we must acknowledge the limits of such support.
