Swapping aluminum for copper will maintain China’s resources, group says
China depends on overseas imports for 60% of its aluminum resources as opposed to 70% of its copper resources.
Barrick Gold’s (TSX: ABX; NYSE: GOLD) Mark Bristow and Vale’s (NYSE: VALE) Mark Cutifani like Saudi Arabia’s plan to be a regional financial partnership hub because others racing to develop critical mineral projects won’t be able to afford everything they want in a depressed funding market.
The kingdom, with its vast oil wealth, wants to retain its energy dominance into the green metals era. It’s positioning itself as the leader of what it calls a super region that includes Africa and the Middle East and stretches into Asia to host a third of global resources. The country’s third annual Future Minerals Forum attracted about 15,000 delegates this week and may have generated some $20 billion in deals, according to organizers.
Barrick CEO Bristow said it was unrealistic for every country to expect they can participate fully in the industry’s four main sectors of exploring, producing, processing and supplying, but that’s what he heard at a ministerial meeting. They don’t have enough cash and will end up slashing budgets for their other sectors like education and health care.
“For those countries that are still building a nascent mining industry, start with the first two steps, exploration and mining,” he said on a conference panel. “Downstream investment is a tough business: big skills gaps, the infrastructure you need is a big step again. Why not partner as per the concept around the super region and get the best of both worlds and negotiate with partners on returns for providing materials?”
Saudi Arabia is different than most countries in the region because it’s built extractive industry experience and a balance sheet enabling them to tackle downstream projects, he said.
Cutifani, chairman of Vale Base Metals, agreed with Bristow about supporting exploration and mining development over more risky processing.
“Countries go broke trying to get there too quick,” he said.
Saudi Arabia started a $182 million exploration incentive program, officials said during the event. State mining operation Ma’aden is keen to explore the region’s Arabian-Nubian shield of Precambrian rock straddling the Red Sea. The country has been offering foreign investors full ownership of projects, co-funding of up to 75% of capital spending, five years free of royalties, a 20% corporate tax and 30% discounts on local processing.
“I like to think of the kingdom as a connector connecting countries that are today challenged with finance, challenged with logistics, being landlocked in Central Asia, but also our brothers and sisters in Africa who also have their own challenges in accessing all of this,” Saudi Minister of Investment, Khalid Al-Falih, told the conference. “The kingdom can be a partner to countries in the region and of course with our private sector.”
The US is embracing the concept. Geoffrey Pyatt, Assistant Secretary of State for Energy Resources, noted partnerships are the best way to help mobilize the annual $4 trillion for the world to meet lithium needs set to grow 42 times and graphite by 25 times by 2040.
“The biggest challenge is equity, ensuring that the benefits and the costs of the energy transition are distributed in a way that is sustainable so we don’t end up with one story in wealthy countries and another in the developing world,” Pyatt said. “The biggest opportunity is to reshape global supply chains, leveraging the kind of partnerships that my team is to build.”
Other obstacles include policy to quicken permits times, innovation in recycling, batteries and extraction technologies to narrow the gap in metals supply and demand, and investment, Saudi vice-minister of mining, Khalid Al Mudaifer, told the forum.
In Saudi Arabia alone, 3 trillion riyals must be invested in mining, refining and smelting by 2030 plus 1 trillion riyals each for infrastructure and power generation, Al Mudaifer said.
“That’s almost more than three times the current investment level,” he said. “More than that, we need 200 to 400 engineers and mining professionals.”
Landlocked Zambia wants to see more collaboration among countries and to retain more wealth from mining, the country’s minister of mines and minerals development, Paul Kabuswe, told a panel.
“We haven’t seen the benefit that we must see as a country endowed with those minerals,” Kabuswe said. “We have a lot of impoverished people. And this must come to an end. How does it come to an end? It’s through collaboration.”
Zambia and the Democratic Republic of Congo signed a battery metals development partnership in Washington in 2022. Amos Hochstein, a special advisor to US President Joe Biden, spoke of how the administration plans to boost investment in the Lobito rail corridor cutting across Angola to the Atlantic from the copper belt of Zambia and the DRC.
Investment is more attracted to reduced risk. But it’s difficult to find consistent long-term policies to serve the industry’s common 30-year project timeframes when there’s a resurgence of coups, civil wars and disputed elections in Africa.
Gareth Penny, chairman of investment firm NinetyOne, said perceived risk holds too much sway over real risk when the loss from his company’s $2 billion infrastructure fund over 19 years and 19 African projects was less than 1%.
Tom Kendall, a managing director at ICBC Standard Bank, a joint China-South Africa venture, says companies, governments, non-state actors and institutions need to align their perceptions of risk to shorten project times. But he says he’s excited to use Saudi as a mining finance hub to springboard into the region.
Frank Giustra, CEO of Fiore Group, sees partnerships as a way around the funding bottleneck created by equity investors abandoning cash-poor explorer stocks while cash-rich senior mining companies are too risk-averse to invest.
“What we need is for the senior mining companies and or countries like the kingdom to partner with the junior explorers,” he said. “Because you have to find this stuff. And it’s really hard to raise the money.”
Vale CEO Eduardo Bartolomeo said nations and industry must prioritize to improve permitting times and be more collaborative between nations, governments and the private sector.
Jeremy Weir, CEO of metals trader Trafigura, said short-term prices for lithium and other battery metals are suffering from slower capital flows partly because of a sluggish Chinese economy.
“My biggest concern on a long-term basis is what happens in the three-to-five-year period,” he said. “If we don’t see the market move now, we have a real issue and do we price ourselves out of any transition in the five-year time frame?”
Andrew Trahar, partner at Vision Blue Resources, a Guernsey-based private equity firm, lauded Saudi Arabia for a clear vision and strategy to seek investments after banks and equity capital providers reduced mining funding over the past decade.
“This is a very refreshing feeling,” said Trahar, who founded Vision Blue with former Xstrata CEO Sir Mick Davis. “We’ve had a huge number of meetings here, fantastic engagement, lots of support from the Ministry of Industry and Resources, so we’re going away with the next steps identified and we’re back in a month already.”
