How is the current global political and economic environment impacting the metals and mining industry? What are the biggest impacts on the industry today, especially on investment?
Adrian Day
We all know why gold has been going up for the last two years, up until last month, and it was not the typical reasons. The central banks and Chinese consumers were buying for their own reasons. But we’ve now seen the macroeconomic environment, particularly in the West, start to turn with the Federal Reserve’s first rate cut. We’re seeing a slowing economy in the US. In my view, what we’ve seen for the last two years is really just like an amuse-bouche. We’re now at the beginning of the gold bull market.
Erez Ichilov
When times are tough, gold is a refuge. But bifurcation and global tensions could create regional opportunities, developing regional clusters of mining and midstream services. Either pure resource nationalism, protectionism, or just various defensive actions, create opportunities for companies in the mining and conversion space.
Another big trend that’s going to be relevant for the minerals economy is digital infrastructure and the rise of high-performance data centres. There is a real need for a lot of electricity, ideally green electricity. Timing is very important, and this may generate opportunities for co-location. A lot of the reshoring, on-shoring, and reindustrialization we’re seeing in the US today is in brownfields – it’s in facilities that used to be something else, which have been now bought and converted, this means that they are already connected to the grid. This opens up investment opportunities for people that were not classical mineral players.
In recent years, we’ve seen how off-takes and OEM investments have been solutions to make up for the lack of investment from private equity or retail. But this may broaden the horizon of potential investors. Add that to the fact that we are seeing a lot of innovation, companies that are processing in more efficient ways. This means that potentially we’ll have tech investors joining in. So, on the half full glass part, there is a broader crowd of investors that can help us stimulate the minerals economy, from the upstream to the downstream, feeding into the energy transition and the digital transformation, which is another narrative that’s very mineral-intense, and potentially overlooked at this stage.
Tony Sage
GM, Ford, BMW, Mercedes, VW, when in history have they invested in mining companies? Never. There’s a brand new set of investors in this space.
On the geopolitics side, we need to look at the Chinese influence on several of the major rare earths and lithium supplies. 80% of the world’s lithium gets into China, and then they export it around the world at a massive profit to themselves. On rare earths, it’s over 90%.
In my space, which is rare earths and lithium, we’re seeing a massive recognition that we cannot rely only on China, especially with what’s happening in the South China Sea, and of course, what’s happening with the two wars going on. A little unknown fact is more missiles have gone off in the last four years than during World War II. All those missiles guidance systems contain rare earths. Who produces all the rare earths? China. That’s why you’ll see the EU, NATO, and certain governments now really pushing for investment into our industry.
Let’s talk more about global government responses to China’s role, but also what’s happening on the ground in the US, in Canada, in Australia. Do you think that government responses have been what’s needed to propel national industry forward, or is there something missing?
Tony Sage
We’ve applied for grants, subsidies, and interest-free loans, and we’re getting a good reception. The DOD, the DOE, and the State Department are really trying, but you’ve got this election coming up, and not much is going to happen until the administration either changes, or new people come in. But the Australian government certainly led the way with those billion dollars to Lynas, and the EU is certainly pushing their Critical Metals Act.
Adrian Day
In Canada, they’re giving grants, but more importantly, is the speeding up of permitting. The Canadian government is also making introductions for small companies with projects, introducing them to the key people at GM and Ford. In the normal context, that might take a long time for a small company to get those introductions. So to me, that kind of stuff is much more important than the grants.
To what extent do you think that Chinese manipulation of commodities is affecting the market?
Erez Ichilov
Manipulation is a hard word. These are pretty small pools: lithium is 1Mt LCE this year, nickel is 3-4M. So every little valve could make a difference. Some of it is potentially manipulative in a way. Some of it also has merit. Look at nickel in Indonesia. Everyone was complaining about dirty NPI. It has expanded now from NPI, MHP, to battery-grade, connecting the class two and the class one nickels, but now they’re implementing oxygen furnaces, which can take the laterites directly to MHP. That’s going to make a big difference from an environmental perspective, which was a very strong point of criticism, but it also means there’s another valve to open if prices sort of pop.
Is it the level of control where there’s some sort of a conspiracy to keep prices a notch below the incentive prices? Maybe that’s taking it too far, but it’s definitely a competitive space, with one very dominant player that rolled up their sleeves and went into the pay dirt 20 years ago, knowing that they’re not a big part of this value chain, and carved out a big space for themselves. I think we should roll up our sleeves in this part of the world.
Are governments actually focusing on mining, or are they focusing on processing? I think that that’s where the biggest gap is.
Tony Sage
You’re 100% right, it is the processing that is the issue, not the mining. The governments in Washington that I’ve spoken to over the last week are really focused on where a plant is going to go and what technology you’re going to use to produce this.
Erez Ichilov
There is a magnet plant that’s going to be built in the US, based on Japanese technology. There’s also Kaltech, who is implementing a magnetic recycling project with German technology here in the US. Where the Chinese know-how/IP is very strong is in the midstream, and that’s what we need to bring back to Europe and North America. I think that getting support for that from the various Western governments is very feasible.
If you look back to 2019 and take a list of all the lithium juniors that were ready to go, the only one that really went all the way is Sigma Lithium. At the time, we thought that maybe the critical element is the midstream, that if there was a conversion solution, if there’s someone making wine in your region, why not grow grapes? But that’s still a rebuttable presumption because no one actually built the winery.
There is an election coming up here that’s going to have global impacts. Whichever way it goes, how do you think that might impact the industry moving forward?
Erez Ichilov
I’m not going to take any bets, but I think that regardless of which direction it goes, some of the branding may be different, but the need to reshore, onshore, re-industrialize, is very real and it’s within the political consensus.
With digital infrastructure and everything that has to do with AI, we’re going to need a lot more electricity, as green as possible ideally. We’re going to need a lot more minerals, as much as possible coming from recycling, from reprocessing, tailings, from better and cheaper ways of primary processing, and so on. I do see this third industrial revolution as something that’s very fundamental, almost apolitical, and that one way or another, with different slogans, different brands, and potentially with different emphasis, is fundamental. And I think it will withstand almost any political regime, whether it’s Republican or Democratic.
From that perspective, I’m cautiously optimistic that regardless of the specific result, as long as things can flow, I think that the mineral-based themes on power, digital infrastructure, electrification, EVs, renewable energy, and all the storage systems that they will require is something that’s fundamental for all of us in the 21st century. And one name, or one party or another, will hopefully not determine the future of this nation, and the world in that respect.
Tony Sage
I agree. I was in Washington, and virtually every department said, “There’s not going to be a change. We’ve already earmarked all these funds.” They are going to go out no matter which party wins.
I’ve heard the sentiment, “drill, baby, drill.” So, maybe the oil price might be affected going forward, it depends on what Saudi does, if the US does get to where it was four years ago. So that’s one commodity that may be affected with the change.
Adrian Day
You can expand on that drill, drill, drill theme to an easing of permitting generally, which will help some of the gold and silver companies get their permits easier, but it won’t really affect the price of gold and silver. But the deficits are going to continue growing, and rates are going to come down whoever wins. And that’s going to be positive for gold, but the easing of permitting under one side will help.
Erez Ichilov
One thing we haven’t touched on is carbon capture and voluntary carbon credits, which are also an important part of the mineral sectors, because a lot of mines are also potentially generators of high quality carbon credits. These are credits from permanent geological storage as opposed to just avoidance. But, even if we do drill, drill, drill, a lot of the oil economy can co-locate, and can generate carbon capture systems, which, if you remember a couple of years ago, it was about to be mandatory that every oil refinery would also have a carbon capture system, but then it was canceled because of environmental resistance, which basically said it’ll allow them to cheat and stay in production longer, because the total carbon footprint of the installation will be lower.
Let’s go back to the topic of the data centres and the immense amount of green energy that’s needed to support them. Are you seeing investment going into these types of projects that are needed to grow the critical minerals supply, or is it still lagging behind?
Tony Sage
Rio put out a presentation a month ago that showed from 3000 BC until now, 700Mt of copper has been used, and we need another 700M by 2040.
Adrian Day
For investors, I think copper is probably the one to focus on. It’s a lot more difficult to manipulate or control. We complain about how long permitting takes, and the length of time from discovery to bringing a mine online. The flip side, is you have really good visibility. So, if you look ahead five to 10 years, you can say with certainty that there isn’t going to be a major source of copper in five years time that we don’t already know about. There will not be a big mine, or a new expansion, that we don’t already know about, just because of the length of time it takes. And the plain fact is that even if half a prediction, even if half a predictions about copper usage are only half true, we still don’t have enough copper at today’s price.
Erez Ichilov
It’s a bigger discussion, but that’s where the new exploration technologies could help in bridging the gaps, in ruling out the false positives, and avoiding wasting time on them. On the other hand, not missing the false negatives, which are an opportunity cost. That said, it’s hard to see how we more than double the production of primary copper, but there’s also recycling, and there is a bit of potential for substitution with aluminum in some use cases where you just need the current collector and so on.
Let’s hear your thoughts on key themes for the industry for the next few years. What do you think will be that driving theme?
Tony Sage
For me, it’s getting the realization out to key players in the market that we need investment. I understand the processing, but we actually need to get the stuff out of the ground to process. Also, getting rid of the negative sentiment around the industry, where they want the product, but they don’t want the mining part of that product. We are bashing against a few brick walls, but I think we’ll get there. That’s one thing that I think needs to be focused on for critical metals in Europe.
Erez Ichilov
I think the most important thing for our industry is winning hearts again, and bridging the trust issues, which exist between the general population and the extractive industries in general, and mining more specifically. It affects everything, how many people actually go to mining school, how many young talented people want to invest their time and their careers in our sector, and we have to rebuild trust.
A lot of other sectors are much better at that than we are, so we just have to unite, and spend time on building trust, and explaining that nothing’s going to happen without a lot of minerals. All the images that they have of people underground with chisels, it’s not what we’re about anymore. And for me, that’s the main challenge, to bridge those gaps, and to win hearts, because otherwise it’s not going to happen.
Adrian Day
I agree with both of those, but I’ll change tack a little bit. For gold and silver, the most important thing is just continuing massive spending, high deficits, deterioration of the purchasing power of the dollar and other currencies. That’s not going to change, and that’s what’s really going to grow gold and silver.
