Critical metals on the march again

First came the hype, then the glut. The spot price for lithium fell 75% last year; cobalt, graphite, and nickel prices slid by between 30% to 45%. After several years of welcoming enthusiastic buyers, producers and developers of critical minerals – some of them new-found – suffered drastic reverses in value. The market slump was particularly inconvenient for the juniors seeking funding. 

Luckily for them, no one expects prices to stay subdued for long.

Amid the carnage, Premium Nickel Resources raised C$27.5m. The firm’s COO, Boris Kamstra, a veteran minerals developer, says private investors and long-term fund managers are proving loyal but admits some shareholders are fickle. Many fled last year, justifiably, as the nickel price was obliterated by the oversupply of low-grade metal from Indonesia.

But believers in critical metals say there’s no escaping the ubiquity of demand, and not only in the energy transition industry. The defence and aerospace industries also consume them, adding pressure on supply.

In its Global Critical Minerals Outlook 2024, the International Energy Agency (IEA) said investment in critical minerals mining rose 10% in 2023; exploration grew 15%. 

The market in mergers and acquisitions activity was also vibrant, as you might expect when the market corrects and equity prices fall. Around 40% of all major mining company M&A last year was to secure copper, tin, nickel and lithium, according to auditing firm PwC in its recent ‘SA Mine 2023’ report. Copper and lithium alone accounted for 70% of copper and lithium deals.

China far ahead

Governments are also getting in on the act, with broad implications. Policymakers want to increase the resilience and diversity of supply chains, which is pitching the West against the East, the former playing catch-up to the latter. China woke up to the importance of certain critical minerals a long time before the West, says Tim Gould, chief economist at the International Energy Agency (IEA).  

Today China leads global critical minerals extraction and processing: it is currently estimated to account for over 60% of worldwide production and 85% of processing capacity production. In 2023, it produced 58% of the 13.7 million passenger electric vehicles and plug-in hybrid vehicles sold globally, according to Adamas Intelligence.

China’s spending on the acquisition of overseas mines reached a record $10bn in the first half of 2023, with a particular focus on lithium, cobalt and nickel. A meaningful part of that spending was in Africa, where sub-Saharan Africa is estimated to hold about 30% of proven critical minerals reserves, says the IEA.

China’s acquisitions of lithium resources in Africa in the last few years “have the potential to position Southern Africa as a key player in China’s dominance of the global battery metal supply chain”, says Paul Miller, director of Johannesburg-based mining consultancy AmaranthCX. It has an appetite for jurisdictions that are shunned by the West, such as Zimbabwe. Arcadia Lithium, Bikita Minerals and Sabi Star Lithium Mine are all Chinese-owned (see box). China also has a foothold in the Democratic Republic of the Congo (DRC) and Namibia.

“Even if they get some bets wrong, China has a portfolio rather than an individual project approach. Private investors in Africa were behind the curve – and once the Chinese own these assets, the flow of information stops,” says Miller.

Asked whether Premium Nickel had attracted any interest from Chinese investors, Kamstra said: “We have interest from everywhere. We definitely seem to be on the radar of entities that are looking for a reliable source of nickel supply.”

Gulf investors are adding to the market pressure. Saudi Arabia and the United Arab Emirates (UAE) are making intensive efforts to acquire critical minerals to diversify away from oil. The UAE has already invested in critical minerals in the DRC and copper mines in Zambia.

Governments in the US and EU are also eager to diversify away from dependency on China but they have tended to favour projects in their own backyard. “The West is waking up to the fact that China is eating its lunch on the supply of battery metals from Africa and South America,” Kamstra says. “But if a project is not in North America it is difficult to attract Western interest in it.”

Sibanye-Stillwater, one of South Africa’s biggest gold and platinum group metal miners, has taken this to heart in its strategy to diversify into critical minerals. Its projects are in Europe (the Keliber lithium project in Finland) and North America (Rhyolite Ridge in Nevada). Both have government involvement: a 20% holding by the Finnish Minerals Group in Keliber and a $700 million conditional loan from the US Department of Energy in Rhyolite.

Sibanye-Stillwater CEO Neal Froneman says the group consciously chose projects that are strategically located within or close to chosen ecosystems in Europe and North America as it believes these projects will be considered of strategic importance. They are likely to attract a premium for the product and are easy to finance.

Froneman said regulations driving usage of locally sourced critical metals (or from accepted trade partners) and subsidies and tariffs will level the playing field. “Ultimately, ESG [environmental, social, and governance] issues and the carbon footprint of the particular metal source will drive buyers, which is a particular competitive edge that we hold.”