Own the Rocks, Not the Apps

So far, this commodity cycle hasn’t delivered the fanfare as it did 15 years ago.

Back then, as commodity prices surged, mining majors piled into junior mining companies with unchecked enthusiasm.

But things are playing out a little differently this time around…

Twenty years on, and the majors aren’t so excited. Companies like BHP, Rio Tinto, and Glencore remain tepid, focusing on balance sheet preservation.

That’s because the memories of the past still haunt them; poorly timed takeovers from the top of the last cycle resulted in mass write-downs, multi-billion-dollar impairments, and high-profile CEO sackings.

The situation back then was a mess, and that left a lasting scar across the industry.

But fifteen years on, a new major investor is stepping in to take over the gun-shy mining majors. So, who is it?

Enter: The Government

Here’s a few examples:

Saudi Arabia’s giant multi-trillion-dollar sovereign wealth fund recently set up a company called  Manara Minerals. Its sole purpose: buying stakes in mines worldwide.

Its first major deal was worth $2.5 billion, signing a rare earth refinery pact with MP Materials.

It’s a situation playing out worldwide…

The UAE has devoted billions towards buying copper assets in Zambia and Congo.

Qatar recently put half a billion dollars into copper giant Ivanhoe Mines in the DRC.

South Korea has set formal government targets to cut its dependence on China, designating dozens of minerals as strategic priorities.

Japan recently announced a major investment in a railway corridor in Southeastern Africa to move titanium from mines to port and then onto its manufacturing complex in Tokyo.

The US and China have announced similar multibillion-dollar railway projects and upgrades across Africa to tap the continent’s vast mineral wealth.

The EU has written supply quotas into law under the ‘Critical Raw Materials Act.’ This requires Europe to mine 10% of its critical minerals domestically and process 40% of them by 2030.

Japan recently guaranteed Lynas a floor price of $110 per kilogram for its rare earths — the exact same number the Pentagon later guaranteed to MP Materials in the US.

From Washington, Beijing, Riyadh, Abu Dhabi, Doha, Seoul, Brussels and Tokyo, governments are stepping in as the new buyers in this mining investment cycle.

And governments don’t care about prices

20 years ago, the big mining firms led the cycle into its bullish phase as they engaged in massive investment, with little safety checks or due diligence.

No doubt, that was reckless, yet they were still limited by how much they could invest.

Governments have no such limitation.

When it comes to issues like national security or energy security, the dial flips from normal market-driven pricing to one without a ceiling.

That’s what we could expect as this cycle enters its bullish phase.

Clearly, the money is coming; governments are locking in firm commitments and writing them into law.

Stay tuned.