Letter from North America

Resources: Protect of Promote?

Dear Members.

Good Morning and a very Happy New Year!

This Sunday morning, here in Cleveland Heights, Ohio, I am looking out on only a little snow, certainly not the six inches we had when I last wrote in December. But, goodness, has the weather been strange here. Only the other week (you’ll probably have seen it reported in the news) it got quite cold. It was truly nippy: with wind chill, it was -30°F (-34.4°C). I did not stay out for long. And then, it went up to 65°F (18.3°C). As they say: “Go figure!” I’ve not yet.

 

So last month, I looked at what appeared to me to be an obvious “U-turn” by the Canadian government over how it looks at inbound foreign investment, particularly Chinese, in the country’s “Critical Metals sectors.” An example of “resource nationalism”? Yes, I would say so. I think it is worth looking, now, at how Australia is addressing the issue of “protecting” its critical metals. The country takes a somewhat different approach.

 

You may remember that (as I described it), back in February 2019, “ … we saw Australia jumping on the “critical” bandwagon with the country’s coalition government issuing its first “Natural Resources Statement” in some 20 years. Amongst things, it reported that, based on the recommendations of the “Resources 2030 Taskforce,” it would: “Put in place a collaborative new critical minerals work program to boost exploration and open up new basins and downstream value adding activities.”

 

And, then, in early March  that year, Australian Senator Matt Canavan, Minister for Resources and Northern Australia, announced the release of the report, “Critical Minerals in Australia,” from Geoscience Australia. This was soon followed, at the end of the month by “Australia’s Critical Minerals Strategy 2019.” In a policy shift, the government emphasis was going to be on support of the country’s mining industry and critical minerals processing through investment. And, in addition, there would be support for infrastructure development and research and development would be promoted.

 

It would, of course, be an understatement to say that much has happened between then and now. And I am not going to look at that “interim” in any great detail. However, it is worthwhile mentioning a few things, not least on the investment front. By early February 2022, we saw not only the launch of a couple of important critical minerals-related initiatives, but also some quite hefty investment in particular projects.

 

On June 22, 2020, The Northern Australia Infrastructure Facility (NAIF) announced that it was “ … providing support for Australia’s critical minerals sector with approval of a loan of up to $150 million towards the development of the Coburn Heavy Mineral Sands Project [zircon/titanium] in Western Australia;”

 

The following year, on 19 February, 2021, the erstwhile Morrison government announced the A$1.3 billion “blast off” of its Modern Manufacturing Initiative.” In typical “politicians’-speak”, a: “ … game-changing investment to super-charge manufacturing and grow jobs … ,” with one of its “road maps” being “Resources Technology and Critical Minerals Processing;”

 

On 28 September, 2021, as part of its Critical Minerals Strategy, the Minister for Trade, Tourism and Investment announced the establishment of a A$2 billion Critical Minerals Facility for “ … Australian critical minerals projects to help secure the vital supplies of resources needed to drive the new energy economy and support the resources jobs of the future;”

 

On 2 February, 2022, The Coalition Government announced that it was “ … investing $140 million through the Northern Australia Infrastructure Facility (NAIF) for the construction of the revolutionary Hastings Yangibana rare earth project in Western Australia.”

 

In addition to these, new foreign direct investment (“FDI”) regulations, in particular, changes made relating to the country’s “Foreign Investment Reform (Protecting Australia’s National Security) Act 2020,” will affect, albeit indirectly, foreign investment in the area of critical minerals, including, of course, metals. While notification of certain projects is, I understand, now mandatory (and the Australian Treasury can reject investments on the basis of natural security), in relation to critical minerals “[t]here are generally no notifiable national security actions:” the status quo ante.  That said, however, and this is especially important, “ … there would be relatively few circumstances in which the national interest test would not apply.” [My italics.]

 

When, though, it comes to “voluntary notification,” the country’s Foreign Investment Review Boards says the following: “Foreign persons proposing to undertake a reviewable national security action by investing in a business or entity involved in the extraction, processing or sale of the following minerals are encouraged to seek foreign investment approval:

• Rare Earth Elements
• Lithium
• Graphite
• Cobalt
• Vanadium
• Copper
• Nickel
• Silicon
• High-Purity Alumina.”

Retuning to continuing policy support, especially around domestic investment, in the critical minerals space, as 2022 progressed, we saw further announcements from the Australian government. At the beginning of March 2022, Australia’s critical minerals were, once again, in the news with the publication of the country’s “2022 Critical Minerals Strategy,” an update to 2019’s strategy document. (A further update is expected early this year.) And, then, more recently, in October and December there were a couple of more important announcements.

 

At the end of October, the Albanese government announced that it was “ … accelerating the growth of the critical minerals sector and supporting clean-energy technologies through new initiatives as part of efforts to reach net zero.” Amongst other things, the National Reconstruction Fund would “ … include the $1 billion Value Adding in Resources Fund which will work alongside the $2 billion Critical Minerals Facility” and, on the research front, the government would allocate a little over A$50 million to “ … establish the Australian Critical Minerals Research and Development Hub to help unlock our nation’s critical minerals potential.”

A further A$50 million would also be allocated “ … over three years to the Critical Minerals Development Program for competitive grants to support early and mid-stage critical minerals projects, building on the $50 million recently committed to six key projects across Australia.” All well and good, but one has to wonder, though, just what the Australian government thinks can, realistically, be achieved with such paltry sums. They appear to be more “a nod in the direction of” than anything else.

Finally, at the beginning of December, we saw the publication of the Australian Trade and Investment Commission’s “Australian Critical Minerals Prospectus 2022.” Glossing on its release soon thereafter, Minister for Trade and Tourism and Special Minister of State, Senator the Hon Don Farrell, together with the Hon Madeleine King, Minister for Resources and Minister for Northern Australia, described the prospectus (now in its fourth year) as a “showcase” of “ … Australia’s world class production capabilities across 55 investment-ready Australian critical minerals projects” and as showcasing “… critical minerals opportunities for international investors.” With the (unstated) caveat that, as mentioned       “ … there would be relatively few circumstances in which the national interest test wo uld not apply” for any such investment.

 

So, to sum up, whereas Canada has, now, laid “laid down the law” around international investment (especially Chinese investment) in domestic resources (and what it is prepared to tolerate), Australia appears to be taking a somewhat more “relaxed” approach: encourage investment (both domestic and international), provide funding for projects and promote (and provide funding) for research and development.

 

But, we are informed, with national security always being borne in mind, only time will tell whether such an approach might be just too relaxed. OK, China may not have invested directly in VHM Limited and its rare earths project in Victoria, but the company will “ … will sell the majority of its product to China under an early-stage agreement struck barely seven months after it joined other critical minerals producers on a trade mission to Washington DC.” Hmm! One has to wonder both what DC thought of this deal when it was announced and how, if push came to shove, just how the Australian government might, if needs were, nix such a deal without any resulting reputational risk.

 

Sadly, I’ve no time this month to look at what’s currently going on in Panama (pretty frightening) on the mining front and its government’s shenanigans. Is it bluffing (with so much of its GDP potentially as stake) or is it really serious? If it is serious, what kind of effect might this have on copper and, perhaps, even moly supply? And when will all this be decided — this week, next week, sometime, never?

 

With that, I should like to bid you farewell from a snowy Cleveland Heights (once again), for another month.

 

And I remain, as always

Yours

 

Tom Butcher

©2023 Tom Butcher

Tom Butcher is a Director at Van Eck Associates Corporation (“VanEck”). The views and opinions expressed herein are the personal views of Tom Butcher are not presented by or associated with VanEck or its affiliated entities.