Wednesday, 2 August 2023

By Selva Freigedo Editor, Fat Tail Commodities

[3 min read]

Dear Reader,

The crowd goes crazy as the star player in a blue jersey steps onto the pitch to take the penalty kick.

It’s all up to him now.

If he scores, they win the championship.

If he doesn’t, well...it’s all over.

He backs up, takes a sprint, kicks the ball and...

...misses.

The crowd dressed in yellow roars off their seats.

The ones in blue can’t contain their disappointment.

Just like that, Italy lost the 1994 FIFA World Cup and Brazil won their fourth. It was a great game.

I was lucky to get tickets for the Brazil-Italy final at the Rose Bowl in California back then. I went with a very international group of friends: Italians, Americans, French, and even Saudis who had held high hopes for their team.

You see, 1994 was the first time the Saudi team had qualified for the World Cup. And, they did quite well, reaching the round of 16.

They’ve since qualified a bunch of times for the world cup and even beat Argentina, the winning team, in a stunning upset in the last World Cup in Qatar. 

Now the oil-producing country has hopes football will become big business for the country. In fact, the Saudi Public Investment Fund (PIF) has been putting a lot of money to build the country’s football league.

They recently offered Lionel Messi a whopping US$1.9 billion to play with Al Hilal for two years and made a million US dollar bid for Kylian Mbappe to come to the league for a year.

While they both declined, they have signed Cristiano Ronaldo and Karin Benzema for eye-watering sums.

Football though isn’t the only place the PIF has been investing in to diversify Saudi’s economy away from oil…

They’ve also been putting some money into mining…

Branching out from big oil

Last week, Brazilian iron ore giant Vale agreed to sell a 13% stake of their copper and nickel division for a total of US$3.4 billion.

The PIF — through Manara Minerals, a joint venture with the Saudi state-owned mining company — made a deal to buy 10% of the division while the remaining 3% is going to investment group Engine No 1.

While Vale gets most of its revenues from iron ore, it’s looking to expand the division by investing up to US$30 billion for new projects in Brazil, Canada and Indonesia over the next 10 years as demand continues to increase.

The deal, which should close early next year, gives the division a US$26 billion valuation.

But Manara’s investment could be a sign of more to come.

As Robert Wilt, executive director of Manara Minerals put it:

‘Manara Minerals’ investment into Vale Base Metals marks our first major investment into the global mining sector.

‘Manara Minerals brings long-term capital, mining experience, and deep sector knowledge, and will act as a key strategic partner in global supply chain resilience and energy transition efforts.’

The PIF has already said they are looking to establish the mining sector as ‘the third pillar of the economy’. And we’ve also seen Saudi investment moving into getting a foot into the critical minerals supply chain.

This year, European Lithium [ASX:EUR] signed a deal with Saudi’s Obeikan Investment Group to build and operate a hydroxide plant in Saudi Arabia to process lithium spodumene from their Wolfsberg lithium project in Austria.

And Novonix [ASX:NVX] has signed a joint venture agreement with Saudi energy company TAQAT to develop a graphite anode materials facility in the country.

That an oil-producing giant like Saudi Arabia is looking at diversifying into critical minerals is significant…but it isn’t the only one that’s looking to get a foothold in the supply chains of this space. 

Both Chevron Corp and Exxon Mobile have been looking into lithium production and Exxon is even planning to build a lithium processing facility in Arkansas. This week, there’s also been talks that Exxon Mobil is speaking with automakers like Tesla, Ford and Volkswagen and battery makers like Samsung to supply them with lithium.

As Exxon’s CEO, Darren Woods said:  

‘The processing of the brine and extracting the lithium is very consistent with a lot of the things that we do in our refineries and chemical plants and, in fact, in some of our upstream operations.’

The race to secure critical minerals supply chains

Governments and companies are racing to secure their positions in the battery supply chain, from mineral extraction and processing to battery and electric vehicle (EV) manufacturing.  

As the energy system changes, so are energy politics. And what will drive these new energy geopolitics will be access to the resources needed for renewable energy.  

With EV demand increasing, we will also need to expand our supply and refinement of critical minerals such as lithium, graphite, nickel, and cobalt…

Demand for critical minerals is set to soar, although there’s been a lack of investment when it comes to new mining supply.

All that could lead to a growing disconnect between supply and demand, or as my colleague James Cooper calls it an ‘Age of Scarcity’. James is a trained geologist, so if you haven’t already, check out his service Diggers and Drillers and look into opportunities in the mining sector.

Best,

Selva Freigedo,
Editor, Fat Tail Commodities