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Governments should not choose which critical minerals projects get funding, and instead should invest in shared infrastructure to allow the best projects to move forward, financiers said at a mining conference in Sydney this week.
Financiers consider the quality of mine projects, management teams, the cost to develop, extract and deliver ore when prices are high, but also when they are low, which is a highly specialised skill set, they said.
If mines don’t meet strict criteria, when commodity cycles change, they will struggle to stay solvent, adding more expense to the billions in government funding that is flowing into critical minerals, they said at the IMARC mining conference in Sydney.
Western governments are spending billions on support for mining projects in a rush to diversify supplies of critical minerals which are now dominated by China. Such minerals are niche metals like rare earths essential to products ranging from cars and aircraft to electronics and weapons systems.
“No one wants government picking winners,” said Edward Rigg, executive chairman of project financier Argonaut.
“It is fair to say that the skill set of picking winners is not a skill which is held in government,” he added.
Instead, what markets need is a mechanism that offers price support, or a tax break, or multi-user infrastructure as the fairest form of support, he said.
“I know there are people from various governments here, which won’t like that, but that’s a reality. That’s a realism of the capital markets,” he said.
Rigg was speaking at the IMARC mining conference which was attended by large trade delegations from the EU, US and other nations.
Australia has earmarked at least A$13 billion ($9.2 billion) to support critical minerals development across at least five programmes including its own reserve. The European Union has proposed spending €10 billion ($11.2 billion) in coming years, a portion of which will flow into Australia, the bloc’s ambassador to Australia, Lawrence Meredith, said on Tuesday.
Mark Kristoff, CEO of commodity trade house Traxys which also finances critical minerals projects, said governments’ role was shoring up water and power infrastructure, roads and transport, as well as offering debt as a long-term project finance option.
“I think it does get tricky when you start to pick national champions and put underlying price support for products,” he said.
“At the end of the day, a project has to make economic sense through the cycle, and it needs the right characteristics in terms of grade, metallurgy, and production.”
One European trade official said on condition of anonymity that his government was not picking winners but instead was guided on which projects to invest in by the country’s industrial companies. The companies would be the ones to assess if a mine could deliver the ore quality that would meet their technical requirements.
“It’s a little unfair to judge public servants for choosing projects to support when governments must make difficult decisions against the backdrop of election cycles that fall under a much shorter time frame than the 15 years it typically takes to develop a mine,” said Paulo Castellari, CEO for critical minerals at London-based private equity firm Appian Capital Advisory.
“That is why co-investment of public money with specialist mining private equity firms makes sense,” he added.
($1 = 1.4162 Australian dollars)
($1 = 0.8959 euros)
(Reporting by Melanie Burton; Editing by Stephen Coates)
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