Looking at Trump’s tariffs, counter tariffs, and threats of a trade war, how is this impacting the metals and mining industry today? How do you make sense of where the markets are heading?
Cailey Barker
The security picture, broadly speaking, has become far more prominent over and above what was previously a very strong rhetoric in regards to energy transition, decarbonization, and the green world.
We’ve had this very dramatic shift away from powering the world. This focus hasn’t gone away, but the rhetoric has shifted to resource nationalization and security. We all know that’s been predominantly driven by Trump and what’s going on in the US.
All I can say is that it will be very uncertain. When Trump got in last time, I was at BlackRock, and I can remember all the big powers of BlackRock coming up with loads of ideas about what would happen and what it would mean for the world. And probably 80 or 90% of it was wrong. I think we’re probably going to see the same thing again.
Trump will continue to create a lot of noise, he will continue to create a lot of volatility in commodity markets, and subsequently, in foreign exchange. One thing is certain though, and that’s uncertainty.
Fiona Clouder
Uncertainty is always something that’s been with us. It might seem a pretty turbulent time right now, but it’s worth reminding ourselves that we just came through a global pandemic, and there are conflicts emerging all over the world.
The world is an uncertain place, it always has been, it always will be. There is someone across the Atlantic adding to some of that turbulence, but I think what’s very important is to take a long-term view.
There is an increasing focus on minerals for security and defense. It’s important to bear in mind that the certainty in all of this is that climate change is happening. There needs to be measures to address that, which involves an energy transition. That has not gone away, whatever Mr. Trump may say.
For the industrialized economies in the world, provision of minerals continues to be paramount. There is a huge supply gap looming in a number of minerals. All these things, energy transition, energy security, defense issues, means the mining world is very important. That’s one certainty I think we should hang on to.
The other thing we often don’t address is the urgency of this agenda, that whilst there are different political views, different ideologies, arguments about what measures are best for our future, the point is that climate change is happening. That is going to really exacerbate the turbulence in the world and we need to address that with urgency, and that needs more mining and more minerals.
Kruthika A. Bala
Energy security is absolutely the utmost priority, but it need not be mutually exclusive with climate adaptation. Those two things go hand in hand.
I also want to bring another interesting point from the IEA on the age of electrification. There are lots of theories and viewpoints that we see out there in the market, but the fundamental point of all of that remains that we need our energy systems to be modern. We are also moving a lot more into a digital platform and digitalization and electrification needs minerals, critical or otherwise.
Let’s not forget about transition metals like steel, iron ore, and also low carbon solutions like uranium, for example. These are part of our future energy mix, particularly in Britain. When we think about our future energy mix, we are thinking about if we will still have gas to a great extent. We’re also betting on nuclear, which needs uranium.
Energy of all forms is extractive, generally speaking, and a lot of it is powered from metals and minerals. So there is a real urgency in terms of modernizing energy systems, and digitalizing our platforms and our smart grids.
A lot of the conversation right now is focused on energy security and resilience. Our energy systems are interdependent — the system is inherently dependent on the physical world and the digital world, and both the physical world and the digital world need metals and mining.
David Freeland
When we talk about geopolitics we need to look at the positives and the negatives. On the positive side, we’ve seen a lot of developments in the last couple of years. For example, in the recent elections in Canada and Australia, there was a big emphasis on mining and developing projects. This played a much bigger role than it normally would.
In the US, you’ve had the executive orders that came with the new White House administration. We’ve seen a big push there to try and speed up permitting. And that does seem to really have an impact in the US.
They’ve identified what they’ve called the FAST-41, which is 41 critical metals projects within the US that they’re going to prioritize. And in the same way, in the EU, you have, around 47 strategic metals projects that they’ve identified and want to push forward.
There’s a huge difference if you look at, for example, permitting a project in North America compared to Australia. What could take five years in Canada or the US could be two years in Australia.
The idea is that, by simplifying the process and taking out the bottlenecks between a federal or a state/provincial level, you actually expedite the projects and things happen more quickly. We’re hearing from people in the US that getting permits for drilling is already quicker. So, any help that the governments give is a great help. And a lot of projects should be expedited by those changes.
On the other hand, of course, is geopolitics. As a trader myself, volatility is a good thing, but if you’re building a project, volatility is not always great.
I’m involved in a project in Indiana. We’ve spent three years doing the engineering work, and we’re now ready to start building. In January when we went to the EPC contractors to try and get a costing for building something that normally costs around US$500M, they actually said to us, “Look, it’s January, we’ve got a new administration coming in, we can’t give you a price right now.” Normally, we’d get an answer back within a few weeks.
There are two reasons for that delay, one is inflation. They literally had no idea what inflation would be because you’re talking probably about a two-year period. And second is labour. For construction for a project of this size, labour is important, and they didn’t know whether Mexican workers, for example, would be available. That sort of paralysis from the EPC contractor is obviously a negative.
This uncertainty has obviously been very good for gold. And for base metals, the uncertainty is absolutely a problem. If you have a recession, then the base metals are the ones that tend to suffer from a demand side, but gold typically acts independently. So I think we’ve got a bit of a split there between gold projects which are doing very well, and base and battery metals that are not performing quite so well.
Let’s look deeper into those commodity adjustments and the way that they’ve been reacting to geopolitics. We’ve seen record high prices in gold, a push towards those energy security minerals as well. So what’s interesting at the moment?
Cailey Barker
I’m incredibly positive about the outlook for commodities broadly because what happens in a four-year term does not dictate what goes in decade-long cycles.
We’re going to see more market fragmentation. We’ve seen a bit of that already with nickel, for example, battery-grade versus what goes into stainless steel. So I think you’re going to see more disparate markets, more fragmentation.
I’m very positive about gold. I think gold is positive in these uncertain times, particularly in the short-term. Who knows longer-term? But certainly in the next few years and certainly through this period of volatility, gold is going to continue to do well.
We’ve seen inflows into ETFs, which we haven’t had for a long time. Central Bank buying is very strong. And the biggest driver is investment demand by far.
Fiona Clouder
Again, it’s this long-term pattern and the reality of the urgency and the sheer scale of what’s needed. Projections are, in the next five years, there will be a deficit of something like 46% on graphite, 42% on cobalt, 34% on lithium, 21% on nickel, and 15% on copper.
Actually addressing those deficits needs enormous investment. And the problem is, even though governments are starting to take measures to speed up permitting, that’s not going to catch up fast enough to supply what’s needed in the necessary timeframe. So, I see that competition is going to be increasing, which will drive prices up.
Kruthika A. Bala
We are going up an escalator that’s coming down faster than we are able to go up. One issue is industrial decarbonization, the other is the energy transition. Although there are a lot of viewpoints on whether this is an energy addition or transformation or transition, what it really means is on the industrial decarbonization side, we need a lot more metals and minerals.
While there’s no shortage of drivers, we really want to look at what the potential headwinds are. Are these tariffs helpful? These are primarily set because it’s no longer about resource geology. It’s become more about where these are processed.
As we all know, a lot of these are processed in China, and a lot of these policy positions are coming at the back of that. There’s a saying, when we think about policy, and its that companies can deal with good policies, they’re also equally prepared to deal with bad policies, but what we can’t deal with is uncertain policies.
Going back to your point on how the industry thrives on volatility and uncertainty. My old boss from Eurasia Group used to say, this is like a New York taxi. It needs to rain just enough for people to get out of the house and hail a cab, but if it rains too much, people won’t leave the house.
When I think about the current environment, there are plenty of drivers and plenty of headwinds, but I think this is the New York cab situation where you get out of the house, hail a cab, and it’s just the right environment there.
There’s a big question now asking if we’ve lost our way in the green transition. My view is how do we combine multiple sectors? For example, nickel is used in the green transition but is also an important alloy for defense critical minerals. So, our emphasis is to look at particular sectors or segments where it combines both the green transition and defense. There’s a lot of defense modernization projects that are happening and we need a lot more metals.
This then creates resource competition. Where does that particular asset go? Is the priority going to be on green transition or are we going to prioritize defense? The answer is probably whoever pays more.
David Freeland
We like base metals projects like copper and gold. A lot of the opportunities we see are absolutely in that space. If you look at the other end of the spectrum, when you’ve got the critical metals, whether it’s tungsten or antimony, it’s a much more complicated process.
For example, if we have a copper or a gold project and we are putting debt financing towards it, we can easily hedge that price risk. But if you’re looking at something like tungsten, it’s much harder. The processing of the minerals is much harder as well. If you look at a copper or a zinc process, it’s straightforward. I’ve looked at quite a few tungsten and antimony plants recently and it’s much more complicated.
That’s why a lot of the processing has moved to China in the past few decades. Even now, if someone’s got a project in one of these critical metals, the chances are they know that that product is probably going to go to China.
So I think they’re going to need some support from the US, EU, and Australian governments to be able to process those metals as well. At the moment, if you look at it from a debt point of view, it’s much more straightforward to look at a copper project than a tungsten project. And so, that’s a big factor for us.
Kruthika A. Bala
This really boils down to the cost of energy. And the fact that China is able to do this is because China is a coal giant with green hands all around, spreading across the world. The price of electricity matters because that’s an input cost.
Fiona Clouder
For decades, China has taken a very strategic view on these issues and has cornered the world in terms of processing. What we’re seeing in these trade wars now is export restrictions and geopolitical games. We’ve just seen, overnight, there has been progress in the weekend talks between the US and China, and that the tariffs on both sides have dropped dramatically. So that’s another sudden shift.
I think David has highlighted something very important, which is the approach to be taken by governments in the future. We’ve got the G7 meeting coming up soon that will be looking at critical minerals as a key item on the agenda. To what extent will the G7 countries look at pooled resources in terms of how they can develop collective partnerships?
I also think, whether it’s multilateral or bilateral, something that governments need to pay more attention to, is a more integrated approach on this agenda, that it’s not just about the business transaction on the mining side, it’s about the relationship with the country, it’s about the investments going to infrastructure. It’s also about the wider benefits that can come that bring social and economic development in those countries with the resources. And in my view, there’s not enough attention being focused on that.
There’s a lot of demand for metals at the moment. How is that translating into investment, particularly into the juniors?
Cailey Barker
It’s a tough market out there. I get asked all the time why there is no love in the junior end of the market. Why aren’t the great projects being reflected in valuations and in share prices?
The mining industry is just a very small part of the world. It’s 3% of the MSCI World Index. So it seems like a big industry, certainly a very important industry, but it’s very small to your average generalist investor.
I used to have this conversation with my generalist colleagues at BlackRock all the time, and all they wanted to do when they wanted exposure to the mining industry was to buy a BHP, or Rio, or Freeport or something like that.
I am very positive about the junior sector because of the commodity drive, but what’s going to flip it? How is that going to change? How are we going to get money into the sector? That’s got to come from the generalist community because the resource community has been a shrinking pool, largely taken from ETFs and more passive funding structures, which is why the corporate side of the business has had to do more investments, so the big guys have been funding the junior guys.
But the thing that’s really going to change is when the pain is too difficult to ignore. When the pain of not owning juniors is worse than the pain of owning them, that’s when you get that flip. I still think that’s quite a way off.
Commodity prices keep going up, we started to see it in certain markets, gold juniors in Australia, for example, doing a lot better than Canada. There’s good funding there. If that sort of momentum continues, if gold companies, or any of the other commodity companies, continue to deliver on their assets, pay good dividends, generate cash flows, that’ll all feed down to the junior sector.
Fiona Clouder
The juniors have to be part of the equation to generate sufficient minerals for our world of the future, but not enough attention is being paid to them. Part of that is to do with public perception of mining. Your average investor sees it as a very risky sector. All this uncertainty and geopolitical turbulence doesn’t help. And there’s the historical perceptions of mining, now that’s slowly shifting, but that’s something that needs to change.
We need to come together and exchange experience and expertise and look at scopes for partnerships, and particularly make use of innovation.
Kruthika A. Bala
It is a bit disappointing that we haven’t seen that investment in junior miners. What is critical is that we need to have a very clear line of sight on the offtake agreements. And the second point on that is to focus on the minerals that are on national lists.
David Freeland
I have a database of mining projects, all juniors, none of them in production. It’s split between three different sectors, which is basically Canadian, which is the largest part, UK-based, and Australian. And I’ve noticed recently that there’s been a big split here.
Compared to this time last year, the Canadian companies are up 25% year on year. Many of the UK-based companies are more flat. Looking at the Australian components, the gold ones have done well, and the base metals ones have done very badly over the last year. So clearly, Canada is an outperformer.
I’ve been looking at why? What’s helped those companies get financing interest? You could argue that the quality of the projects is better, but I think that the good projects have been attracting money and they’re the ones that have progressed. As an investor, I think that’s what people look for. They look for the successes.
But it’s great to see that some of these projects are actually doing well and are going to get into construction. And really, for investors, that’s what they want, they want the success stories.
We’ve talked about attracting the generalist investors as one of the key ways to revitalize that interest into the market. How do we do that?
Kruthika A. Bala
It’s a long education process. When we’re talking about defense critical minerals in particular, there seems to be an ethical debate of we should invest in defense. I think we need to get over that hurdle a little bit.
There’s a lot of questions around the ethics and morality of investing in certain types, but we all need physical security, we all need the lights to turn on when we press the buttons in the morning. Almost anything and everything in our everyday life comes from mining. So I think we’ve just got to really educate, and that’s a long process.
There are a bunch of utilities who are talking about how they’re going to upgrade utilities using digitalization, but the fact of the matter is, where does digitalization come from? How we digitalize is from critical minerals, and I think people are still unable to make that connection. So there’s a lot of education that needs to happen to connect the dots.
Cailey Barker
It really comes down to three things. One is size. The bigger the industry gets, the more attractive it is to a larger community.
Two is perception. Even investors, generalists that have some hair, just remember the sins of the past of the mining industry, and it’s still not considered a sector that one can make a good return on. I think that has changed dramatically and companies are in better shape than they’ve ever been. This has to just keep happening, so that we are creating value for investors.
The last point is just branding. I don’t really like the word mining industry, actually, I’m not a fan of it. I don’t know why we call it mining. Mining is a verb. We don’t call the oil and gas a fracking industry or a rigging industry. It’s a minerals and metals industry, that’s what we do. And I think a rebranding exercise could be helpful too.
What would you say will be some of the key themes for the coming year?
Cailey Barker
Security.
Fiona Clouder
Competition between countries. Coming out of the turbulence over tariffs and trade wars, countries are becoming ever more conscious of their national positions and what is needed for their future economies, energy, security, defense, etc. So I actually think we’re going to get more competition between countries.
Kruthika A. Bala
2025 is all about alignment, agility, and execution. The winners are going to be the ones who can operate in a relatively secure jurisdiction.
We need to produce multi-use critical minerals, not just for the energy transition, but also really look into the defense part of it because that’s a big agenda.
David Freeland
From a debt finance point of view, I think you’ve just got to come back and look for good projects. If you have a good project, then there’s a much better chance of it getting built. And hopefully, that likelihood increases because of all these changes, but certainly, with some metals, some sort of government support is going to be essential. Whether that’s pushing the projects along or making it easier to develop the projects, that’s really going to help some of these projects actually come to fruition and get into production.
Kruthika A. Bala, Vice Chair, Women’s Energy Network Alliance | Managing Director at Resources Now
Cailey Barker, Managing Director, Xcelsior Capital
Fiona Clouder, Chief Executive, ClouderVista
David Freeland, Portfolio Manager, Drakewood Capital
