China’s global reach for critical minerals
China is reaching out to acquire critical minerals on a global scale and will use that power to control products that will shape the future, reports S&P Global.
In its report, “China’s global reach behind critical minerals”, S&P says that the Chinese government is likely to take more actions in the sector.
This will raise the country’s influence in these minerals and the industries that rely upon them.
“Firms from upstream to downstream, from miners to makers of batteries and electric vehicles, are jumping into this race across emerging markets,” the report warns.
Focusing on emerging countries to foil Western restrictions
S&P says China’s reach is quietly growing.
Facing more restrictive foreign investment policies in developed countries, Chinese firms are pursuing lithium and cobalt in other locations.
And it involves companies across the spectrum for upstream and downstream operations.
“Whether related to top-line growth, cost control, supply security, or backward integration, their motivations are compelling and are likely to last beyond temporary dips in these minerals’ prices,” say the authors.
Africa and Latin America are top targets
Just take lithium.
Primary lithium targets where Chinese companies have involvement number three in Mexico, one in each of Chile and Bolivia, as many as 13 in Argentina, four in Namibia, two in Mali, two in DR Congo and four in Zimbabwe.
Take the example of one company, Contemporary Amperex Technology (usually known as CATL).
This year it signed a joint venture with a Bolivian state-owned enterprise to operate a lithium mine and refinery in that South American brine-rich country.
In prior years, CATL invested US$240 million to acquire a 24% share of a lithium-tin project in the DR Congo, acquired minority interests in another Congolese lithium mine and Canada’s Neo Lithium, and a controlling interest in North American Lithium.
It also entered the Indonesian battery supply chain through two deals with state-owned enterprises in that country.
China leads the lithium race
S&P suggests that the US has not kept pace in the lithium race.
It notes that the US Energy Department has identified lithium as a material essential to the economic and national security of the United States.
“Despite that label, Chinese — not US — firms have been more active in lithium mergers and acquisitions.
“Acquisitions of lithium assets by China’s mining majors and lithium producers have gained pace since 2021 when lithium prices started to escalate,” the report states.
This report coincides with a recent statement by a Sprott Global Uranium Trust expert that he expects in the next few years that the No. 3 and No. 4 uranium producer countries will be Namibia and Uzbekistan respectively, with most output from those countries going to China.
Cobalt and nickel projects also targeted
The S&P report states that lithium producers such as Ganfeng Lithium and Tianqi Lithium are trying to secure more raw materials for the production expansion of their businesses.
Meanwhile, miners such as Zijin Mining are entering the lithium space to diversify their minerals exposure and benefit from lithium’s potential growth potential.
Chinese upstream and downstream companies are also looking to invest in nickel and cobalt, but these deals are smaller than the average ones for lithium and are taking place mainly in Australia and Indonesia.
Healthy cashflows back M&A deals
One great advantage Chinese companies have is their healthy operating cash flows, which allows them to buy into projects using internally generated cash.
Some midstream firms have also been able to tap the equity markets, as did Tianqi and Zhejiang province nickel products producer Lygend in 2022.
Meanwhile, S&P adds that Japan is stepping up its chase for critical minerals.
That country is aiming at a 20% share of battery markets by 2030.
Recent actions include a Japanese consortium spending A$200 million to increase its stake in Australia’s Lynas Rare Earths.
The Japanese government is to subsidise half the cost for Japanese smelting of key minerals, including lithium, manganese, nickel, cobalt, graphite and rare earths.