Analysis
Mining

Critical minerals become a Middle East battleground

December 4, 2024, 7:47 AM

A worker at a lithium mine. Saudi Arabia's cooperation with China could turn competitive in the race for such critical minerals

Saudis and UAE race for acquisitions
Mineral processing capacity vital
US-China rivalry an opening

Saudi Arabia’s efforts to boost domestic processing of so-called critical minerals could redraw the mining industry’s regional and global supply chains, industry observers say.

Critical minerals are defined as materials required for a country’s strategic industries where there is a risk of interruption to supply.

They include lithium, for making batteries, platinum, used in fuel cells, copper, and bauxite, the raw material for aluminium.

As the strategic rivalry between the US and China heats up, the Saudis’ deep pockets, abundant and cheap energy sources and location at the crossroad of global trade will be vital to success in capturing a share of the critical minerals processing market, according to Christopher Ecclestone, London-based mining strategist at Hallgarten & Company.

But they will be competing with their neighbour and regional rival, the UAE, which also has ambitions in the arena.

Ecclestone believes the competition between the two Gulf neighbours will play out over the next two years and will be exemplified by what is likely to be a “titanic” struggle to acquire an indirect stake in Alphamin, a Canadian company that has crucial tin interests in the Democratic Republic of the Congo.

International Resource Holding, a subsidiary of the Abu Dhabi conglomerate International Holding Company, which is chaired by Sheikh Tahnoun bin Zayed al Nahyan, brother of the president of the UAE, has reportedly entered talks this month to obtain such a stake.

But Manara Minerals, a joint venture between the Saudi Arabian state-owned mining company Maaden and the Public Investment Fund (PIF), is believed to be another of several contenders, Ecclestone says.

Manara Minerals has been leading Saudi efforts under the two-year-old Global Supply Chain Resilience Initiative.

Last week alone, Saudi Arabia signed partnerships worth more than $9 billion with the Indian mining company Vedanta, Zijin Mining Group in China and Platinum Group Metals of Canada to develop smelters and refineries for copper, zinc, platinum and palladium.

Saudi Arabia has a domestic endowment it can tap into, largely consisting of metals such as copper, gold and zinc , but it is not “spectacular” according to Ionut Lazar, principal consultant at CRU, a UK-based consultancy specialising in the global metals, mining and fertiliser industries.

The real game for Riyadh is in critical mineral processing. Because such processing is typically energy and labour-intensive, it is too costly in most places outside of China, Lazar says. It also has a large carbon footprint.

“Both Saudi Arabia and UAE are developing a lot of renewable energy, which means if you want a greener version of the material, it is not there yet but it will be, over a period of time,” he says.

The UAE has been on a critical mineral shopping spree, extracting copper in Peru, lithium in Zimbabwe, tantalum in Kenya and bauxite in Pakistan, AGBI reported last month.

Saudi Arabia’s relationship with China, by far the most established player in the critical mineral industry, with about 85 percent of worldwide processing capacity, is complex.

That relationship is likely to remain cooperative in the short term, as China seeks to export its technology and expertise to new customers. But it could turn competitive as rising demand for downstream products such as EV batteries, combined with US-led efforts to decouple the Western world from China, create an opening.

Ecclestone says the first step for Saudi Arabia is to build smelters for “anything and everything that needs to be cooked or roasted”, which the Saudis already know how to do given their experience in aluminium. Then it’s a question of following in China’s footsteps and manufacturing end-products.

Will Adams, head of base metals research at the price reporting agency Fastmarkets, says: “We are in an oversupply situation with batteries at the moment, because it’s a small market. But as it gets bigger on a tonnage basis, you suddenly are going to need two to three new mines a year to make up the extra tonnage.”

To position itself for that moment, Saudi Arabia must support projects that are not economically viable now but may become so in a few years, just as China did when it was expanding its mining industry, Adams says.

Meanwhile, US officials are becoming apprehensive about China’s supremacy in the critical minerals space as they scrutinise Beijing’s influence in industries from semiconductors to green hydrogen.

The soon-to-depart US energy secretary, Jennifer Granholm, told CNBC in February: “It’s one of the pieces of the supply chain that we’re very concerned about in the United States. We do not want to be over-reliant on countries whose values we may not share.”

As tensions between the two largest economies increase, can the BMWs, VWs and General Motors of this world afford to depend on China for lithium-ion EV batteries, when that supply chain is at risk of coming to a sudden halt?

“That’s something we should keep an eye on because over time, if geopolitical tensions get worse, there could be an upside to that, you could get a premium for materials in that critical minerals space that avoid the China link,” says Lazar. “But at the moment we are not seeing that yet.”