Australia's Strategic Critical Minerals Blunders

Australia's critical minerals strategy has failed. Nickel is the apposite example; we have played a right-wing, xenophobic political game, to punish and exclude our largest trading partner and customer, and now they no longer need our expensive sulphide because they are buying cheap Indonesian HPAL nickel.

In exchange, we have become a vassal state to a lesser trading partner in the USA, which is our major strategic military ally and weapons supplier. The arbitrage here is to buy $0.5Tr nuclear submarines for a mostly avoidable North Asian war, to provide outsourced cruise missile platforms (the subs) to bulwark American Tomahawk Doctrine, and in exchange we tank earnings from a major export earning industry due to this military strategy.

Capitalist Pig Running Dogs

The irony here is that our mining industry is a thoroughly capitalist enterprise, although not as captured by private equity as other sectors, because private equity is adverse to risk (unlike, say, Roark monopolising fast food brands, etc etc). We still issue shares in mining ventures, and reward the C-suites handsomely for often doing very little of value, with those shares; uber drivers then trade the shares of hopeless tinpot horrors during boom times, and get fleeced hard when the commodity boom ends. At the top end of town, AMEC and the MCA and other industry bodies organise corporate welfare of various forms, such as subsidies, royalty rebates, rent holidays, while demanding support such as co-funding, or in the case of say BCI Minerals 60% taxpayer funding of private mineral projects. Others get to put up piles of dirty sand as collateral and "equity" to go in with $1.2B of government funding for 'critical minerals' supply in REE's to de-risk us from the bogeyman of China.

Far too many of these alleged uber-capitalists in the mining industry ascribe to Libertarian ideals and espouse Friendman and Hayek, in a hedonistic and orgiastic onanism about how the mining industry is great Free Enterprise. Then, the moment they can't get private equity to pay for their project, they put their hand out for government funding, while calling the government of the day "Communists".

Suddenly, the communists in China have looked around and realised we are playing a weak hand, and instead of indulging in bootstrap fantasist capitalism, they have done the communist thing and beat us at our own game.

Capitalism is meant to make everything more bountiful over time, right? We cannot supply the metals to the world, because Capital doesn't want risk, they want consumer discretionary shares, manufacturing and industrial shares. The capitalists don't want to fund anything, so the price goes up, supply refuses to come online, and everyone sits around salivating about permanent strong prices.

Communism has funded two generations of research into metallurgy. Not just REE's, but alumina, nonferrous metals. Communism decided it wanted long term low-cost assets in friendly jurisdictions (where and who have we heard that from?) and they put up the capital, the technology, and took the risk. They are now supplying cheap nickel better than the capitalists.

It's sobering, and its worth reflecting on the limits of individualism and crony capitalism that has been exposed here - and the limits of crony militarism and vassalage that underpins Australia's daft geopolitical strategy and critical minerals strategy. We, the capitalist pig running dogs, cannot compete with China because we think they're corrupt, incompetent, poor quality and communist.

By brothers and sisters, go test drive a BYD, and take a look in the mirror.

Technofantasy

One of the failures of Western ideology is rooted in Silicon Valley American style capitalism and the techofantasy that underpins all of it (leaving aside the dangerous paternalism and utopian social visions the billionaires espouse).

We have become inured to the model of a unicorn company with an angel investor and exceptional CEO that brings singular skills and vision to the table. Gates, Jobs, Musk, Bezos, Singer, Munger, Buffet.

Credit where it is due, the world has changed with this model. However, there are no solutions that Silicon Valley can make to social issues and to material constraints, that a singularity of intellect can provide (or, no solutions which don't liquidate populations or cultures).

The egoistic fantasies of singular men unmoored from social reality due to their wealth include Musk's The Boring Company, which he claimed would revolutionise transport with...get this...tunnels made at a fraction of the cost of conventional technology, for drivers to use for a fee, to drive single cars in subways, to avoid traffic the hoi polloi get stuck in. This is almost laughable, but it shows the hubris required to think that technology can solve everything if one merely assumes that something done one way for 100 years can be revolutionised by one man, a couple billion dollars, and sheer willpower.

The same applies equally to Kobold Metals and AI in mining; a technofantastical solution to metals supply. I ask you, that given what's happened with the nickel market now, how effective is a couple hundred million dollars from Silicon Valley brain genii airdropped and seeded into a ML and AI cloud company? This is hubris seeking a singularity of success; the "commies" just rolled up their sleeves and got to work.

High prices Cure High Prices

In backing technofantastical solutions to supply based on hyperbolic forward projections of prices (stronger for longer), we used this to justify continued investment into poorly-performing high-cost mines, convinced that the market (China) would like paying more, and Europe would kick their own bum paying green premiums.

China did an end run around Ni batteries with Lithium Ferrophospate (LFP). Technofantasists point to Tesla's NMCA based performance EV's as the future of transport; the thinking goes that the peak in performance, discharge, and specific output is the apogee of success. That all consumers want space-age technology and scalding performance.

Elon Musk supplies Teslas to early adopters, such as massive 3.5 tonne EV utes capable of 0-100 in 2.8s while hauling a Porsche. This is a fetid distillation of American male techno-libido; a loin-based impulse to have bigger, better, ever more ludirous toys to make you manly.

This satiates male ego and phallocentricity, and plays into a frankly broken American automotive ecosystem where the Cybertuck is on the road without passing safety tests; the scions of Libertarianism believe everyone wants triangular rustbucket rockets which kill everyone else and are bulletproof. When consumers turn off overly expensive utes with features they don't want (and technological capture they want to avoid), the market struggles.

Meanwhile, noting the cost of Ni, Co, Li, high purity alumina and manganese, China adopted a frugalist-pragmatist thought paradigm, within a more Asian thought paradigm, and did an end run around NMCA via LFP. Lithium is cheaper now, but even so Fe and P are both cheap and readily available elements, so LFP is capable of being cheap. Cheap means cheap cars. Cheap cars mean more volume. More volume brings cheaper batteries.

It's Capitalism 101.

Graphs have been out for at least 5 years showing LFP as more reliable than NCA and NMCA (reliability a virtue that is prized in Asia), cheap (prized in Asia), durable and effective. NMCA and other nickel-cobalt based chemistries give you performance, but you cannot base a society around moving gigantic chunks of metal around at ludicrous speed in private tunnels, to satisfy a male fantasist phallocentric based society. Even the USA has admitted as much now everyone knows how dumb the Cybertuck really is, how abysmally daft the Hummer EV is and how useless the Ford F150 Raptor Lightning is for day-to-day life; so the West, unable to compete, opts to resile upon hybrid powertrains from NA/Euro automakers, while Toyota destroys itself with insane hydrogen idiocy, squandering the only real chance to compete.

Raw Materials Raw Deals

In the steel game, China is yet to exclude Australia for iron supply, as Brazil's corruption and incompetence are deep and wide gulfs to bridge, and Rio and BHP are more convenient than coup-racked West Africa or South African klepto-kakocracy. But in nickel, having shifted technology to LFP for batteries, China is out-capitalist-ing the capitalists by bringing on new, cheap laterite nickel for steel, and conveniently strangling Australia's aged, deep sulphide nickel mines which are run by a mixed bag of people who are alternatively too smart for their own good, love buying assets at the peak of their price cycles (Wyloo), orsomehow seem incapable of realising they're buying flogged-out mines and see fantasies of synergy which don't exist (IGO).

Note here that Australia's professional sulphide miners, the apogee of technical and operational excellence, sank billions on mistakes at Flying Fox, let costs and depth over-run them, and subsumed themselves in green nickel premium fantasies (Wyloo) based on necessary but clearly premature ESG and green metal supply chains.

Let's be H-PALs

These all indicate a fundamental miscalculation by Australia's brightest and best, that we could do without China as a customer, that NMCA and Ni-based batteries were the way to go (it's evident in the cell capacity and discharge graphs! but don't look at cost, ease of manufacture, reliability and durability), that prices would support continued investment into brownfields, that super-sizing low-grade sulphide Ni-Cu-PGE (Chalice, Western Mines Group, others) was better than admitting Twiggy did us a solid birthing Anaconda, and we need to come to terms with metallurgical risk in our immature, dumb, dig and ship mentality; we have vast laterite resources, and they can compete with Indonesia (maybe) but no one will fund them because it's complicated, and brokers eyes glaze over two boxes in on the metallurgical flow chart.

On this note we circle back to the odd position of mining being capitalist but crony capitalist; being capitalist but not private equity worthy; being risky but risk averse.

One factoid is 80% of exploration spend goes into gold. Gold's easy (and, frankly, should be paying top royalty). Once you make the metal, it's money, and you sell it. There's always buyers, the specification is easily made, and there's been no technological breakthrough in metallurgy in 60 years that's worth noting (POX being a niche and refractory sulphides a curiosity). Why is it that 80% of exploration spend has gone into gold, besides this?

Looking at nickel, we had one crack at HPAL at Murrin Murrin, it was difficult to start with, and expensive, and it's been baked into the psyche of the world's best nickel minds that laterites are too hard. R&D spend into the area, in the West, has been steadily anaemic for decades; China has learned all this and more, and is capable of taking on the challenge and taking the risk. To the Chinese flow the rewards.

The sole bright spot is Ardea (ARL) with an MOU ahead of an agreement for a Japanese consortium to bring Goongarrie into production; 3Mt of Ni is available. But, relying on the Japanese to see sense and fork out cash is not a sensible policy; their last major funding of an Australian metals industry was the iron ore industry in the 1960's.

What, then, is Australia's Strategy?

As stated above, we have banked on the AUKUS, ANZUS, Quad alliances. This is military. To pay for access to our preferred weapons suppliers (rather than developing our own) we subscribed to the Premium Package of Pax Americana.

Political messaging, investment support, strategic investments, and cultural hegemony are all subsumed into the military goals; they are not even on the table alongside the gun, but a sheaf of papers held down by it.

In the Critical Minerals space the polite way of saying "preparing for war with China to cut off supplies of critical minerals" is "diversity of supply". It is up-front distrust of China as a reliable trading partner, if we would only supply them with the raw materials. To avoid the risk, our strategy is America as customer based on America buying military-strategic materials off us (amongst dozens of other countries capable of supply) because of the strategic vassalage and blood tribute we promise to them (four nuclear subs with 40 Tomahawks each; up-armed missile frigates with slaved drone ships with 40 cruise missiles each; you do the maths). Consider the American capitalists and their behaviour, and you think this might not be a great idea.

Our strategy is therefore simple, and flawed.

The process of executing it is par for the course for Australian business, which is parochial, old-school tie, and built on fraternalistic and paternalistic traditions of wealth. The government chooses the easy win, the shovel-ready, the companies run by the guys with the expensive suits and the dumbest projects.

Consider the REE space and where funding has gone. Iluka, with a pile of sand it made in the 1960s gets $1.2B cash and puts the sand up as collateral, with French technology. Arafura, with the existing project, and existing DFS which has been unfunded for 20 years, gets funding. Why have these projects mouldered for decades? because they're uncompetitive. But they're the first thing shoved under the nose of the Minister and their underlings, who want progress immediately, to show the Americans we're pulling our weight. Would you buy a car that hasn't run for 20 years and expect it to work?

The Strategy is also shallow. China is winning not only because they just allocate government money to projects (realistically, Australia is not different at all), but because collectivism in the social and economic sense has seen China invest in decades of technological research, physical, social and technological infrastructure.

Take for example Firebrid which got a pilot plant from zero to physical completion in 4 months in China, with Chinese technology and know-how. That's impossible here except for gold.

We have zero depth in the strategy because we believe in the technofantasists with the AI and ML and the Muskoids promising a singularity moment for supplying metals, treating ores, and destroying headcount and replacing humans with AI.

What should we be doing, smartarse?

Glad you asked.

For a start, we have to admit we have a problem with crony capitalism. Either the Libertarians are right and we cut off the mining industry from support (saving billions) and the innate inbaked superiority of American style capitalism delivers us cars that beatthe BYD's in five years, cheaper nickel and lithium, and we all drive 3 ton supercar SUVs around...or we admit that we have a problem fighting the Chinese at their own game, and we stop.

For a start, we should let the investors take an L, for the first time ever. You have shares in a nickel miner or explorer? Tough break, buddy. Write them off on your tax at the end of the year. We cannot afford rescue packages which would cost us 400-800% more per job than just retrenching them.

I know this is a radical idea, but we don't need to prop up mining companies. The mines can reopen if prices improve. And if they don't reopen, we are worse at this than we claim.

The government can continue to support economic studies and R&D in the mining and metals industries. Co-funding genuine research and development, and funding PFS and DFS and pilot plants is the most important support the government can give. Why? Because high quality skills are created at this stage; skills in chemistry, metallurgy, materials science.

The government needs to fund universities and students. Adjusting HECS imposts is critical here, to attract students into critical minerals and associated industries.

Speaking of skills, the visa situation is a massive joke. It's like breaking into Fort Knox to get here and get a visa to work here. Union protectionism is as bad as anything here at preventing the movement of labor and skills into Australia. Without external skilled workers coming here, we will suffer in the long run.

The government shouldn't pick winners like it has, shooting out massive funding to single projects. Funding should be capped, and percentages of final FID capped at the royalty rate for the mineral. 2.5% too low for your gold mine? Who cares. 5% too low for your SOP evaporation project? Tough.

The government shouldn't deploy more than 5% to 10% of a funding stream or grant to one company. Doesn't matter if it's 'shovel ready' or looks like a sure bet. There is too much riding on this to put it all on red and take a spin.

We should also ignore the bullshit from BHP and others complaining about IR reforms. Our workforce is flexible enough, and skilled enough, and well paid enough, that they can deal with temporary unemployment. We don't need to cut their conditions further and force them into sham contracting via WorkPac etc, to save their jobs. That's not going to save their jobs anyway, just make the iron ore miners more money.

Australia should also be very wary of royalty rebates. Kicking yourself in the arse losing money from loss-making mines just destroys ore and robs us of the value of the metals and minerals.

But, above all, we should reset our relationship with China. They have won the greatest economic struggle of the century, already, ceding only silicon and chip making to America (but you can fly a cruise missile with a pocket calculator chip). They are a decade ahead on batteries, on EVs. They are our greatest customer, even if they are a potential adversary.

Perhaps we should believe in the uniting power of trade, like we say we do. Perhaps our strategy should be to reliably supply China, to supply enough that their cup runneth over, and they do not strangle exports.

Imagine, then, how little we would care.