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Struggling State of the Critical Minerals Sector Raises Concerns

The critical mineral industry required to power the energy transition away from fossil fuels is in an unhealthy state and running ahead of itself, says Barrick Gold Corp.’s chief executive Mark Bristow, who heads the world’s second-largest gold company.

Bristow said the mining sector is entering an era dominated by the demand for metals such as lithium, nickel and cobalt, but the projects containing these critical minerals are often led by promoters more focused on the short-term benefits rather than by “responsible miners” that are in it for the long run.

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“Just look at the so-called critical minerals industry today, lithium’s a bust, so is nickel. A lot of cobalt mines don’t have world-class standards. The industry is not healthy and, again, it’s run ahead of itself,” he said. “Any metal that has a proper market is critical. Then it’s about responsibly extracting and transacting in those metals and minerals, otherwise we are going to get confused about how we develop this world.”

Metals such as lithium and nickel are expected to be high in demand in the near future because they are needed to make batteries that power electric vehicles, which will help countries gradually move away from using fossil fuels.

In 2022, Canada declared 31 minerals as critical for the country’s future and highlighted lithium, graphite, nickel, cobalt, copper and rare earth elements due to their importance in battery supply chains. The country has so far offered billions of dollars in incentives to companies to build three battery plants that will need to source these metals.

The prices of some of these metals have been extremely volatile due to the rising demand and a sudden surplus of new mining developments. For example, lithium and nickel prices have plummeted in recent months after reaching record highs in 2022. Industry experts, though, still expect prices to start rising again over the next year.

But that didn’t stop miners from being hit by the fallout. Albemarle Corp., the world’s largest lithium producer, in January said it would have to cut costs and lay off employees. The North American Lithium project, majority owned by Sayona Mining Ltd. and Canada’s only major lithium producer, in late January said it was looking to reduce its cost base.

Some of Canada’s junior lithium miners, which are heavily dependent upon investor funding for exploration, have decided to either move to commodities that are in demand or postpone their exploration activities until prices rise again.

The decline has made some companies more attractively valued, but Bristow said Barrick’s long-term strategy continues to be to grow its gold and copper assets through exploration as opposed to participating in mergers and acquisitions.

“I have always been focussed on optimized ore bodies. You build in the troughs and make money in the peaks and invest in your future,” he said, adding that companies need “clear strategies and strong partnerships” to survive in this era.

But that doesn’t mean Barrick has shut the door on potential takeovers. Any new acquisition has to have “organic growth embedded” in it, Bristow said on a conference call with analysts on Feb. 14. “Those are value-added transactions … those are the opportunities we look for.”

There have been rumours that Barrick was interested in Toronto-based First Quantum Minerals Ltd.’s Cobre Panama copper mine, considered one of the world’s largest new copper mines to open in the past decade.

Panama recently ordered First Quantum to shut the mine down following protests from thousands of environmentalists. The company is hoping to restart the mine in the future, but for now it’s looking to sell some of its smaller mines to make up for the loss from the shutdown.

Bristow said he didn’t want to link Barrick to any speculative debate in the market over First Quantum.

“It’s a complicated situation (First Quantum in Panama) and it’s going to take a lot of time to understand exactly where this lies,” he said. “We will monitor things and consider things, but that’s as far as we are going at the moment.”

Barrick on Feb. 13 reported a fourth-quarter profit of US$466 million, up from US$368 million in the previous quarter. For the year, it recorded a profit of US$1.2 billion, up from US$432 million in 2022. Net earnings per share increased to 27 cents U.S. compared to 21 cents U.S. in the previous quarter.

Bank of Nova Scotia analyst Tanya Jakusconek described the quarterly results as slightly negative due to the higher-than-expected gold costs Barrick forecasted for 2024. The company’s share price fell to a 52-week low of $18.65 on Feb. 13.

Despite investors’ reaction, Bristow said the company’s business model is the same as it was a year ago.

“At the end of the day, we have done absolutely nothing to damage the embedded value of Barrick,” he said. “We haven’t issued any shares; we have replaced all the gold that we mined.”



Source: Financial Post

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