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Europe’s Failure to Secure Critical Metal Supplies…Two Strategies to Play It

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Dear Reader,

Europe is famous for a lot of things. French wines from Bordeaux, Schützenfest in the city of Hanover, the annual Eurovision song contest, posh cars, and eccentric politicians.

But mining? Not so much.

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Extracting resources from the ground is a dirty business in Europe. For Europeans and their politicians, it’s very much…‘not in my backyard thanks!’. Political leaders have shunned new projects thanks to the industry’s poor public perception and often damaging effects on the landscape.

Instead, Europe has preferred to source the raw materials from out of sight places like Africa, Asia, or South America. But European nations have a long, torrid history of pulling natural resources from faraway lands…

Belgium has bloody colonial links with the Democratic Republic of the Congo (DRC). Tapping into the country’s vast mineral wealth and producing agricultural products like cotton, cocoa, and coffee.

The French, too, plundered much of West Africa’s natural resources throughout the 1800s to the 1900s…Meanwhile, Britain raided the copper rich provinces of former colonies in Rhodesia for its own economic might.

Then there’s the Spanish and Portuguese conquistadors…

These looters raided South and Central America for its rich gold, silver, and copper deposits as far back as the 15th and 16th centuries. For centuries, European colonialism has been built on the premise of taking mineral wealth from subordinate lands.

Years of forced slavery, violence, and economic submission has left these former colonies in a state of perpetual decay. War, dictatorships, corruption, and bribery are now endemic in many of these backwater nations…that’s thanks to a long bloody history of colonial powers exploiting their mineral rich lands.

While colonialism officially ended around 50–60 years ago, it soon emerged in a new more politically acceptable form…‘neo-colonialism’. With established connections in these former lands, European nations (as well as the US) set about enterprising the mineral rich grounds, while offering extraction rights to multinational companies that would play ball on ensuring supply (and profits) would keep pouring back to the West.

Despite colonialism officially ending, mineral rich nations across Africa and South America received little benefit for their country’s bounty. Indeed, the supply chains continued to flow (post colonialism) for decades, allowing the West to build its might and dominance in the global economy. Securing commodities was key.

There has been a disrupter evolving over the last 20 years, which has flipped the status quo on the West’s former dominance of these supply chains…

China

The early 2000s witnessed the emergence of China and its focus on securing raw materials. With rampant economic growth, China quickly exerted its influence over mineral rich backwaters across Africa, redirecting the bounty from the west to its own shores.

Over the last 20 years, China has emerged as the most influential foreign power in these mineral rich regions…this has handed China enormous strategic power in the global economy. Over the last two decades, China has steadily taken market share away from the West and now dominates the periodic table of elements…lithium, cobalt, rare earths, copper, and graphite among others.

It’s why China now holds the ace card in the global race for critical metals for both extraction and processing.

So, what’s left for Europe?

The West will be reeling from its gross underestimation of the importance of commodities and their critical role in economic strength. Commodities sit at the core of a major power shift from West to East.

So much so that the West may have to bow to China’s demands in coming years…after all, commodities are the lifeblood that feed economic growth. China has blindsided European and American powerhouses by repeating their colonial playbook.

For decades, manufacturers in Europe grew plump on unfettered supply of raw materials flowing from economically deprived countries across Africa. With much of this supply now falling into the hands of China, Europe’s political pull on the global stage has been weakened.

Already, signs ARE emerging that Europe’s political leaders will bend to Chinese pressure. Last week, French President Emmanuel Macron shocked Washington after suggesting Europe must avoid getting in the way of China’s ambitions to take back Taiwan.

It was on the back of Macron’s smiling and back patting visit with Chinese President Xi Jinping. France is NOT an economy endowed with mineral wealth…like much of Europe, its future hinges on the ongoing supply of critical metals coming from China.

No doubt Macron’s comments will be music to the ears of Chinese leader Xi Jinping. But as a major importer of Chinese commodities, Europe will be in a politically weak position as tension builds between China and the US.

On the one hand, it must stay on friendly terms with the US. A strong military alliance will prevent Russia’s bigger ambitions that might extend beyond Ukraine. A strong US backed NATO is key to this. On the other hand, its economy cannot function without the supply of Chinese sourced commodities. Any European push back on China’s Taiwan rhetoric AND China could snap back with harsh trade restrictions.

The old economy is very much stuck between a rock and a hard place…

In a reflection of the seriousness of the situation, for the first time, the European Commission is looking to unlock its own supply of critical metals. It’s an unprecedented move. Unthinkable in the dark days of colonialism, where European countries sourced most of their raw materials from faraway lands.

But it’s a decision based on sheer need…Europe has lost much of its former colonial influence in these mineral rich nations…China controls those supply chains now. No longer does Europe have the luxury to say ‘not in my backyard’ anymore.

That’s why, on 16 March 2023, the EU announced it would look to fast-track mining approvals and incentivise developers operating on European soil. In fact, the EU has set an ambitious target of 10% for domestic supply of all its critical metal requirements. Of course, that’s only a small fraction…90% of its critical metal needs will continue to be imported.

Europe’s failure to secure critical metal supplies…two strategies to play it

Australian and Canadian producers are well positioned to benefit as geopolitical tension heats up. Both countries offer stable and secure supplies that fall outside of China’s dominance. Quality developers with critical metal assets are set to reap handsome returns as European manufacturers scramble for alternative supplies.

Developers with large, high-grade deposits will benefit the most. At Diggers and Drillers, we have accumulated a diverse basket of critical metal stocks set to benefit from fragmented supply chains. Several of our picks have already been beneficiaries of attractive offtake agreements with European, US, Korean, and Japanese manufacturers.

But there is another way to play the EU’s heightened anxiet. Invest in companies looking to develop critical metals on European soil. For decades these projects have been mired in uncertainty. Despite some company’s owning quality assets, critical for Europe’s renewable energy transition, anti-mining lobbyist continue to pull sway over political leaders and public opinion.

But it seems EU leaders are now more worried about the future supply of critical metals. It places explorers and developers across the region in a unique position. Acutely aware of the value of raw materials, European investors will be keen to ride the success of these projects.

Given the changing tide among EU states, these developers will also benefit from government support in the form of financial incentives and new powers to cut through the vast red tape that currently exists. It’s a reason we will be adding high quality European-based mining stocks set to benefit from the EU’s push to build-up its domestic supply of critical metals.

 

Source: Daily Reckoning

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