InterSectors

Rebecca

Critical minerals sit at the heart of energy transition, advanced technology and defense. And capital is racing into the sector along new geopolitical fault lines, from US-backed deals in Africa and Latin America, to foreign investors entering the US mineral sector for the first time in a generation. Who is investing where and why are these flows shifting now? In this episode of InterSectors, we look at how policy and geopolitics are reshaping critical minerals finance and supply chains, and what this means for mining companies, investors and new entrants to the sector.

Welcome to InterSectors, where White & Case partners bring their diverse legal perspectives to complex topics at the intersection of industries and markets. I’m Rebecca Campbell, Co-Head of our Global Mining & Metals Group here at White & Case, and a partner based in London.

My practice focus is entirely on the mining & metals sector, and I have done that for over two decades. Today, I’m delighted to be joined by Gary Felthun, my fellow Co-Head of Mining & Metals, and Jason Rocha, a key member of our Global Mining & Metals team.

Gary, could you give a brief intro to yourself and then Jason?

Gary

Thanks, Rebecca. I’m Gary Felthun, an M&A partner based in Johannesburg with a very strong focus on mining & metals, and predominantly M&A transactions in Africa, again, with a very, very strong focus on sub-Saharan Africa.

Jason

Hi, I’m Jason Rocha. I’m a partner in the Capital Markets Group here in Houston, but I do both capital markets and M&A. I focus mainly in the mining space and in the oil & gas space. I’ve been practicing for almost 25 years.

Rebecca

Great to be with both of you here today, and especially with such a critical topic, and I know one that’s very close to all of our hearts.

So, let’s start with the big picture. With the growing importance of critical minerals, attention has increasingly shifted from where minerals are mined to who controls the supply chains that process, refine and deliver them to the market.

For many critical minerals, those supply chains are concentrated in a small number of countries, making access and resilience questions of economic security and geopolitical influence. This is where we all spend a lot of our time, looking at critical mineral supply chains in some of these very difficult places. Now, I think one thing we are all very aware of is that minerals, mineral supply chains, mining & metals, until recently, it was a very niche topic, one that maybe I spend a lot of my time thinking about, and we spent a lot of our time thinking about, but it wasn’t one of general market concern.

So, Jason, what’s changed?

Jason

Well, the main thing that has changed has been the focus and attention by the US in the last 15 or so years on this issue. What we’ve seen is this very significant push into shoring up US domestic supply of critical metals, as well as supply chain reliability on the processing side.

That started with the first Trump administration. It increased significantly during the Biden administration, and now has been kicked into overdrive in the second Trump administration. This focus by the federal government in the US has resulted in a wide range of grants, loans, tax incentives and direct investments into companies looking to get involved into this sector.

Rebecca

And there’s no doubt that the US agenda has really come to the forefront in the last few years, but interestingly, China has been at this game for a very long time. Gary, can you tell us a little bit more about China’s long-running build-out in the mining & metal sector, and effectively what has prompted the US desire to catch up?

Gary

China has spent decades building mining and processing capacity globally, both domestically and in Latin America and Africa. And as a consequence, they now control a large share of key supply chains. Some good examples being the high percentages of processing capacity in rare earths and the significant influence they have in the copper processing space. The US and its allies are now reacting, trying to develop an architecture to support the sector that China has been building for 30 years. But clearly, they’re well behind, and there’s a lot of catch-up to try and achieve, and do.

Rebecca

Now, as we talk about the catch-up here, Gary and Jason, certainly I think that capital flows are central to this story, and we as a team have been spending a lot of time looking at the way in which capital flows are evolving into the sector around the globe. So Jason, maybe if I could start with you first, and we could talk a little bit about how US capital flows have shifted both into and out of the US. And I think this will be a bit of a central theme for today’s discussion.

Jason

Capital flows into and out of the US are critical because foreign investors are entering the US mining & metals sector for the first time in a generation. And US-backed capital is moving into Africa and Latin America to secure supply and processing capacity. Companies are redesigning their supply chains not only around ore deposits, but also processing and refining capacity with capital moving across the full value chain to bring materials into the US and allied markets.

In the US, you have a lot of different pieces of the puzzle coming together. I mentioned the renewed focus by the US government, which is on, like I said, both sides of the political spectrum. When you combine this national security slash national priority attitude with the perception in the business community that Republican-led administrations are more business-friendly, you get very favorable conditions for capital to be invested in the US, and we’re seeing that right now.

And when you think about US-based capital investing in other parts of the world, if you can show a benefit to Western, i.e., non-China countries, anywhere in the supply chain spectrum, you lower the risk profile of the investment. And it goes without saying that if you lower a risk profile, at least on a perceived basis, you’re going to get more capital flowing in that direction.

Rebecca

So against that backdrop, I thought we’d dig into a little bit more detail, the capital flows into two of the core regions of the world that house some of the primary mineral resources that the US not necessarily has, and in fact, Europe not necessarily has as well. So we’re gonna dig in on Africa in particular.

Gary, obviously, this is where you spend almost all of your time. I think both you and I have seen, especially over, say, the past decade, Africa very much becoming the centerpiece of some of the competition between the US and China for access to primary resources.

So why has Africa become so central to this global competition? And where does the US and their allies sit versus China in trying to access these resources?

Gary

I think, as a starting point, the reason why Africa is so central to this global competition is obviously quite simple. And as you say, such a significant percentage of critical minerals resources is in Africa. So naturally, as there’s a desire to get supply, Africa is the continent in which countries need to come and try and obtain that supply.

So that’s the first point. I think in the context of China and America, I think everyone acknowledges and appreciates that China has been active in Africa, and in mining for decades and decades, and they’ve built government relationships and have built a big supply chain. The consequence of that is not just that they have the supply, which is where they sit at the moment, or a lot of it anyway, but also that they know how to do deals in Africa with governments because of all the experience that they’ve had in getting there and doing it, whereas the US are obviously coming in a bit colder in that context too.

So, the advantage that China sits with at the moment is one—greater supply, but two—just more experience in getting deals done.

Rebecca

And I think, to that I would add a history of actually investing when they say they’re going to as well, so that goes to the depths of the relationships built. Jason, we know why the US is moving more into critical mineral supply chains, but we are seeing the US place great emphasis particularly on certain places in certain countries within Africa at the moment. Why is that?

Jason

Well, US government, as well as other governments, are increasingly seeing access to critical minerals as central to energy transition, advanced manufacturing, defense and supply chain resilience. The objective is not simply to secure more raw materials, but to create alternative supply chains for extraction, processing and downstream production.

Now, when you look at the individual reasons why the US is doing this, they vary depending on the administration that’s in place at that time. The two Trump administrations have focused on increasing domestic supply on both the extraction side, as well as on processing and manufacturing.

The Biden administration really focused on the supply chain issue, but also, as you might expect, talked about this in terms of climate change and energy transition, EVs and batteries, things like that. But really both sides view this no longer as just a defense issue, and instead see this as fundamental to overall economic security, including the semiconductor, aerospace, robotics, EV and defense sectors.

Rebecca

So, Jason, as a follow-on question to that, we’re starting to see some very interesting partnerships being formed and consortia being formed to bring together US-backed capital for these projects. I thought it’d be really interesting if you gave everyone a bit of an overview of some of the players involved, the government agencies, the partnerships with private actors. Obviously, there’s many of them, but let’s just touch on a few.

Jason

There are a bunch, and it’s a mix of agencies and acronyms that have all jumped into this space. And I’ll go through a few of them.

So, the first agency is the Department of Defense or the Department of War now, as it’s called. And obviously they focus on national security and defense-linked materials. Then there’s the Department of Energy, which supports energy transition and really all areas of the energy spectrum.

There’s also the Department of Commerce, which has been very active in investing in critical mineral companies.

There’s a group called the DFC, which is the US International Development Finance Corp. That’s really a more international-focused and outward-looking agency that looks to invest in foreign companies.

And then probably the other big one to talk about is the US Export-Import Bank. And they’ve been very active in recent years on financing critical mineral supply chain projects.

There’s a couple examples that I can probably give of how this has actually played out. And two really good ones are the Mountain Pass Project, which is in California, and it’s currently owned by a company called MP Materials. They’ve received a number of grants from the US government over the years, and then last year they announced a public-private partnership with the US Department of Defense to really accelerate their rare earth magnet development.

The other really big example here in the US is the Round Top Project in West Texas, and that’s owned by a company called USA Rare Earth. In this case, earlier this year, the Department of Commerce, through the Chips Act, invested US$1.6 billion in the form of loans and grants. And then also the state of Texas invested a multimillion-dollar grant, something called the Texas Semiconductor Innovation Fund. So, you see this both on the state level as well as on the federal level.

Rebecca

And Jason, interestingly, that comes from the recognition by the agencies that these projects actually mostly cannot be brought to market and through into production without government-backed support.

And it’s a core theme that has run through the sector for decades, but there’s now finally the recognition that unless that government support is brought in by US or European governments, China will continue to dominate the supply chains.

Jason

That’s right, Rebecca. And if I could just add one other thing. It’s important to remember how private capital can play a role in this, sometimes alongside government support. A really good example of that is the USA Rare Earth deal where in January, they announced a transaction that involved a one-and-a-half-billion-dollar private investment of common stock into the company at the same time that they announced their US$1.6 billion-dollar government-backed investment.

Rebecca

Yeah, and these strategic joint ventures are now basically the bedrock of the entire sector, I think in almost all of the transactions we’re looking at. And fascinatingly, if you look back to the way in which China has developed its presence in the supply chain over the years, that’s very much the way in which they did it.

So, I do find it slightly wry that basically the model is now being emulated. Now, we did touch upon getting transactions done in Africa, Gary. This is a good time to bring you back in and ask you a question around, well, what changes or what defines or differentiates the way in which you do transactions in Africa in the sector compared to elsewhere?

What do you need to be aware of? Obviously, there are many different countries within Africa, but are there some common threads that you can draw out from what you’ve learned over the years?

Gary

Yeah, thanks, Rebecca. There definitely are some common threads and I think as a starting point, parties who are used to doing deals in the US or in Europe, when coming into Africa to do significant transactions, need to understand that it doesn’t play out the same way.

That’s the simple reality. And I see almost two pertinent items that one needs to understand in that context. I think the first point is that people often underestimate how important it is to have government and communities where projects are taking place on-side.

And the truth of the matter is that if you are going to have issues in that context, there’s a very strong likelihood that your deal is not going to succeed, even if it ends up being implemented. And parties are not typically familiar, when coming into Africa that, from a process perspective, you almost need to start there, as opposed to just assuming it’ll all play out properly at the end.

I think another element is that conventional processes, timetables, things like that on how we typically see deals getting done, it’s just not necessarily the way it’s going to play out when we’re dealing with big transactions and government involvement.

There’s typically going to be delays from time to time, things won’t meet timetables very often, and you need to be conscious of government and community sensitivities when you’re dealing with the deal. So it’s not just a matter of normal, simple, commercial logic in how one gets there.

And you might sometimes find that governmental communities are focused on items that are not just necessarily how many dollars they’re going to get out of it. And one needs to be amenable in engaging, and being aware of that.

So, as we’ve said, China have got lots of experience in doing it and know how to do it, but you’ve got to be patient. You’ve got to diligence the right things at the right time, and you’ve got to acknowledge that it might take a little bit longer to get there than would sometimes be the case.

Rebecca

A final question on the topic of development in Africa. We do see a bit of a trend at the moment around various African governments—not all of them, but some of them—wanting to ensure two things.

The first being improving their tax take and their fiscal return out of primary production, and the second one being building downstream capability and beneficiation capability. And here we see the tension arising, particularly when a lot of these jurisdictions are energy-constrained.

So, Gary, where do you see that debate evolving, and particularly in the context of the US’s desire to bring processing capability home?

Gary

Yeah, it’s going to be interesting. I think, as we’ve discussed, the US are somewhat behind the curve as things stand already, and so I think they’re going to have to, in some respects, probably try and accommodate government desires in Africa and what their expectations are, and, maybe be a little bit more accepting as to what they can bring home and what will need to take place on the continent.

I just think that will probably be strategically, make a little bit more sense for them. But I think history has shown in Africa, unfortunately, is that the continent has not got the benefit of the resources to the extent that they should have over time, really. And I think we’re all at least hopeful down here that there will be some change in that context, and where the benefits end up landing at the end.

Rebecca

Thank you, Gary. Now, Jason, we haven’t got time to go around the entire globe today, but I do think that it is worthy of us just focusing on one other region outside of the US, which is Latin America, because US-linked capital is very much targeting the Latin American mining & metals opportunities, and particularly the primary production opportunities.

So tell us a little bit about what you’re seeing there—some of the deals and some of the countries and relationships that are proving particularly fruitful to the US at the moment.

Jason

Well, you’re right, Rebecca, and Latin America is a great place to talk about. The US is really focused, like we’ve been saying, not just on where the ore is located, but how it can be beneficial to Western countries generally and the US in particular.

But the bottom line is these same themes keep coming back. There’s tremendous competition for resources and supply chains, and efforts to reduce reliance on the concentrated supplies that we’ve been seeing.

Rebecca

Maybe that’s the topic for another podcast in and of itself. Okay, so what we wanted to move on to next is a little bit around the inbound investments that are coming into the sector in the US at the moment.

This has particularly accelerated under the latest Trump administration. And I think the backdrop of it, of course, is that there’s been so little investment into the domestic US sector for well over a generation that the know-how very much sits outside the US at the moment and needs to be brought back in, and is leading to many interesting partnerships that are evolving.

So first of all, Jason, what is making the US more attractive right now? Specifically, what is the US doing to bring people back into the domestic US?

Jason

Well, we’ve talked about a lot of the individual pieces already. It’s the strong governmental support for the industry that we’ve been mentioning. There’s the perception of a business-friendly environment, both at the federal government level and in many states.

And then there’s just the long history that the US has shown of being a safe place to make an investment both domestically and on the inbound side from foreign investors.

Rebecca

Yeah, that’s very interesting, your comment about it being a safe place to invest because if we then talk and look at, for the foreign investors, the expert mining & metals players from the rest of the world, why would they come back to the US at this point in time?

Certainly one thing we’re hearing from a lot of our contacts and clients right now is that they are looking for places to invest their capital that diversifies their risk away from the Middle East or at least diversifies them across markets.

So that does make the US an attractive investment jurisdiction for them. Jason, are you seeing other things that are bringing foreign investors back into the sector in the US?

Jason

For sure. There’s foreign companies, whether they’re investors or industrial players, they’re looking at US extraction and processing opportunities, and they’re seeing that they can get funding for these projects, both from the US government agencies as well as private investors, that can support the US supply chain and the national priorities.

Middle Eastern investors are also considering US facilities, and improved tariff treatment for them and things like that. We’ve received a number of inbounds and calls and clients around the world that are looking to talk to us about ways that they can come into the US market and how to structure a deal, and see how they can be creative in doing an investment.

But there’s also a different type of foreign investment that I think is important to talk about, and that’s foreign companies that are looking to attract Western investors, in a way that might include going public in the US. We’ve seen a lot of interest in this space.

I’ll give you just one example, which is Critical Metals Corp, which started out as an Australia-listed company on the ASX, and the real thesis for them was to come to the US to attract Western investors generally, and maybe down the road attract US government investment for some of their projects. But they came to us, we took them public, they’re listed on Nasdaq, and they’ve raised US$150 million just from private investors over the last few years. So if you just look at just that one piece, I think they would say that’s been a successful move so far.

Rebecca

Exactly. So it’s not just about building production within the US, it’s about accessing the US sources of capital as well. It’s a very good point. So, Jason, with all of these inbounds that you’re receiving, if you had to give someone a two-minute rundown on the basics of investing in a project within the US, what would you say?

Jason

It’s a great question and there are some real differences between investing in US projects versus the rest of the world. I’ll speak at a very high level, but for one, in the rest of the world, generally speaking, the minerals belong to the state and a company that wants to do some extraction or to mine needs to get a concession or a license from the government.

The US doesn’t do that. That’s not how we work. Who owns the minerals depends on who owns the land. And the rights on federal land are created by your own actions rather than by a government grant. So that’s a really important thing for foreign investors to wrap their head around and it is something that makes the US government unique.

Another thing is the federal government doesn’t charge a royalty on production and it goes with the concession idea. Instead, there are various state taxes, and maybe other state and local royalties that you’ll have to pay, as well as private royalties potentially to landowners that are leasing to the company that is looking to do the extraction.

And then really finally, you have to talk about CFIUS, which is a US government agency that is the Committee on Foreign Investment in the US. Anytime we’re talking about a foreign entity that may have relations with a foreign government or even in other circumstances, we have to look at that and make sure from a due diligence perspective, what type of approval we may or may not need, depending on the deal.

Rebecca

Sage advice, Jason. Okay, let’s try and bring this conversation together a little bit. We’ve talked a lot about capital flows, and new and different forms of investment that are occurring in the sector right now, but let’s try and bring it together for mining companies, for investors, and for new entrants to the market.

If you can boil it right down, what are the key things that you think an investor should keep in mind? Jason, over to you first.

Jason

Sure. So, the first thing is, you have to think carefully about the source of your capital. And, if it’s government-backed capital, you need to think about the policy architecture that is behind that capital. We’ve talked a lot about different priorities that different administrations just in the US have had over the last, call it, I don’t know, eight years or so, and how those have changed. And it doesn’t matter as much where the ore is located, but where the source of your funding is coming from. So I think that’s really one of the most important things.

Rebecca

The way I’ve always thought of that is you plan a project in two dimensions from the deposit or the ground up and from the capital down.

So Gary, what would you put forward as one of the key takeaways for mining companies investors and new entrants to the market?

Gary

I think you need to plan for multijurisdictional competition and partnership in Latin America and Africa specifically, because there’s such a desire to get access to the supply of critical minerals. When opportunities arise, it’s competitive.

And, people and companies need to understand that coming in, and linked to that, you need to understand who your counterparty is too. I always liken it to thinking, in normal corporate transactions and the like, a company looking to make an investment or buy an asset will be heavily focused on warranties and indemnities and recourse. And you spend a lot of time negotiating that with the other side. When you’re dealing with governments, you need to think to yourself, especially in continents like Africa, what’s the benefit of those ultimately going to be if things do go wrong, number one.

And number two, from a relationship perspective, if you spend too much time really trying to negotiate aggressively on items like that one, do you start prejudicing your relationship with the government? And two, do you risk losing a deal when those things might not have made a very big difference?

And in other jurisdictions, in other markets, you can go toe-to-toe and have aggressive negotiations on these kind of items, and it makes sense. Not always the case in a competitive African or Latin American jurisdiction, I think.

Rebecca

And to that point, Gary, I think something that we’ve always said in our negotiations with governments or for governments, which is that a good deal is a fair deal that stands the test of time. And that’s very different to the way in which you do transactions between private third parties.

And if I can add one final thought to that, and it comes from having spent so many years focused on the sector and a sector that has for a long time been very unpopular and very, very difficult to raise capital for, which is that I think we need to continue to expect and actually embrace complexity in our transactions that we’re doing.

We are never going to be data centers. You’re not gonna be able to walk in the door on a Monday morning, finance the next data center and be done by the following Friday, and move on to the next one. It is much more about long-term complex relationships, complex capital stacks and, therefore, so crucial to be deeply understanding of and embedded in the sector.

Gary

Great point.

Rebecca

Okay, so closing question for the day, and this one’s for you, Jason. As you look to the future, what do you see as one of the most defining aspects of the sector?

Jason

Well, there’s maybe two things that I would say. First, we’ve talked a lot about on the US side, the politics behind it and the national priorities behind this push. I can’t predict what’s gonna happen over the next two years, much less in the next presidential election.

But I do think it’s important to remember that this really is a bipartisan issue in the US, in that both sides of the political spectrum in the US view this as very important from a long-term perspective. And I do think there will be continued interest in investments in this going forward.

The second thing is, as we’re playing catch-up here in the US, there are going to be the proverbial winners and losers of companies in this space. It’s early years for this in the US. And so what you’re going to see, there are gonna be stronger companies with healthier balance sheets that come out of this, and that’s going to end up increasing M&A activity, and maybe swallowing up some of the smaller players. So I do think that’s another thing that we’ll start to see.

Rebecca

I think if I can add to that, Jason, one thing we can be sure of is that because of the way in which the global industry and markets and AI, in particular, is evolving, we do know the demand for critical minerals will be there. And so yes, there’ll be winners and losers, but I think overall there’s going to be more winners than losers out of this sector in the years to come.

Gary and Jason, thank you for making this a fascinating discussion today. Certainly I know this is a topic that’s close to all of our hearts, and we hope that our listeners enjoy hearing a little bit more about critical minerals and their integral nature to the future global economy.

To our listeners, thanks for listening. This has been the InterSectors podcast. Please subscribe in your preferred podcast app so that you don’t miss our future episodes. Until next time.