Readers who follow our Investment Portfolios will know that we have been making strategic Investments in commodities that have made critical minerals lists for the EU, USA, Japan, India and Australia.

These minerals are considered critical to the digitisation and decarbonisation macro thematic and include lithium, graphite, cobalt, nickel and PGE’s, to name a few.

Over the weekend, the following speech from the president of the European Commission, Ursula von der Leyen, gave a speech announcing that the EU would look to pass a “European Critical Minerals Act”.

The aim is to avoid the position Europe finds itself in with oil and gas, where it relies on a single trading partner like Russia.

The act would see the EU put in place:

1. Agreements with partners like Chile, New Zealand, Mexico, India and Australia for the supply of critical minerals.
2. Identification of strategic projects across all along the supply chain from mine sites to processing/refining projects.
3. The act would also see the setting up of strategic reserves of these critical minerals.

All of this bodes well for our Investments across commodities identified as “critical minerals” giving these projects strategic importance on the world stage.

To see a list of all the critical minerals in the Australian Critical Minerals strategy document, check out the following link.

Here is a snippet from that speech:

Spanning three days on the pristine Sunshine Coast of Queensland, the Noosa Mining Investor Conference kicked off its 12th year on Wednesday. Attracting a diverse and large spread of corporates, brokers, retail and institutional investors, this year’s event featured over 60 companies presenting and over 1,000 people in attendance, all hosted within the coastal town's Peppers Resort.

At the event, we caught up with a number of executives from our Investment companies (including AKN, AOU, BPM and PFE) as well as companies of interest, either as potential additions to one of our Portfolios, or to gain expert insight to macro and regional headwinds impacting the markets.

The conference is held in the ideal location to mix work with pleasure, and meet a host of CEOs of ASX juniors. Each day ends with a short ‘business at the bar’ session that quickly morphs into talking tactics about where to eat and drink. On Thursday and Friday nights, many head to the Noosa Surf Club for its networking sessions, enjoying its glassed indoor area and open deck to the beach.

We look forward to providing updates on companies we met with down the road.

China plans to make up to US$1.1 trillion in financing available for infrastructure spending, which we think will increase commodity demand. Read the following Bloomberg article for details.

Read the full article here.

Below are our key takeaways:

• China is making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending.
• According to Citigroup, infrastructure investment in 2022 is likely to rise by 7.7% versus 2021.
• President Xi Jinping has called for an “all out” effort to increase infrastructure spending this year to fuel economic growth and meet a GDP growth target of around 5.5%.

The Bloomberg article touches on the impacts of China’s COVID induced lockdowns on the domestic economy.

With economic growth tipped to slow, the Chinese government is getting ready to lean on fiscal stimulus through infrastructure investment to spur economic growth.

We think this type of fiscal stimulus is likely to become a common theme in China and the West, with macro themes like decarbonisation requiring massive CAPEX.

This infrastructure spending forms part of our “commodities supercycle” investment thesis, where we see increased fiscal stimulus and CAPEX investment spurring higher demand for commodities already facing supply shortages.

The following Bloomberg article highlights China’s plan to spend up to US$220 billion to spur economic growth through infrastructure spending.

All of this new infrastructure will require more commodities.

Read the full article here.

Below are our key takeaways:

• China’s Ministry of Finance is considering US$220 billion of infrastructure funding aimed at shoring up the country’s beleaguered economy.
  
  
• The funding is to be brought forward from next year’s quota, marking the first time the issuance has been brought forward due to concerns around the dire state of the world’s second largest economy.
  
  
• The funding would primarily be used on infrastructure spending to boost an economy hit by Covid lockdowns and a housing downturn.
  
  
• Commodities rallied in European trading hours following the news, with copper moving 3.6% higher on the London Metal Exchange.

For over two years, we have been writing about an upcoming commodities supercycle brought about by infrastructure spending, following decades of underinvestment in the “real economy”.

All this investment in the “real economy” requires raw materials, which is why we think the macro backdrop for commodities over the next decade is strong.

The Bloomberg article highlights the readiness of the Chinese government to lean on fiscal stimulus to spur economic growth at a time when the Chinese economy is slowing down.

Generally, governments would try to respond to slowdowns in economic growth by cutting interest rates. With this tool exhausted after the COVID pandemic, we think infrastructure spending will become the new policy of choice for governments worldwide.

Again, this infrastructure spending will increase demand for commodities which we expect will take commodity prices higher.

The following Bloomberg article showcases the moves major carmaker Volkswagen is making in the batteries industry.

Read the full article here.

Below are our key takeaways:

• VW is pressing forward with investments along its battery supply chain, commencing construction at a new cell factory in Salzgitter, Germany, one of five facilities in Europe under the carmaker’s PowerCo subsidiary.
  
• Salzgitter is home to VW’s main motor factory, and it is where the company last year opened an $80 million facility to research, develop and test EV batteries.
  
• Roughly $2 billion will be invested in the new cell factory, where production is scheduled to begin in 2025.
  
• VW expects its battery business to generate €20 billion in revenue by the end of this decade.
  
• VW CEO Herbert Diess said, “We are invested in some startups and we are looking forward to a joint venture together with Bosch for the machine tools and equipment for those plants, so we’re really gearing up to become one of the bigger battery cell producers”.

The news is just another sign that downstream investment in battery supply chains is showing no signs of slowing down.

VW is one of the world's largest carmakers and is heavily investing in downstream production capacity. It expects this part of its business to generate over €20 billion in revenues by the end of the decade.

This is a situation where investment in midstream/downstream (manufacturing/battery industry) is far ahead of upstream investment (mining), this leads to the supply/demand imbalances for the raw materials required to produce batteries only becoming worse.

The imbalance comes from the timing of these mega projects. Building a downstream / midstream facility could take 1-4 years whereas it takes around 7 years on average to bring a new resource discovery into the production stage.

As a result, we think that raw materials prices will remain high for at least the next decade whilst the mining industry catches up to demand.

Earlier in the week AOU announced another batch of assays from its 2,667m drilling program at its Saints nickel project.

The stand out assays from todays announcement were as follows:

• 2.13m @ 3.26% Nickel from 167.99m
• 4.79m @ 2.05% Nickel from 311.98m

Both high grade intercepts, but this came as a result of the drilling program being made up mostly of infill drilling. The purpose of the drilling program is more so for AOU to be able to conduct metallurgical testing which will form the basis for a scoping study being planned.

With the nickel price temporarily hitting US$100,000/tonne overnight, we expect that the scoping study that AOU is putting together will show some really favourable project economics.

On Thursday AOU announced that it had made two massive sulphide intersections at its Saints nickel project.

The 7 hole diamond drilling program is mostly being done so that ARN can upgrade its 1.02mt @2% nickel JORC resource. The drilling is mostly infill so the intersection of massive sulphides was somewhat expected by the market.

We are more interested in the grades of the intercepts as opposed to the massive sulphide intercepts themselves, if the drilling was targeting a new discovery then we suspect the market would have reacted a lot differently.

With 3.01m in massive sulphides intersected in one hole and 0.84m in another, all eyes are now on the nickel grades that come back from the drilling program, before AOU can try upgrading the JORC resource.