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Corporate Nationalisations? - Alpcan Efe Gencer

In an unforeseen move last week, the U.S. took a stake in a battery metals mining company through a funding agreement. Being a preacher of free-market dynamics that tries to keep its state affairs out of the frontlines of business matters, the move could be hailed as fitting in perfectly with the new narrative being applied by President Trump. The execution of the project is also another point that should be examined closer. The U.S. took a position in the said company through a direct equity investment. Furthermore, the position was taken through the U.S. International Development Finance Corporation who can more than just fill the role of the funding partner should the basic business cycles fall short of supporting the operations.

If funding was the question, then why didn’t the DFC just provide credit with strong loan covenants to TechMet- the mining company? To answer this question, we must first understand what’s happening right now in the rare earth and battery metals commodities. Similar to how oil import-dependent nations looked for ways to kickstart local production against the OPEC to combat over-reliance and supply-side shocks, the same story is also developing in the metals industry. Loan agreements can be worked around, credits can be defaulted on, but the operations could still ensue. To ensure the complete measure plan against any disruptions to a stable supply chain, taking an equity stake is the most effective method. We’re right now seeing a continuing fall in prices of lithium year-over-year, and the future forecasts for the upcoming five years are indicating further fall in prices due to oversupply. An investor would have to be in it for the long haul to be making an investment right now in this area, or the investor could have further motives that go beyond profit-making, such as what we see right now. To provide the factor and comfort of reliability, a partner with sizeable funding opportunities is vital for companies such as these. Which is again another supporting factor for equity investments in mining companies.

China has been the prime contender against the U.S. in this space, and by the looks of how the events are unfolding, the industry is unlikely to settle any time soon. European Union has expanded its list of critical commodities to include lithium, and China has been active for a long time in mining in Africa. The fact that the transaction was done through a development financial institution sets the U.S. example apart from the Chinese cases. In many Chinese mining investments in Africa, we could see the transactions being done through actual Chinese mining companies making overseas investments. Leaving the operations to the production company while maintaining executive oversight might sound advantageous if the priority is on keeping time and energy invested to a minimum. But having personnel on the ground 24/7 with constant oversight could also be more effective if technological and operational efficiencies are to be monitored. A case in point is, the U.S. has entered into the race for a hold over the rare earth and battery metals market with regards to ensuring the reliable and affordable flow of materials towards itself. Having seen how market dominance can have a shocking effect on the lessons learned from the oil embargo, the stakes are high for all players involved in this field.

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