Commodity Watch: The New Great Game in Minerals

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>For over 400 years, Tsarist Russia expanded by 40,000 square miles every two years (adding the equivalent land mass of Ohio, Portugal or South Korea). The expansion was so rapid that at the beginning of the 19th century 2,000 miles separated the Russian and British empires in Asia. By the end of that century, they were 20 miles apart. The Russian eastward expansion worried the British who wanted to secure their occupation of India (the source of their wealth). And so, during the 1800s the Russians and Brits vied for influence in Central Asia through spies, political intrigue and failed military campaigns in what is known as the Great Game (chronicled in The Great Game: The Struggle for Empire in Central Asia).&nbsp;</p><p>Sources of wealth shift over time. For the last 25 years, advanced economies leaned into asset-light businesses and intellectual property to anchor their economies. The iPhone’s tagline: "Designed by Apple in California" exemplifies that. After all, iPhones are mostly made in China. In adopting this model, the advanced economies walked away from what is increasingly becoming a core pillar for the future economies: minerals and materials necessary for electrification, AI, military buildups and a slew of other essential products.</p><p>That initial error of eschewing those physical assets is now perhaps being compounded by the preferred solution: digging more holes. Yes, mining is an essential component of the supply chain and yes, we should streamline the mining permitting and development process. But on its own, mining cannot meet the supply of critical minerals and metals. The raw products are useless without processing and refining because they are, in many cases, specialised materials made to order.</p><p>China’s prowess in metals and minerals is illustrative. China mines approximately 9% of the world’s copper but processes around 42%. For Nickel: 3% mining and 35% processing. For Cobalt: 1.2% mining and 70% processing. For rare earths: 70% mining and 87% processing. You get the picture. In turn, that concentration risk makes supply chains more fragile and may increase the volatility of the underlying commodities.</p><p>Robust processing and refining capabilities for a variety of commodities is a missing element to meet the increasing demand. That requires higher labour participation in mining (Mining degrees have decreased by 40% since 2016), securing raw materials from the emerging markets, and more investing in the asset class. Developing regulation and tax treatments and greater demand certainty through offtake agreements will also help. Securing the future of our economies depends on investing across the mineral supply chain. Without it, advanced economies are ceding parts of the future. A new shift in the source of wealth (and perhaps a new Great Game) might be upon us. We shall see.</p>