Phillip Mackey on the buildout of the West’s metals processing capacity

Key Concepts

Geopolitical Risk & Supply Chain Vulnerability: The mining industry faces increasing risks from geopolitical instability, organized crime, and concentrated supply chains, particularly concerning critical minerals dominated by China.
Western Response to China’s Dominance: Western nations are actively seeking to diversify critical mineral sources, establish independent pricing mechanisms, and rebuild domestic processing capacity.
Corporate Disputes & JV Agreements: Disputes between major mining companies, like Newmont and Barrick Gold, highlight the complexities of joint ventures and the potential for resource allocation conflicts.
Metals Processing Capacity & Innovation: A global shortage of metals processing capacity, particularly outside of China, necessitates investment in new facilities and the adoption of innovative metallurgical technologies.
Metal Price Trends: Precious metals experienced significant gains, while industrial metals largely traded sideways, influenced by global economic factors and geopolitical events.

Newmont-Barrick Dispute & Nevada Gold Mines

In early February, Newmont’s subsidiary, Pneumont, issued a notice of default to Barrick Gold regarding the Nevada Gold Mines (NGM) joint venture established in 2019. Pneumont alleges Barrick diverted resources from NGM to its Four Mile project, violating their agreement and Pneumont’s contractual right of first refusal. Pneumont expressed concerns in its 10K filing that disagreements could materially impact their interest in NGM. The host suggests this action may be a strategic move to halt unilateral decisions by Barrick and potentially initiate a legal battle, effectively freezing operations. The core issue appears to be Barrick potentially attempting to spin off Nevada properties without proper consultation.

Geopolitical & Economic Context (Recap from Part 1)

The podcast previously highlighted the increasing security risks in mining regions, exemplified by the Vizla Silver incident in Mexico, where 10 workers were kidnapped (5 remain missing) on January 23rd, potentially linked to the Sinaloa cartel. This incident occurred near Porto Viarda, raising speculative connections. China’s dominance in critical mineral supply chains (gallium, rare earths, antimony – nearly 99% of global primary gallium production) and the West’s attempts to diversify sources were also discussed. The US is developing a critical minerals price floor system and exploring futures contracts on Western exchanges. The Democratic Republic of Congo (DRC) is being positioned as a key supplier to the US, with the Rubaya Coltan mine (under M23 control) offered under a mineral cooperation framework. Energy costs are increasingly important in metals processing, as demonstrated by the Century Aluminum smelter situation.

Metal Price Update

As of the week ending [Date Implied], bond yields generally edged lower, except for the US 10-year bond which remained stable at 4.004% (+0.01% WoW). Precious metals saw substantial gains: Gold reached $2,194.30/oz (+ $253 WoW), Silver rose to $28.29/oz (+ $1.14 WoW), Platinum increased to $2,162.30/oz (+ $112 WoW), and Palladium reached $1,775/oz (+ $4 WoW). Most industrial metals traded sideways: Copper at $3.79/lb (+ $0.02 WoW), Iron ore at $99.33/metric ton (- $0.33 WoW), Aluminum at $1.40/lb (+ $0.02 WoW), Lead unchanged at $0.89/lb, Nickel at $7.84/lb (+ $0.06 WoW), Tin at $21.12/lb (- $0.06 WoW), Cobalt unchanged at $25.53/lb, Lithium unchanged at $20.82/kg, Uranium at $89.40/lb (- $1.00 WoW), and Zinc at $1.52/lb (+ $0.03 WoW).

Metals Processing Challenges & Opportunities – Interview with Philip Mackey

Metallurgist Philip Mackey emphasized China’s dominance in metals processing, smelting 50-60% of the world’s copper and a significant portion of other metals. He noted that no new copper smelter has been built in Chile in the last 50 years, increasing reliance on Chinese processing, and Indonesia now produces 70-75% of the world’s nickel. A critical need exists to increase processing capacity outside of China, particularly in the US and Canada. Three new smelters opened last year – two in Indonesia and one in India. Canada’s nickel and copper tonnages have decreased in the last decade, despite federal government identification of potential projects. Mackey highlighted a historical aversion to smelters, but emphasized modern facilities are environmentally friendly. He pointed to emerging hydrometallurgical processes like Stillbrite (US) and Banksia (Australia) as potential “paradigm shifts” enabling smaller, mine-site processing. He expressed concern over the closure of corporate R&D labs in Canada (e.g., Sherritt), advocating for increased government and industry investment in research and development. Mackey proposed a “floor price” mechanism, similar to the US rare earths model, to provide price certainty and encourage investment in processing facilities, utilizing a contract by difference. He expressed skepticism about the effectiveness of tariffs, arguing they primarily burden consumers. China’s success is attributed to large-scale engineering education, rapid project implementation, and technology adoption.

Technical Terms & Concepts (Combined)

Sinaloa Cartel: A transnational drug trafficking organization.
Yellow Cake: Concentrated uranium oxide.
43-101 Resource Estimate: Standardized mineral resource report.
Stibite: Antimony ore mineral.
NDPR (Neodymium-Praseodymium): Rare earth elements used in magnets.
Xworks China NDPR Index: Chinese rare earth price reporting agency.
Coltan: Ore containing niobium and tantalum.
EIA (Environmental Impact Assessment): Project environmental consequence study.
Joint Venture (JV): Business arrangement pooling resources.
Notice of Default: Formal notification of contract breach.
Hydrometallurgy: Metal extraction using aqueous solutions.
Smelting: Applying heat to ore to extract metal.
Refining: Further metal purification.
10K Filing: Annual report to the US SEC.
WoW: Week over Week.
Guilt: UK equivalent of a bond.
Boond: Misspelling of bond.

Conclusion

The podcast segments paint a picture of a mining industry navigating a complex landscape of geopolitical risks, supply chain vulnerabilities, and evolving economic conditions. The increasing concentration of critical mineral processing in China necessitates a strategic response from Western nations, including diversifying supply sources, investing in domestic processing capacity, and fostering innovation in metallurgical technologies. Corporate disputes, like the one between Newmont and Barrick Gold, underscore the challenges inherent in large-scale joint ventures. Ultimately, securing a resilient and sustainable future for the mining industry requires proactive investment, strategic partnerships, and a commitment to technological advancement.