ERG to 'explore where geology takes it' as critical minerals demand rises: CEO

Eurasian Resources Group plans to "explore where the geology takes it" to build up a portfolio of minerals needed for the energy transition, but is also aware of a rise in resource nationalism in certain jurisdictions, CEO Benedikt Sobotka said in an interview.

ERG has been reorganizing its portfolio and growth plans towards energy transition materials since 2016.

"We strongly believe that for the world to achieve its ambitious net-zero goals, we must explore where the geology takes us, rather than where it is convenient," Sobotka said in the email interview. "Therefore, we are following a mineral system approach in selecting which countries to explore. We are particularly excited about opportunities in the Arabian and Nubian Shield, West Africa and South-East Asia."

To this end, the group plans to invest no less than $1.8 billion over the next five years to double its copper and cobalt production in Africa, to help meet the demand for metals for the forecast increase in electric vehicle production.

However, precise details of new projects have not yet been released.

ERG, a diversified miner, already has several mineral projects in African countries, as well as producing ferroalloys and aluminum in Kazakhstan and iron ore in Brazil. It currently produces copper and cobalt -- including from reprocessed tailings -- in the Democratic Republic of Congo, copper and cobalt in Zambia, platinum in Zimbabwe, coal in Mozambique and bauxite in Mali.

Recent research shows that critical battery metals cobalt, copper and nickel will become increasingly vital for the energy transition, Sobotka noted.

"According to the International Energy Agency, the sectors contributing to net-zero goals will account for more than 45% of copper demand, 61% of nickel demand and 69% of cobalt demand by 2040," the ERG CEO said. "EVs require around four times the amount of copper than a traditional vehicle, and the automotive industry was the single biggest user of cobalt in 2022."

Resource nationalism

However, higher critical metals demand and prices may be creating heightened resource nationalism, he said.

"Resource nationalism typically arises when prices are surging or are expected to do so, and we are seeing an emerging wave of resource nationalism in 2023, including export bans," Sobotka said.

This is coupled with port and other supply chain disruptions, community protests and other incidents worldwide, he said.

"Africa, as a very resource-rich continent, can and should profit from increasing global demand for beneficiated products," Sobotka said. "Local beneficiation can help countries in emerging regions that are abundant in natural resources move from an extractive or commodity-based economy to a more manufacturing-based one."

"Developing higher-value-added manufacturing industries by leveraging domestically produced minerals and metals helps entice investment."

ERG sees great opportunity in achieving a "just transition," which involves creating a more balanced and fair distribution of value between countries and value chains.

"Regions like the DRC that produce the materials for electronic products and EVs should see increased value from their mineral reserves," the CEO said.

In terms of responsible and fair sourcing of materials, ERG has frameworks in place to ensure that African mining projects, including its own Clean Cobalt and Copper Framework, within which its DRC tailings recycler Metalkol has already received independent assurance from PwC for the second time in 2022, according to information provided by the company.

Furthermore, the Responsible Minerals Initiative confirmed last year that Metalkol conformed to the international Responsible Mineral Assurance Process RMAP Due Diligence Standards for cobalt and copper, it said.

Shift to deficit seen in cobalt market

Resource nationalism pressures are therefore expected to rise this year as prices for critical minerals are seen rising.

"Despite strong supply growth last year, cobalt mine production is facing significant downside risks in 2023," Sobotka said. "The cobalt market is likely to shift from a moderate surplus in the second half of 2022 to a deficit market in 2023, owing to increased cobalt demand from the EV, portable electronics and aerospace sectors, and to potential buying by China's State Reserve Bureau as well as significant supply obstacles."

In copper, consumption picked up markedly in H2 2022, and ERG expects it to be supported in 2023 by coronavirus pandemic restrictions easing in China and the rollout of a vast economic stimulus.

"Copper demand will continue to outperform the broader macroeconomic slowdown, driven by rapid demand growth from the green energy sector," Sobotka said.

The London Metal Exchange Grade A 3-months copper price closed March 29 at $9,044/mt, up $96.50/mt day on day, having recovered from a recent low of $8,520/mt March 17.

Saudi Arabia's minerals

However, it's not only Africa that is now in ERG's sights.

"ERG recognises that to produce the high-grade battery materials needed for the green transition, we must move beyond traditional established jurisdictions," Sobotka said. "We have exciting plans in this regard, including for development and exploration in Saudi Arabia."

Saudi Arabia is viewed as a mineral-rich country with huge geographical potential, and its Vision 2030 road map, designed to reduce dependence on oil and petrochemicals by making mining a third pillar of the economy, is helping it become a global mining hub, according to Sobotka.

"We have opened an office and established a team in the region, and have recently been granted exploration licenses," he said. "The exploration will use innovative technologies recently developed by ERG to search for copper, nickel, zinc and rare earths."