Mining Sector Faces Asset Scarcity & Processing Bottlenecks as Competition Intensifies

Derek Macpherson (Executive Chair) and Sam Pelaez (President, CEO, and CIO) of Olive Resource Capital address critical developments across mining markets, with particular emphasis on the accelerating competition for tier-one assets and the structural challenges facing critical minerals supply chains. They provide insight into how scarcity of quality assets is reshaping investor behavior and capital flows, while highlighting significant gaps in Western processing capabilities that remain unresolved despite policy initiatives.

Large-Cap Consolidation: The Anglo American Saga Continues

Speculation emerged over the weekend regarding a potential renewed BHP bid for Anglo American, though BHP quickly dismissed these rumors following previous rejection by Anglo. The situation, with a shareholder vote scheduled for December 9th, underscores the limited options available to major miners seeking meaningful growth in critical minerals exposure.

Macpherson notes that assets capable of moving the needle for companies like BHP and Rio Tinto are "few and far between" and typically held by other large companies like Teck, Anglo, or Glencore. This consolidation trend reflects a fundamental challenge: growth-oriented majors face a shrinking universe of acquisition targets that can materially impact their production profiles at scale.

The executives acknowledge that many of these large companies already participate through joint ventures on world-scale Chilean assets, creating additional complexity around potential transactions. Macpherson emphasizes that 

"eventually someone has to build something And it turns out, the biggest companies are best positioned to build something." 

Sovereign Wealth Fund Entry: Qatar Investment Authority and Ivanhoe

A significant development highlighting asset scarcity involves the Qatar Investment Authority signing a memorandum of understanding with Ivanhoe Mines to support growth in the Democratic Republic of Congo. Pelaez describes this as highly relevant, noting that 

“Robert Friedland and Ivanhoe were one of the first to sign deals with the Chinese when they were looking to expand and target exposure to certain tier one assets in Africa. And I think we're seeing a natural transition now where the Middle Eastern sovereign wealth funds now want to have this type of exposure at this time”

The Western Foreland property, encompassing substantial ground west of the Kamoa-Kakula deposit extending toward the Angolan border, provides Ivanhoe with embedded growth optionality adjacent to operating infrastructure including smelting and dedicated power. Pelaez emphasises the importance of scarcity, stating there are "simply not enough investable assets and companies for everyone to get direct exposure" to what he views as an emerging bull market for electrification-related commodities.

Generalist Capital Flows: Snowline Pitched at Sohn Conference

Muddy Waters, typically associated with short selling, pitched Snowline Gold - a C$2 billion market capitalization pre-revenue explorer - at the generalist-focused Sohn Investment Conference, representing what Pelaez calls a significant milestone. The progression from initial generalist interest last year to GDX inflows over the summer to gold explorers being featured at major investment conferences indicates accelerating institutional adoption.

Macpherson notes that generalists have historically avoided pre-revenue developers due to their cash-burn nature, but recent valuations in unprofitable technology companies may have made investors "more willing to dip their toe into unprofitable pre-revenue mining companies". This shift could materially expand the capital available to quality exploration and development stories.

The Yukon-based Valley deposit that Snowline is advancing has attracted attention for both its grade and Canadian jurisdiction. Pelaez specifically highlighted CEO Scott Berdahl's approach of meeting with investors regardless of fund size, viewing comprehensive investor outreach as essential even for a company that has achieved substantial scale.

West Africa: Political Risk Trumps Valuation Opportunity

While Barrick's resolution of disputes with Mali removes a significant overhang for the sector, Pelaez reports that when he asked a director of a large Canadian gold producer about acquiring West African assets at depressed valuations, the response was "unequivocally no". The director expressed strong opposition to incorporating such political risk into operations.

Macpherson observes that risk tolerance for political exposure typically decreases as bull markets progress, though he acknowledges that African companies may experience trading opportunities, noting "our time frame tends to be a little bit longer than that". The risk of asset nationalization, while present across mining jurisdictions, is "much higher in West Africa" according to Pelaez.

The executives note that certain jurisdictions, such as Côte d'Ivoire where Montage Gold operates, present better political environments. However, their general stance remains cautious on the region despite valuation dislocations.

Critical Minerals: Processing Gap More Critical Than Mining

The primary takeaway across the supply chain from base metals to rare earths to lithium and graphite is that "the biggest issue or challenge in the space is processing," with material mined in North America still requiring shipment to China for conversion to battery precursors despite domestic gigafactory capacity.

Regarding rare earths specifically, Macpherson emphasizes that while these elements "aren't that rare" in terms of geological abundance, "what is rare is the ability to process it economically" and complete refining to permanent magnet specifications. The Western world is "more than a decade behind China in processing," with China exporting refined magnets rather than rare earth oxides, and magnet quality being a critical specification for end users.

This processing bottleneck has significant implications for project evaluation. Pelaez argues that rare earth projects must conduct metallurgical testing very early and establish a clear path into the supply chain, beyond just a path to production. Deposit quality matters substantially, with China's primary rare earth mine creating thorium waste challenges that Western jurisdictions have historically avoided.

The processing challenge extends across battery metals. Despite Department of Defense support and price floors for MP Materials, "we still don't have a path" to domestic magnet manufacturing from refined rare earths. Similar constraints exist for lithium, while graphite faces particularly acute challenges following Chinese export restrictions.

Emerging Opportunities

Macpherson  acknowledged revising his skepticism regarding deep sea mining after meeting with The Metals Company, which collects polymetallic nodules from the seafloor rather than traditional mining, creating "very low disturbance" in deep-water environments. With supportive administration policies, he now expects the project to achieve permitting and advance, though further work on economics is required.

Pelaez highlighted Elemental Royalties' post-merger trading as an example of temporary mispricing, with substantial volume and price decline resulting from US listing delays due to government shutdown paperwork issues. Olive Resource Capital increased its Elemental position, viewing the situation as forced selling by US brokerage accounts rather than fundamental deterioration.

Key Takeaways and Investment Implications

The discussion underscores several critical themes for mining investors. Asset scarcity at the tier-one level is driving both major miner consolidation and sovereign wealth fund direct investment, creating competition that should support valuations for quality assets. The entry of generalist capital into gold explorers represents a significant shift in market structure, potentially expanding liquidity and valuations across the sector.

However, political risk considerations remain paramount, with even depressed valuations insufficient to overcome concerns about West African jurisdictions for many institutional investors. The processing gap between Western capabilities and Chinese dominance across critical minerals represents perhaps the most significant structural challenge to supply chain security, more acute than mining capacity itself. This gap creates both risks for projects lacking clear processing pathways and opportunities for companies that can economically solve processing bottlenecks.

The evolution of battery demand toward grid storage applications using LFP chemistry, driven by data center and renewable energy infrastructure needs, suggests a different commodity exposure profile than pure EV growth would imply. Investors should consider this shift when evaluating battery metal developers and producers, particularly regarding nickel and cobalt exposure versus lithium and phosphate.

Finally, market dislocations created by technical factors, such as listing transitions and forced selling - continue to present opportunities for investors with deep knowledge of their portfolio holdings who can distinguish temporary pricing anomalies from fundamental deterioration. In an environment where doing thorough fundamental work and maintaining conviction becomes increasingly valuable, understanding both when to invest and what to own remains essential for capturing returns across the mining cycle.

TL;DR

Scarcity of tier-one mining assets is intensifying competition among major miners, sovereign wealth funds, and now generalist investors entering the gold space through names like Snowline. The Western world's decade-plus processing gap behind China for critical minerals represents a more significant supply chain bottleneck than mining capacity, while battery demand is shifting toward grid storage (LFP chemistry) over EVs. West African political risk remains elevated despite valuation dislocations, with institutional investors unwilling to accept nationalisation exposure even in a strengthening bull market.

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