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Saudi Arabia’s Huge Bet; Carbon Taxes Flexing Muscles

Understanding some recent and significant developments in the commodities and Net Zero worlds.
carbon tax

Co-Chair & CIO of Carbon Royalty Corp

New York Times Best Selling Author. ‘The Rise of America’ hit #1 on the Wall Street Journal & #1 on Amazon.
New York Times Best Selling Author. ‘The Rise of America’ hit #1 on the Wall Street Journal & #1 on Amazon.

This week we need to get you up to date…

Because significant news is hitting the wires in the commodities and Net Zero world.

In a bold move to diversify its economy beyond oil, Saudi Arabia has entered the global mining arena with a $2.6 billion deal, acquiring a 10% stake in Vale SA’s VALE base metals division.

It’s a joint venture between Saudi Arabia’s sovereign wealth fund and state mining company, Ma’aden, and will close in early 2024, pending regulatory approval.

This was a very smart move for the Saudi sovereign wealth fund.

The agreement allows the kingdom to reach important mining locations, where they extract essential metals that are crucial for the energy transition.

It’s a priority set out by the Kingdom…

Crown Prince Mohammed bin Salman’s Vision 2030 places great emphasis on the energy transition and the mining industry is a cornerstone for the strategic metals required for the future energy transition and economic diversification.

The initial investments will concentrate on minority equity positions in iron ore, copper, nickel, lithium, and other essential minerals.

With Saudi Arabia owning 17% of the world’s petroleum reserves, the country believes it holds over $1 trillion worth of untapped minerals.

By exploring and ramping up production from these deposits, the kingdom seeks to achieve its decarbonization objectives.

Side Note: Just take a look at Saudi Arabia’s Vision 2030 mega-projects — including NEOM NEOM — to get an idea of how big into Net Zero the kingdom will become. KSA is making very large financial investments towards their Net Zero plans.

The $2.6 billion stake in Brazil’s largest miner provides Saudi Arabia interests in copper, nickel, and other critical minerals.

A Smart Move into Critical Metals

Vale’s ambitions align with the growing demand for electric vehicles, as they plan to expand copper and nickel mining.

The mining giant, with a market cap of $67 billion, intends to invest up to $30 billion in new projects across Canada and Indonesia.

The infusion of Saudi funds has boosted Vale’s base metals division’s implied value to $26 billion, as stated by the miner’s chief executive.

Vale positions itself to cater to the surging demand for green metals crucial for the global energy transition.

Building a Lithium Powerhouse…

Lithium takes center stage in Saudi Arabia’s strategy, with plans to establish battery processing facilities as part of a comprehensive battery supply chain initiative.

Last year, Ma’aden expressed intentions to invest significantly in exploring battery metals over the next two decades.

The country wants to develop a $2 billion EV battery metals plant in partnership with EV Metals Group . And EVM Arabia will establish a $905 million battery chemicals complex in Saudi Arabia later this year.

Additionally, the kingdom has pledged to procure over 100,000 EVs over the next decade.

Leading automakers like Tesla TSLA and Mercedes-Benz MBGAF are making significant investments to secure high-quality lithium to scale up their full EV battery production.

As the world witnesses a growing thirst for EVs, lithium companies are ramping up efforts to supply this critical metal.

Companies like American Lithium Corporation are stepping up to provide a safe and stable lithium supply with their vast lithium deposits.

Saudi Arabia’s aspiration to become a global leader in minerals and metals sets the stage for billions of dollars of investment in the sector, driving the transition to a global clean energy system.

But wait, there’s more…

Major News No. 2: Carbon Taxes Flex Their Muscle

In the world’s developed and secure nations, the silent tremors of carbon taxes are starting to assert their influence.

Back in 2021, I penned an article in my premium research service – Katusa’s Resource Opportunities, delving into the potential repercussions of carbon taxes on company emissions.

Some may have dismissed the idea, but with countries like Canada, Australia, and Europe adopting aggressive stances on this issue, it made sense to investigate before the crowd.

As recent headlines highlight, Rio Tinto RIO faced an $800 million impairment on two aluminia refineries in Australia due to the impact of carbon taxes.

An impairment charge occurs when projected cash flows from an asset fall significantly below its current book value on the balance sheet.

Rio Tinto, not fully considering the implications of carbon taxes, had to reevaluate long-term cash flow projections, leading to an $800 million decrease in asset value.

This challenge won’t be limited to Rio Tinto alone.

For any heavy emitter, it could become a pressing problem.

As governments enact carbon tax policies into law, companies must incorporate them into their cash flow projections.

Just as the concept of “peak oil” caused the recognition of “stranded assets,” companies in the heavy emitters sectors may face a similar fate.

Operations reliant on coal-derived electricity could find themselves at a significant disadvantage, and industries emitting substantial methane quantities might encounter hefty penalties.

The rumble of carbon taxes is no longer distant thunder…

It is starting to shake the foundations of even the most developed nations, and companies need to prepare for the unfolding storm.

It’s one of the sectors that Katusa Research is most excited about in the coming years.

The Fed model compares the return profile of stocks and US government bonds.