Mining companies accept huge profits from the Middle East

Mining operators have welcomed a sharp rise in investor interest from the Middle East, as the Gulf nation expands its ambitions in the vital minerals sector and seeks to partner with established global players.

Critical minerals refer to a subset of materials considered essential for energy transitions. These resources include metals such as copper, lithium, nickel, cobalt and rare earth elements and tend to be at high risk of supply chain disruption.

“The interest in rare earths in this part of the world is phenomenal,” Tony Sage, CEO of Critical Metals, a U.S.-listed rare earth mining company, said during a business trip to the Middle East.

“We didn’t expect that, because they can’t mine. There aren’t really any discoveries in this area, but they want to be involved in some way downstream,” Sage told CNBC by phone.

His comments came as policymakers and business leaders flocked to Saudi Arabia’s Future Investment Initiative (FII) in Riyadh, dubbed the “Davos of the Desert.”

The annual event, which began on Monday, is themed “Keys to Prosperity: Opening New Frontiers of Growth.” This year’s FIIs are expected to lean towards areas such as artificial intelligence, especially as the oil-rich kingdom continues its mission to diversify its economy.

Analysts say Gulf states, led by Saudi Arabia and the UAE, are increasingly seeking to leverage their financial capital and geographic location to capture market share in critical minerals.

A series of targeted acquisitions and international partnerships form a key part of the region’s strategy, with Gulf states seeking to present themselves as alternative partners to the West, according to analysis by the International Institute for Strategic Studies (IISS).

Critical Metals has partnered with Saudi Arabia’s Obeikan Group to build a large-scale lithium hydroxide processing plant in Saudi Arabia.

Kevin Das, senior technology consultant at Australia-based rare earth exploration company New Frontier Minerals, said he linked investor interest in rare earths in the Middle East to the rapid growth in the AI ​​sector.

“It’s not surprising that there’s interest not only in the West but also in the Gulf, because I think people realize that we’re probably at the peak of the AI ​​boom,” Das told CNBC by phone.

“As we start to see the emergence of robotics, all the robots are going to need these rare earths, and I think supplies will become increasingly tight,” he added.

Rare earth elements have emerged as key bargaining chips in the ongoing U.S.-China trade war, but global stocks rose on Monday on investor hopes for a easing of tensions between the world’s two largest economies.

U.S. officials have touted the possibility that China could delay strict rare earth export controls as part of Thursday’s high-stakes summit between President Donald Trump and China’s Xi Jinping.

Rare earths refer to the 17 elements on the periodic table whose atomic structure gives them special magnetic properties. These elements are widely used in the automotive, robotics and defense fields.

Sean Bunn, managing director of London-listed Empire Metals, said his company was also receiving significant investor interest from the Middle East.

“I think this is part of Saudi Arabia’s strategic push to diversify away from oil. So, at least for now, they’re always trying to get the most out of oil, but they’re trying to diversify,” Ban told CNBC by phone.

Analysts, however, point out that there are many obstacles to the Gulf’s push for critical minerals, but that for now regional players remain marginal producers.

“Many of Saudi Arabia’s mining operations are still in the early or conceptual stages, and the country remains dependent on foreign partners for expertise, so it may take years for Saudi Arabia, and by extension Gulf states, to scale up enough to weaken China’s dominance or fully meet Western demand,” IISS research analyst Asna Wajid said in an analysis published in late July.

“Furthermore, many Western countries may be wary of replacing dependence on China with dependence on Gulf states, which already wield considerable strategic influence through oil and gas supplies,” Wajid said.

China is the undisputed leader in the critical mineral supply chain, producing around 70% and processing almost 90% of the world’s rare earth supplies. In other words, these raw materials are imported from other countries and processed.

U.S. officials have previously warned that this advantage poses strategic challenges in the transition to more sustainable energy sources.