Follow the money trail to critical metals

One investing strategy in mining is to watch the insiders. By insiders, I mean the big players in the industry.

That is, the directors of multi-billion-dollar companies, mining magnates and executives from investment banks tied up in the mega-deals that shake the industry.

It seems simple, follow an insider and invest accordingly. But surprisingly few people actually do it.

Why is that? Well, small time investors want instant returns, especially in the mining sector. They’re also quick to pull the sell trigger when stock prices decline.

Meanwhile, week-to-week share price volatility matters little to big time investors. In fact, majors often get market timing wrong (over the medium term).

What matters for the big wigs is positioning for long term growth: the mega trends.

That’s certainly the set-up we have in today’s commodity market.

Limited supply thanks to a lack of investment in new discovery and record low inventories — precisely at a time when the world is looking to embark on a once-in-a-century energy transition.

The investment road map is there, crystal clear for investors to follow. Yet short term volatility keeps them back.

Without knowing when the market will turn, the majors are prepared to ride out today’s volatility to ensure they capture gains from this mega trend.

That’s what insiders are doing.

Take Gina Rinehart, Australia’s richest person.

This billionaire mining magnate heads Hancock Prospecting, a privately owned mineral exploration and extraction company founded by her father, Lang Hancock. Her role in turning this company into the multi-billion-dollar iron ore giant it is today absolutely qualifies Rinehart as a successful business tycoon in her own right.

In other words, Rinehart is an insider worth watching.

In December 2022, she pumped Arafura Rare Earths (ASX: ARU) with $60 million in capital for a 10% stake in the company.

Right now, that looks like a poorly timed deal, as Arafura shares have fallen over 50% since Rinehart took her stake. But I doubt Gina is overly concerned.

Rinehart is positioning for major future upside as rare earths become entangled in trade disputes between China and the West.

As an advanced developer, Arafura is looking to join an exclusive club of rare earth suppliers located outside China. Now, there’s no guarantee China will restrict rare earth trade exports, but my money’s on this multi-billion mining magnate getting this theme right.

Another key investment idea to watch right now is lithium. Rinehart has invested heavily in Australian lithium companies in the second half of 2023. Given the hefty price falls, this insider looks to be capturing the steep discounts on offer.

Earlier this year, she flouted chemical giant Albemarle’s (NYSE: ALB) attempt to acquire Liontown Resources (ASX: LTR) after buying a 20% stake in the Australian developer.

Most recently, we’ve seen a showdown between Rinehart and Chilean giant SQM, as the billionaire again tries to block a bid to take Australia’s Azure Minerals (ASX: AZS).

Investors are absolutely confused… Does Rinehart know something that the rest of us don’t?

You can count on it!

See forest through the trees

The world’s most powerful investors are intimately aware of long-term growth drivers. It’s the key element that separates billionaires from the average punter.

Insiders are privy to the global dealings between suppliers, buyers, and policy makers. This gives them intimate knowledge of the future direction of supply and demand.

They usually have a team of analysts at their disposal and high-level contacts. The rich get richer by using this information, not by luck or an intuitive punt on the stock market.

Andrew Forrest is another insider worth your attention. He amassed a fortune by pivoting to iron ore in the early days of the China-led infrastructure boom. Another example of an iron-ore billionaire shifting into critical metals.

His family-owned business, Wyloo Metals, has steadily acquired projects across the globe as it looks to become a multi-commodity powerhouse tied to the critical metal theme.

Earlier this year, Wyloo completed the acquisition of Australia’s Mincor Resources, a nickel sulphide producer based in Kambalda, Western Australia.

Wyloo also picked up one of the largest undeveloped, high-grade nickel-copper-platinum-palladium deposits in the world. Known as ‘Eagles Nest’ it’s located in northern Ontario, in a region aptly called The Ring of Fire by geologists thanks to its rich endowment of minerals.

But it’s the world’s largest miner, BHP (ASX: BHP), that you should be watching most carefully.

This company delivers more contracts, acquisitions, mining and exploration than any other entity in the world. It’s a major stakeholder at high level meetings between suppliers, policy makers and buyers. Not just in Australia, but in every major mining hub across the globe.

Follow BHP’s multi-billion-dollar money trail, and it’s clear what this mining giant is doing.

Completion of a A$9.4-billion takeover of South Australia’s Oz Minerals earlier this year.

With up to 14 full-time drill rigs spinning day-and-night, the company has thrown an army of support crew to advance its Oak Dam copper development in South Australia.

It’s also dangling US$10 billion worth of investments into new copper projects in Chile.

Watch the insiders and follow their lead. Right now, the biggest bread crumbs lead to critical metals

.James Cooper is a geologist and mining analyst. You can follow him on Twitter (X) @JCooperGeo.