Securing critical metal supplies

As part of its France 2030 investment plan, the French government has committed to helping secure supplies of critical metals necessary for the energy transition – notably, nickel, cobalt, lithium and copper. These highly coveted metals are central to the production of electric vehicle (EV) batteries, wind turbines, photovoltaic panels and electrical networks.

To support this, in 2023, the French government announced plans to launch the European Union's first private critical metals fund. InfraVia was selected to manage the €2 billion fund, which will be supported by French and European manufacturers in the automobile, renewable energy and aeronautics sectors, as well as financial investors. The French state has committed an initial €500 million to the project.

Vincent Levita, CEO of InfraVia, was a guest speaker at Natixis CIB’s Global Outlook 2024 event and answered questions from Bernard Dahdah, senior raw materials and metals analyst. You can find a summary of their discussion below, or access a full replay of the interview (in French).

Critical metals are central to the energy transition and the electrification of our economy. While not necessarily rare or valuable, they are essential and must be extracted from overseas jurisdictions.

Led by an interministerial delegate, the French State has developed a public policy to help French industry secure supply of these metals. The critical metals fund – a private fund managed by InfraVia – is a key aspect of policy. The French state has committed a contribution of 500 million euros.

If we are to succeed in the energy transition, in the next fifteen years, we will need four to five times more metal than we do currently. We are at the start of a super cycle similar to the one we saw during the industrial revolution at the end of the 19th century, which introduces unique investment opportunities. In addition to securing a precious supply of metals for French industry, the fund's main objective is to offer investors the best financial performance linked to this industrial transformation.

An estimated 50 to 60 billion euros in investment is needed to meet the demand for critical metals in the next ten years. Two billion looks like a drop in the ocean when we consider the strategic stakes and opportunities offered by the sector.

The objective is simply to initiate the process. To show that the model works, that it meets strategic objectives while being profitable. It is the catalyst for a much longer-term goal.

Also – and this is fundamental – the fund must demonstrate that it meets the most demanding ESG criteria on the market. The sector has progressed since Germinal! Once the model has been proven at two billion, we will be ready to grow it.

We will be in a position to invest – and, in turn, to start securing supplies – from the start of 2024.

The fund's strategy is relatively broad and covers the 34 critical metals listed by the European Union. We have a particular focus on lithium, nickel and cobalt, which are found in electric car batteries; copper, which is essential for energy transmission; aluminium, which is used in cables; graphite and rare earth metals, which are used in the manufacturing of motors and anodes; manganese, and more.

Sovereignty challenges and investment opportunities exist throughout the chain. The fund will therefore take minority stakes in mines, as well as refining, processing and recycling infrastructure. The centralisation of refining and processing units is strategic; as is the case with recycling, once the metals are on the territory, it’s best to keep hold of them. This, in turn, will lead to the negotiation of long-term supply contracts.

We target good quality, and therefore profitable, assets located in countries where risk levels are acceptable from an investor standpoint and of, course, that have a strong relationship with France. Specifically, this includes Canada and Australia, as well as certain countries in South America, Southeast Asia and Africa.

We pursue a diversified investment strategy, focusing on operating assets with visible financial and strategic results and mines in the pre-construction phase. We will not participate in assets in the exploration phase – there are parties better placed than us to do that. We step in once deposits have been tested and studies have been carried out.

One of the major challenges of this fund is dealing with the cyclicality of the metals sector, and the implications of this volatility for profitability. However, the trend is upward and profitability is certain given the pressure on demand.

To mitigate volatility, we plan to work on long-term hedges. Buyers – such as those in the automobile industry – often request the smoothing out of pricing fluctuations.

We must also remember that this fund has a very long-term investment objective. It is aimed at investors who have time and who are able to deal with a certain level of volatility in exchange for a higher return than other investments with a more stable income.

Industrial players – both upstream and downstream – are very interested in participating in the critical metals fund, not only to sure up supply, but also for development. Financial investors are also very interested.

For institutional investors, the metals sector is new so it may take a little time – even if they understand the financial and long-term challenges. Of course, if they wish to contribute to the energy transition they must invest in metals, as it cannot take place without them.

The French government has opted for a private fund, so governance of the critical metals fund is private. The fund is managed by InfraVia’s teams through an investment committee. The French state is a strategic partner and so sits on the strategic committee, which is consultative.

As discussed, with this fund, the French State is leading the way and testing the model. European countries will be able to join us. We are counting on the support of Europe and our German and Italian partners will likely join us in one way or another.

The EU has introduced the Critical Raw Materials Act (CRMA), which shows that metals are at the top of the European agenda. The financial aspect of the CRMA will be released in 2024, and will offer details on the financial aid that the EU can provide.

The EU is also in the process of resolving a certain number of consistency issues, and is adding the mining sector, which is essential to the energy transition, to its taxonomy.

Natixis Corporate & Investment Banking advised InfraVia on the structure and strategy of the critical metals fund – supporting with the selection of metals, the creation of investment criteria and proposing an investment pipeline.

Natixis CIB leveraged its expertise in value chains to develop new metals and value chains, while its geographical expertise was central to identifying emerging mining geographies – particularly in Europe.

Natixis CIB has in-house ESG experts dedicated to metals and mining. Its holistic approach to the sector and strong integration with InfraVia's teams – with which it shares both values and expertise – helped to maximise Natixis CIB’s chances of success.

We are proud to be supporting InfraVia in this fundamental strategic initiative for the future.