Resource Diplomacy Helps Guarantee Mineral Supply in JapanMon, 10/22/2018 - 17:27
Minerals are a finite resource and as high-grade projects get harder to find and the exploration pipeline shrinks, governments around the world are starting to prepare themselves for the possibility of a resource scarcity in the near future. The Japanese government established Japan Oil, Gas and Metals National Corporation (JOGMEC) to make sure it has a constant supply of natural resources through a wide range of activities. “In the global resources market, the extent and rapidity of change in the global resources and energy sector has been further exacerbated by uncertainties associated with geopolitical risks and the rising tide of resource nationalism,” says Hideki Morimoto, General Manager of JOGMEC Mexico. “This underlines the ongoing need for a comprehensive and multi-faceted resources and energy strategy.”
Considering its dependency on resources imports, Japan is responding to the changing circumstances surrounding resources and energy by strengthening its ties to resource-rich countries like Mexico. As noted in JOGMEC’s 2017 annual report, Japan consumes considerably more oil, natural gas and mineral resources than can be domestically produced. Moreover, the global competition for resources is fierce. According to provisional figures from the International Lead & Zinc Study Group, there was a global refined zinc deficit of 485 billion tons in the first 11 months of 2017, a 135 percent increase on the 206-billion-ton deficit in January-November 2016.
For this reason, JOGMEC provides support to Japanese companies that are involved in exploration and development projects by providing equity capital and liability guarantees. “In Mexico, Japanese companies participate in silver, zinc and lithium projects in states such as Chihuahua and Sonora,” says Morimoto. “We also strengthen relationships with resource-producing countries in the field of mine pollution control. JOGMEC can provide a variety of technical support such as holding seminars on mine pollution control and hosting trainees in Japan.”
Despite JOGMEC’s eagerness to carry out joint mineral production, Morimoto says it can be challenging to work with mining companies in Mexico. “Many concessions are too small for us to support, while major Mexican companies have almost everything they need from capital, to technical expertise and the right personnel,” he says. “This makes it hard to identify areas of opportunity in which we can participate.” Furthermore, Japanese companies are struggling to keep up with costs related to security and theft issues.
Although its participation in Mexico is not as smoothly as desired, JOGMEC provided new financial assistance valued at more than 15 billion yen in its 2016 fiscal year budget to support four exploration projects around the world, including the Sunshine Silver-DOWA Los Gatos project in Chihuahua and the Palmer Property in the Alaskan panhandle belonging to Constantine Metal Resources. Both projects are expected to produce zinc.
Combined with the capital and expertise it offers to promote exploration, recycling and the development of alternative raw materials, Japan is protecting itself against the instable supply of rare metals by stockpiling resources. “Japan is ensuring it has enough resources to last for several years in the case of any type of emergency that could stop the flow of mineral importation,” says Morimoto. In 2017, the country reported a national rare metals stockpiling target of 42 days and a private stockpiling target of 18 days in terms of domestic consumption levels. It is a short-term measure the country deems necessary considering the rising risk of “supply disorder.”
Despite the precautions the government is taking, JOGMEC is sure that business will redesign itself to the reality of the industry as the deficit becomes more real. “Companies will continue to adjust to the necessities of the industry and adapt to the availability of resources,” says Morimoto. But he adds that Mexico holds a privileged position in the Japanese company’s portfolio. “Mexico is a lot more open to international investment than South American countries with mining potential that are more nationalistic. This helps us mitigate risks.”