Is now a good time to invest in space resources?

UNSW Sydney Media Release

The space economy presents new investment opportunities as commercial space resource ventures grow, but investors must assess risks and regulatory challenges.

Most investors build their portfolios through traditional assets such as shares, property and bonds. However, a new investment horizon has emerged that extends beyond Earth’s atmosphere. The space economy represents a potential opportunity for forward-thinking investors willing to explore unconventional markets, but questions remain about how best to participate in this sector.

The space industry continues its rapid expansion, with estimates suggesting it could grow from approximately $US500 billion in 2022 to a multi-trillion dollar industry by 2040. While current growth focuses on communications, Earth observation and navigation, experts forecast significant expansion into cislunar (between the Earth and the moon) space.

“The long-term outlook for commercial space resources is promising, with space resource activity being essential for the commercial development of cislunar space, due to the ‘tyranny of the rocket equation’, where there is an exponential increase in cost as a function of distance from the Earth,” said UNSW Engineering PhD student Ben McKeown, who has led a number of co-authored research papers on the topic.

An increasing number of private sector companies targeting space resources, including Astroforge (a US-based aerospace firm that plans to mine asteroids to extract valuable minerals), Interlune (which has developed novel machinery and processes to detect and extract natural resources from space) and ispace (a Japanese firm that develops robotic spacecraft and technologies to discover, map and use natural lunar resources).

However, Mr McKeown said, the reality was that sustainable commercial space resource activity was still some way off.

“Important considerations for investors in space resource activities include current regulatory uncertainty, the lack of defined markets and the lack of geological resource definition. Over and above these factors, potential investors should consider the credibility and feasibility of a company’s technological capabilities and mission plans,” he said.

Mr McKeown, who is a research student at UNSW’s Australian Centre for Space Engineering Research and also serves as Chairman at Tinka Resources, a Canadian-based exploration and development company, highlighted the importance of evaluating tangible milestones, validating partnerships with entities such as NASA, and successful navigation of regulatory frameworks in helping investors identify opportunities with a higher likelihood of success and mitigate speculative risks.

Potential returns from investing in space resources

Mr McKeown’s most recent research paper, The space resources fund: A solution to the space resources benefit sharing dilemma?, examines various types of funding for commercialising space resources.

Co-authored by UNSW Business School Associate Professor Jeff Coulton and UNSW Engineering academics Professor Andrew Dempster and Professor Serkan Saydam, the paper analysed sovereign wealth funds, development funds, and private equity ventures to determine which characteristics might best serve the dual aims of industry development and benefit sharing.

Published in Space Policy, the research paper explained how a proposed Space Resources Fund would operate with a double bottom line mandate: generating monetary benefits from fund activities for global benefit sharing, while providing investment capital to facilitate the development of industry that supports the fund.

Financial modelling conducted by the researchers showed that if the fund achieved a 10% annual return over 50 years, it could grow to $186 billion from an initial $2 billion investment. At a 12% return, this figure increases to $439 billion over the same period.

This contrasted favourably with the potential income from royalties, which the authors found would generate significantly less value. Even with an 8% royalty rate on a hypothetical lunar ice mining industry growing at 6% annually over 50 years, the total value generated would be a fraction of the investment value created by the space resources fund approach.

Investment timeframes and considerations

A/Prof. Coulton said it was probable that progress in commercial space mining activities would take much longer than in many traditional resource sectors.

“Space mining ventures will operate on decade-long horizons before they would be likely to see significant returns, so investors should research whether a company has a robust plan as well as the organisational capabilities to last,” he said.

“The markets for in-space resource trade aren’t currently developed (we need both the demand for and supply of materials in space), and the technical feasibility tests are in their very early days.”

As such, A/Prof. Coulton said, investors should try to understand the technology, partnerships, and regulatory preparations.

“They’ll also need to investigate how businesses plan to deal with legal uncertainties: regulations around resource ownership and the right to mine celestial bodies are still evolving, so it will be crucial to invest in projects with a clear approach to navigating any shifts in that landscape,” he said.

Another key consideration in any early-stage investing would be the leadership and extent of proven expertise of the team. A/Prof. Coulton said a promising space resource startup should ideally have access to sufficient funding, strong engineering teams, and a track record of successfully managing large-scale, capital-intensive projects.

“The emerging investment opportunities will be very exciting, but investors will need patience and a willingness to embrace the uncertain nature of the projects and their outcomes,” he said.

The risks of space resources investing

While certain risks, such as subsurface or geological risk in the context of space resources may be comparable to those on Earth, Mr McKeown said, investing in space resources would carry unique risks when compared to terrestrial resource investments.

“Technology risks are substantial, given the complexity of operating safely and effectively in space. Regulatory uncertainty also poses challenges, as international space law and property rights on celestial bodies remain in early development,” he said.

Additionally, market risks such as unpredictable demand and pricing structure were significant at this point. Factoring all these risks into account, Mr McKeown asserted that investors should be prepared for the volatility and longer-term horizons associated with these innovative ventures.

A/Prof. Coulton echoed Mr McKeown’s observations and said investing in space resources would be considered riskier than that of many established Earth-based ventures. “This is due largely to the experimental nature of extraction and processing methods and the harsh conditions of outer space,” he said.

With Earth-based mining, A/Prof. Coulton said, there was long-standing proven technology as well as existing legal frameworks that helped mitigate some of the uncertainty. In space, even well-funded and organised missions would face surprises – from launch failures to hardware malfunctions to shifting international regulations – that might rapidly reshape the ownership of off-Earth resources.

Extended operational timelines can also mean waiting years or even decades to realise a commercial return, he added.

A long-term investment outlook

For those considering investment opportunities in the space resources sector, the research suggests a measured approach. Early stages of industry development will likely require significant capital with high-risk profiles, but offer potential for substantial returns.

The fund structure proposed by the UNSW research team could provide a middle path that satisfies both commercial interests and international obligations regarding benefit sharing. Rather than imposing potentially burdensome royalties on nascent space resources fund projects, the fund approach could generate greater long-term value while supporting industry development.

“I think that the long-term outlook for space resource investments is generally very positive, provided you recognise it IS a long-term consideration,” said A/Prof. Coulton. “As reusable rocket technology advances and launch costs fall (which we are currently seeing especially with SpaceX), we’re steadily approaching a point where space-based projects become more economically viable.”

This shift could prompt even more investment and innovation, with early successes boosting both investor confidence and therefore the capital available for further ventures. Government support was also likely to grow, said A/Prof. Coulton, who predicted nations would become more focused on securing strategic resources and maintaining a presence beyond Earth.

Mr McKeown also said the long-term investment outlook for space resources was promising, particularly as humanity expanded its footprint beyond Earth and an economy in cislunar space evolved.

“The space economy is projected to significantly expand in the coming decades, which could drive demand for water and construction materials in space, in addition to helium-3, demand for which could develop on Earth in markets such as quantum computing and fusion energy,” he said.

“Investors who enter this sector early, with a well-informed and patient strategy, may ultimately position themselves to benefit from what could become one of the defining industries of the next century.”

 

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