Experts are observing a resurgence in the Australian mining industry – but have we learned from past mistakes? Gallagher National Head of Mining John Koeppler reviews the trends.
Lithium, used in smartphones, laptops, digital cameras and tablets, is available in commercial quantities in Western Australia where recent investment means the number of the state’s mines has grown from one a year ago to seven in June 2018, as reported by ABC News. The Kwinana area is being dubbed ‘Lithium Valley’.
A recent state budget forecast shows royalty income from non-iron ore commodities rising by $160 million to a record $724 million in 2017–18, as reported by the Australian Financial Review, led by a $65 million jump in lithium royalties and rare earth metals such as vanadium, neodymium and praseodymium, which are used in redox flow energy storage batteries.
A report published in January by the Association of Mining and Exploration Companies warned that Australia must act quickly to take advantage of its leading position in the global lithium resources market, or risk missing out on what could be a $2 trillion value supply chain.
It stressed the importance of seizing the opportunity to create downstream market value in order to maximise returns, rather than repeating mistakes that have been made with exporting raw commodities in the past. China is also expected to play a dominant role in lithium ion battery manufacturing. It currently holds a 59% share of global production capacity, and this is forecast to rise to 73% by 2021, according to a report from Bloomberg New Energy Finance.
The production of EVs, with sales projected to grow to 30 million by 2030, will drive demand for lithium, copper, high purity nickel and cobalt used in the manufacture of energy packs.
“Global demand for EVs is expected to grow exponentially in the mid-to-late 2020s,” BNEF’s leading EV analyst for Australia, Ali Asghar, says. “This raises the prospect of a mining boom in the high value metals used to make these cars.
“Australia sits on top of vast reserves of almost all these metals, so there is a huge opportunity for our resources sector.”
“Miners must be careful to maintain discipline and transparency in the allocation of capital,” cautions PricewaterhouseCoopers in the PwC Mine 2018 report, which opens with a warning against mining companies pursuing assets in anticipation of demand over constraining capital expenditure.
“Indications are that this present cycle has several more years to run. Steady global annual GDP growth over the next five years, along with significant infrastructure in emerging economies, is expected to underpin continued demand for mining products,” it notes, warning miners that they need to focus on mining for profit, not for tonnes.
“Mining companies need to be sure of long-term demand and sustainability,” says Koeppler. “Investment has to be in a metal that will remain in demand, such as iron ore, copper or gold. Financial institutions are being very circumspect on what they’re lending money for. The more profitable the mine is, the better the risk will be.”
The PwC report is upbeat. “Revenue of big 40 global miners surged by 23% over the past year but profits are rising at an even faster rate because margins are being effectively enhanced,” it pronounces. Proof of lessons learned?
This upcycle is just beginning; time will tell.