COMMODITY CAPERS: As Diggers & Dealers is a Western Australia-based event there is little wonder it focuses on that state’s industry and how it is ticking along.
The recent GST turnaround by the Federal Government was a long-awaited ‘dip of the lid’ to the WA mining sector, which has been a strong contributor to the state’s – and nation’s – high standard of living.
With its coffers now fuller than they were, hopefully the WA government can start to shift its gaze from the low hanging fruit of industry-focused royalties and look to contribute to greater infrastructure.
By doing so it may very well allow the industry to continue this contribution by taking a lead in the beneficiation of commodities vital to the surging global electronics industry.
“Investment in Australia’s mining industry eased in the March quarter 2018 and is expected to be little changed through the remainder of the year.”
Unfortunately, The Roadhouse cannot claim such a knowledgeable sobering statement, in fact it was expressed by the Office of the Chief Economist (OCE) in its recent June 2018 Resources and Energy Quarterly.
The bean counters went on to declare that,” mining investment is expected to have declined by around five to ten per cent in 2017–18, to around $35 billion.”
A figure it put down to the years of sharp declines from 2012–13 when investment reached $95 billion until the good times ended abruptly, putting an end to the much lauded ‘mining boom’.
These figures, the OCE said, followed its expectations, adding that its crystal ball was telling it that we can look forward to a small downturn in mining investment in the short-term leading to capex in the sector levelling out thanks to an anticipated jump in projects both under way and consideration, to construct a sturdy base for future mining investment beyond 2017–18.
The OCE predicted the value of Australia’s gold exports could reach a peak of $20 billion in 2019–20, propelled by increased production and export volumes (356 tonnes), however it did suggest a rising US dollar will limit the upside for the price of gold.
This follows a healthy year (FY 2016-2017) for the yellow metal, during which Western Australia’s gold sales broke through the 200-tonne barrier to reach 205 tonnes (6.6 million ounces), the highest level since 1999–2000.
A four per cent increase in year-on-year sales across the industry combined with strength in the Australian dollar gold price for a seven per cent increase in the value of the gold sector from $10.1 billion in 2015–16 to $10.8 billion in 2016–17.
The second half of 2018 and the subsequent two years, according to the OCE, will be gold’s time to shine as political uncertainty drives investment in bars and bullion-backed investment funds.
“Trade tensions between the US and China are expected to continue through to 2019, and possibly 2020,” the OCE said.
“Geopolitical tensions in the Middle East — linked to the Gaza conflict, Syria’s civil war and the possible failure of the Joint Comprehensive Plan of Action (JCPA) relating to Iran’s nuclear materials program — are yet another source of upside for gold.
“Any sustained overheating in the US economy would likely see inflation rise and gold demand rise, as investors seek an inflation hedge.
“Rising inflation would likely also push US Treasury bond prices down.
“Gold is likely to benefit in the short run, with the price likely to increase by around eight per cent in 2018, to average US$1,352 an ounce.”
Not all roads – or mines for that matter – are paved with gold, and other metals are currently enjoying the renewed interest being shown to the sector.
Although lacking the same renown as it shinier cousin, lead is gaining some notoriety thanks to the growing interest in electronica.
The largest current use for lead is in batteries for vehicles.
This application accounts for around 80 per cent of modern lead usage with lead-boffins predicting this figure to rise with an increased role for lead in large storage batteries used for load-levelling of electrical power and in electric vehicles.
The growing popularity of electric bikes, particularly in China, has led to an increase in demand for lead to make batteries for e-bikes.
The Western Australia Department of Mines, Industry Regulation and Safety (DMIRS), in its Statistics Digest for 2016-2017, acknowledged nickel as one of the more volatile commodities over the period.
“Prices were comparatively positive at the start of the financial year following strong stainless steel production in China and demand growth for nickel in batteries for electric vehicles, which pushed the monthly average to an 18-month high of US$11,142 per tonne in November 2016,” the Department said.
“However, the nickel sector was again affected by global events.”
These events were the January 2017 relaxation by the Indonesian government on its nickel ore ban, indicating a possible increase in exports, causing global nickel prices to drop more than nine per cent between December 2016 and January 2017 from US$11,013 per tonne to US$9984 per tonne.
The Filipino government flipped its hard-line stance, announcing it was unlikely to enforce the closure of nickel mines in response to environmental concerns.
The OCE expects the nickel price to rise above US$13,400 a tonne in 2018.
“Nickel prices faced significant upward pressure in the June quarter, rising from just over US$13,000 a tonne at the start of April to US$13,600 a tonne by the end, and then to over US$15,450 a tonne in early June,” the OCE said.
“Prices have been supported by the emergence of a significant supply deficit driven by higher stainless steel production.”
A rise in nickel supply is expected to continue with mine output projected to rise from 2.3 million tonnes in 2018 to 2.5 million tonnes in 2019 and 2.6 million tonnes in 2020.
Around $46 million was spent on exploration for nickel and cobalt, its long-overlooked companion and now market sweetheart, during the March 2018 quarter.
When lined up against the $48.6 million spent in the December quarter, it doesn’t look as though much is happening, however it is more than double the spending at the same time of the previous year.
Price growth will always lead to interest and nickel, like cobalt, is no orphan in this regard.
The bulk of growth in exploration spending across Australia is occurring among the large untapped deposits of Western Australia.
“Australia’s nickel production is expected to rapidly recover from a period of significant mine and facility closures in 2016 and 2017,” the OCE said.
“Mine production is expected to rise from an estimated 163,000 tonnes in 2017–18 to 168,000 tonnes in 2018–19 and 178,000 tonnes in 2019–20.”
Nickel miners producing cobalt as a by-product are taking advantage of strong prices with the cobalt price hitting a high of US$70,000 per tonne in July.
Although Australia has significant cobalt reserves, there are no dedicated cobalt mines in operation, however, since the demand created by the electronics industry has heightened interest, there are several companies looking to change this.
Currently most cobalt is mined as a by-product of copper, gold or nickel, and about 40 of Australia’s gold and nickel operations are co-located with some form of cobalt deposit producing varying quantities of cobalt as a secondary commodity.
“Most deposits are in Western Australia, though there are small producers in Queensland, New South Wales and South Australia,” DMIRS said.
“Australia accounted for four per cent of global cobalt production in 2011.
“In the March quarter 2017, nickel and cobalt exploration expenditure increased by 187 per cent year-on-year to $20 million – the highest quarterly expenditure on nickel and cobalt exploration in more than two years.”
The Western Australia mineral sands industry is concentrated on titanium minerals such as ilmenite, which can be sold directly or upgraded to synthetic rutile.
These minerals represented more than half of the industry’s value for 2016–17 with the remainder from zircon, garnet and staurolite.
Western Australian mineral sands exports exceeded reported production in 2016–17, with $794 million in exports.
Mineral sands differ to many of the commodities produced in Western Australia, in that they are exported to a wider range of countries.
Around 35 countries benefited from WA’s minerals sands abundance throughout 2016–17 with, surprise, surprise, China running out as the state’s largest export market, taking just on 25 per cent of exports.
Other major destinations included the United Kingdom (12 per cent), Saudi Arabia (11 per cent) and the United States (11 per cent).
“Emergence of the battery market Global battery markets entered a period of extremely rapid growth in recent years, and the implications for Western Australia are potentially significant,” DIRS said.
“This is partly due to the potential of battery technology itself, and its capability to revolutionise clean energy, vehicles, and consumer products.”
The WA lithium sector exercised its vocal chords earlier this year with backing from the Association of Mining and Exploration Companies (AMEC).
The lobby group produced a report encouraging State and Federal government participation in development of the Western Australia lithium industry.
AMEC hopes its proactive stance on the issue will inspire State and Federal governments of all persuasions to do the same, rather than be reactive, while the global demand for lithium as a vital element of the global electric vehicle revolution is in a relatively embryonic stage.
In its Future Smart Strategies Report, AMEC declared WA could become a leader in the downstream processing of battery minerals, which it believes could be worth $2 trillion by 2025.
It’s a fair point, considering WA already mines 60 per cent of the world’s lithium and produces all the other minerals necessary to construct batteries, which stands out as a genuine industry opportunity for Australia, and for Western Australia.
In its follow up report, The Path Forward: Supporting the development of a lithium and battery mineral industry in Australia; AMEC outlined the next steps it believes the State and Federal Government should be taking to make the most of this battery mineral processing and manufacturing potential.
“There is a two-year window for industry and both tiers of Government to act, this plan steps through what needs to be done to get further down the value chain,” AMEC chief executive officer Warren Pearce said.
“There is a clear need for both tiers of Government to provide leadership in the development of a domestic battery industry.
“A clear signal from Government has to be sent to attract investment to Australia.
“There must be a willingness to clearly plan and coordinate where a battery industry would be located, and deliberate efforts made to entice international companies to come and set up in Australia.”
Of course, this is just the tip of the commodity iceberg that is Western Australia.
Throw in other traditional commodities the state produces such as iron ore, zinc, and copper and the tale of wealth and potential offered to economic growth within and without the rabbit-proof fence seems endless.