Get set for the commodities of the future

Image: Pilbara Minerals.

The commodities of the future almost always point to the ingredients needed to manufacture batteries.

Leading Australian exports like iron ore, gold, and even coal, have been established in the future of the mining industry for many years.

Iron ore and gold, in particularly, are also well placed to remain on the right side of the demand curve.

It is, instead, a number of so-called tech metals that have emerged in recent years to raise the excitement of Australian mining companies that operate both at home and abroad.

As Deloitte’s 2018 Tracking the Trends report states, “As economies mature and technological advancement progresses, mining companies are seeking greater exposure to later-stage commodities such as tech metals and boutique minerals.”

In case you haven’t noticed, the battery phenomenon has certainly engulfed the Australian mining industry.

Look at Western Australia: home to the Greenbushes operation, the world’s largest lithium mine and the only operation in Australia up until 2010.

Western Australia now hosts seven lithium mines after rapid development in the past two years to capture the demand for this commodity.

Now that Australia has developed these mines what’s next for the lithium sector?

Deloitte adds, “In anticipation of the exponential growth of electric vehicles (EVs) and energy storage systems, the global battery supply chain is mobilising.”

Australian may have moved in lithium from an upstream perspective but it is still considering its position to capitalise on opportunities further down the supply chain.

“There is an opportunity for Australia to get together and say we need to explore more and we need our ‘Lithium Valley’ to happen.  What are the policies and procedures needed through regulation to move this forward?” Deloitte national mining leader Ian Sanders tells Australian Mining.

“The other piece of this is can industry bodies, government and mining companies get themselves together to look at the vertical integration of the supply chain of an electric vehicle.  What can they do as a collective to capture that and harness it rather than having individual companies focusing on individual aspects?

“That is going to take some real nous and investment to achieve something that could revolutionise the way other countries look at what could be done to capture the overall supply chain within a particular country.”

Sanders believes Australia’s high cost environment shapes as the key obstacle that could stop it from capitalising on the battery sector supply chain.

“Without thinking about cost you would say yes, absolutely, it can be done,” he says.

“We have got a good track record and history around smelter operations and production. Then we can leverage previous and current experience across the automotive and manufacturing sectors and get into that extended supply chain.

“But we have to do it by being technologically savvy because of the high cost of labour. Technology is going to have to play a really important part.

“Whether or not that is through full automation, or significant automation with some manual labour, it is absolutely important it is tech advanced.”

Nickel West is expanding. Image: BHP.

 

Lithium has emerged as the tech metal front runner, but Sanders also points to the headway made by Australian companies in other commodities of the future.

He speaks of graphite, cobalt and vanadium, which also have a role to play in the battery revolution or the growth of electric vehicles.

Sanders sees these commodities following a similar path to lithium, albeit a few years behind and possibly moving at a different pace.

“The increase in rate of consumption of lithium in comparison to graphite, it is much more prevalent. I think we will be looking at these increases in graphite in three to five years’ time,” Sanders says.

The battery revolution is also adding diversity for minerals that have been widely mined in Australia for decades or more, such as copper and nickel.

BHP has backed the future of both copper and nickel with notable investment in these areas of the company’s business.

The company invested $132 million to take an 11 per cent stake in Ecuador-focused SolGold this year, giving it exposure to the Cascabel porphyry copper-gold project.

BHP has openly ramped up its copper aspirations for at least a year, saying it hoped to add more resources to its portfolio to support expected growth in demand.

It is buoyant about the future of copper for two reasons: electric vehicles and renewable energy.

“Copper is getting a lot of attention as one of the new or emerging Tier 1 assets that can be acquired by the majors,” Sander says.

“We have seen this with BHP taking small stakes in a South American copper asset. I think we will see more of that, which will keep the market buoyed.”

BHP has also restructured the focus of the Nickel West business over the past two years after most analysts expected it to divest the unit.

The miner now has a plan to be a globally significant supplier of nickel sulphide to the battery sector from these assets through to at least 2040.  It also committed to the development of a $55 million nickel refinery at Kwinana in 2017.

“Some of the investment BHP has made in Nickel West is exciting and you only have to look at the forecasts that Glencore has for the demand for nickel in electric vehicles; it is going to rise astronomically over the next 10 years,” Sanders says.

These developments reinforce once more that the commodities of the future are predominantly centred around the battery.

Deloitte’s leading strategies:

Keep an eye on disruptors
Disruption can be either a threat or opportunity, depending on how it is managed. For mining companies, turning disruption into opportunity requires the cultivation of a long–term view capable of assessing how emerging market trends may affect the demand for specific commodities.

Look for vertical integration opportunities
As competition for the commodities of the future heats up among industry players corporate end users may try to secure their own sources of supply. Mining companies should keep abreast of these emerging opportunities to potentially partner with corporate end users to secure development funds or direct–to–customer supply contracts.

Explore scenario design
One emerging forecasting approach combines human intuition with AI to enhance organisational ability to develop future–oriented strategies. By evaluating external risks and their implications, organisations gain the ability to turn risks into opportunities.

Go in prepared
Although the commodities of the future potentially represent transformational opportunities, organisations need to differentiate the reality from the hype. This goes beyond conducting due diligence before pursuing acquisitions. It includes assessing the viability of opportunities and capabilities required to capture them, and developing strategic responses to changes.

This article also appears in the December edition of Australian Mining.