The future of Australia’s mid-tier sector

Chalice Mining’s Julimar project has achieved significant exploration success in 2020.

PricewaterhouseCoopers Australia (PwC) suggests that Australia’s mid-tier mining sector is in a strong position to contribute to the country’s economic recovery. Nickolas Zakharia writes.

The resilience of the Australian mining sector shone through during the tumultuous year that was 2020.

In November last year, the 15th iteration of PwC’s annual Aussie Mine report was published at a time when economic uncertainty caused by the COVID-19 pandemic still lingered.

The Aussie Mine report provides both industry and financial scope into the mid-tier mining sector by analysing Australia’s mid-tier 50 (MT50).

This includes the 50 largest mining companies on the ASX with a market capitalisation of less than $5 billion as of June 30 2020.

According to PwC, the MT50 collectively can be a key aspect to resourcing Australia’s economic recovery, achieving no change to net assets to market capitalisation and a 1 per cent increase compared with 2019.

For instance, PwC discovered that the MT50 outperformed the ASX200 from April to June 2020 – a period marred by the COVID-19 pandemic.

In total, the MT50 employs more than 50,000 people with a combined market capitalisation of $61 billion, according to PwC’s research.

The 2020 report found that 44 per cent of the MT50 were gold miners, as the commodity delivered record prices in the Australian currency.

Gold was again viewed as a ‘safe haven’ investment during the initial economic fallout of COVID-19.

According to PwC, gold and iron prices over the past 12 months have enjoyed higher prices with demand for other commodities also returning.

“The contribution of both iron ore and gold companies has been significant throughout 2020 with both markets enjoying significant increases in demand during the early stages of the pandemic along with prices remaining high into 2021,” PwC national mining leader Debbie Smith tells Australian Mining.

While the Aussie Mine report saw gold and iron ore as the frontrunners of minerals demand, other commodities are picking up the pace, Smith says.

“However, as has been the case with many things in 2020, a lot can change in a few months. Since our report was published in November 2020, many other commodities have experienced significant rallies in demand, including aluminium, copper, coal and nickel, which all feature in the MT50.

“Therefore, we expect that the entire mining sector and not just gold and iron ore producers will have a significant role in pushing the economic recovery in Australia.”

Alumina Limited, whose primary commodity is aluminium, maintained its spot as the highest ranked mid-tier miner on the MT50 list, with a market capitalisation of $4.679 billion at the end of the 2020 financial year. At the time of writing, the company’s market capitalisation had moved above $5 billion. 

Mineral Resources climbed from sixth to second position on the list, gaining a 42 per cent increase to its market capitalisation in FY20 to $3.976 billion. At the time of writing, the company had continued this upward trend, jumping above a $7 billion market capitalisation.

Only four coal miners were listed on the MT50, down from six in 2019 due to a decrease in its hold on the MT50’s market capitalisation.

Coal’s price fell to 2015 levels during the 2020 financial year; however, Australia’s coal miners provided the largest, albeit decreased share of revenue out of the MT50.

“In FY20, coal mining companies continued to be the greatest contributor of revenues and gross profits to the MT50 generating $11.4 billion (9 per cent decrease from 2019) in revenues and $61 billion (18 per cent decrease) in gross profits,” Smith says.

Coal’s turbulent year was worsened by China’s alleged import ban, yet Australian Minister for Resources, Water and Northern Australia Keith Pitt reported that exports have climbed by 26 per cent in December 2020 compared with November.

“Coal was worth $3.7 billion to the Australian economy in December alone as exporters looked to fill gaps in international markets and made the most of the increase in thermal coal prices,” Pitt explains in a media release during January 2021.

“Coal sales to Vietnam and India were stronger, reaffirming the competitiveness of Australian coal and its reputation for high quality in global markets.

“This again reinforces the importance of coal as an Australian export commodity and that it will remain so for many years to come.”

More than a nickel and dime

The Aussie Mine 2020 report also saw a 21 per cent increase in explorers listed on the MT50, with an additional eight that are all new entrants.

In the 2020 financial year, exploration expenditure crept up by 21 per cent for the MT50.

Chalice Mining (formerly Chalice Gold Mines) was a new explorer that entered the MT50 list.

The company increased its market capitalisation by 844 per cent in FY20 compared with the previous year, reaching $302 million. Chalice’s current market capitalisation has soared far beyond this level in the months since, reaching more than $1.6 billion by late January.

In March 2020, Chalice’s nickel-copper-PGE greenfields discovery at the Julimar project in Western Australia reshuffled the company’s main focus from gold to nickel sulphides, driving a 568 per cent increase in its market capitalisation.

Chalice managing director Alex Dorsch says what has been discovered at Julimar so far is only the beginning for the project.

“Yes, the last year has been remarkable for Chalice and I am incredibly proud of the team’s successes, especially considering the unique challenges the world faced in 2020,” Dorsch tells Australian Mining.

“In saying that, I do believe this is just the beginning of our story at Julimar, where we made a major greenfield discovery in 2020.”

Chalice is moving towards securing its maiden resource at the site with further exploration planned this year.

Dorsch says the next exploration discoveries across the country are being driven by demand for new technology minerals.

“I think the new wave of discoveries is upon us, but we are just seeing the beginning,” Dorsch says.

“The increased pressure from policymakers and investors for decarbonisation means demand for these new technology minerals will undoubtedly continue to grow.”

Demand for electric vehicles and energy storage is increasing, Dorsch reinforces.

“Mining must expand dramatically as the fossil fuel industry declines. EVs (electric vehicles), energy storage and other decarbonisation technologies are here to stay, and I think the number of these miners in the MT50 will continue to increase once the demand for these ‘green’ commodities really kicks in,” he says.

With an influx in explorers on the MT50 list, Smith says a greater representation of new technology minerals companies may surface if the forecasts for lithium-spodumene and cobalt prices ring true.

“We have seen the mix of the MT50 evolve over the past decade as relative demand for various commodities fluctuates,” she says.

“With market analysts forecasting higher lithium-spodumene and cobalt prices over the next few years, we may see greater representation of these and other new technology minerals in the MT50 going forward.”

For Dorsch, the trend for explorers to enter the MT50 will continue, with government support critical to capitalise on the benefits of new technology minerals.

“The recent greenfield exploration successes are the key driving force for more explorers entering the MT50, and appetite for greenfield exploration has never been higher, so I think this trend will continue,” he says.

“As we upscale the industry to satisfy the immense demand for technology minerals, government alignment and support will be critical to maximise the financial and social benefits of mining.”

A changing market

Legend Mining is another explorer that has debuted on the MT50.

In 39th place, with a market capitalisation change of 540 per cent between FY19 and FY20, Legend has continued to advance its Mawson discovery at the Rockford project in the Fraser Range, Western Australia.

The company’s nickel-copper sulphide discovery at the Mawson prospect is reminiscent of Sirius Resources’ Nova discovery in 2012.

“What Mawson did for us in the past year is that there were multiple intercepts of massive nickel copper sulphides and that is only the fourth publicly disclosed intercepts of massive nickel-copper sulphide in all of the Fraser zone,” Legend managing director Mark Wilson tells Australian Mining.

“Why that’s important is because of the success of Sirius going back eight years or so where they discovered massive nickel-copper sulphide at the Nova deposit. And that market capitalisation went from $10 million to $1.8 billion in three years.”

Legend is continuing to invest in exploration at Mawson, having spent $8 million out of its $12 million budget at the prospect last year.

“The activity at Mawson (for the remainder of FY21) would be a continuation of RC and diamond drilling, combined with down hole electromagnetic surveys from those holes to give us follow up drill targets from there,” Wilson says.

Wilson believes nickel demand is likely to increase due to the focus on government support packages across the globe.

“There’s an expectation of increased commodity demand because of the stimulus packages being released by governments around the world. That will result in extra demand for nickel,” he says.

“Seventy per cent of the world’s nickel goes into that stainless market. On top of that, you’ve got a predicted exponential use of nickel sulphide in the electric vehicle battery market.

“Anything that’s battery compatible has definitely got enormous tailwinds driving it. My expectation is that at worst it will stay the same because markets often front-run where real demand is and maybe we’ve reached it, but I certainly don’t see any downside.”

This article also appears in the March issue of Australian Mining.

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