04/12/2019 - 10:16

Critical minerals capital yet to pay out

04/12/2019 - 10:16

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At least $1.6 billion of equity has been raised by WA-linked critical minerals hopefuls in the past five years, but achieving consistent returns is another battle.

In the Pilbara, Altura Mining and Pilbara Minerals started operations at their neighbouring projects, both named Pilgangoora, last year.

At least $1.6 billion of equity has been raised by WA-linked critical minerals hopefuls in the past five years, but achieving consistent returns is another battle.

Two big themes have inspired Western Australia’s mining community in the past decade – Chinese iron ore demand, and in the second half of the period, battery metals and critical minerals.

Taking deposits into production can be tough, however, and even those that make it into the operations phase face technical challenges and the movements of commodities markets.

Recent issues in the lithium sector have served to highlight these difficulties, with one major WA refining project delayed indefinitely and two others scaled back due to lower than planned demand.

Business News reviewed its BNiQ Search Engine data on more than 40 WA-linked listed businesses in lithium, cobalt or graphite.

Between them, they have raised at least $1.6 billion in equity or convertible notes in the past five years.

But the payback has been slow.

Among those that have traded on the ASX for at least five years, the five-year total shareholder return, which accounts for dividends and buybacks in addition to price moves, averaged 4 per cent.

That compares with 55 per cent over five years on the ASX200 net total return index.

Performance has been highly variable, too.

Some businesses were acquired, such as Kidman Resources, which was bought by Wesfarmers in a $776 million deal earlier this year.

Others, such as Triton Minerals and Alita Resources, went into administration.

Lithium

Most of the money invested went into lithium.

Nearly $1.2 billion was secured by 23 listed lithium companies, led by Pilbara Minerals, which raised $476 million in the period, according to BNiQ.

Graphite hopefuls picked up $296.5 million, and cobalt players $171.5 million.

A number of lithium mining operations got under way in the five-year period.

Neometals started shipping concentrate from Mt Marion, near Kalgoorlie, in February 2017, months after Galaxy Resources entered production at the Mt Cattlin mine near Ravensthorpe.

In the Pilbara, Altura Mining and Pilbara Minerals started operations at their neighbouring projects, both named Pilgangoora, last year.

Mineral Resources, which as a diversified business was not included in the performance data analysed, began direct shipping ore from Wodgina in April 2017.

Alita Resources, then known as Tawana Resources, started pumping out spodumene from Bald Hill in the eastern goldfields in March 2018.

But for every success, there have been some setbacks.

Alita entered administration in August, after challenging market conditions led to a big build-up of inventory at its mine.

Pilbara Minerals reduced output from 420,000 tonnes in the December quarter last year to be 203,000t in the September quarter this year, with 40 redundancies recently announced.

Altura chief executive James Brown. Photo: Gabriel Oliveira

Altura faced difficulty ramping up its production at the start of the year, although is now producing close to nameplate capacity.

MinRes built three spodumene concentrator trains at Wodgina and put them into care and maintenance in recent weeks, while dropping plans for a potential refinery with joint venture partner Albemarle Corporation.

Speaking after the company’s November annual general meeting, MinRes chief executive Chris Ellison said it was sad the plant had been turned off, with about 180 of the 270 employees redeployed.

“We need to see more demand,” Mr Ellison said.

“The pricing is down; the demand is even softer than the pricing reflects.

‘Downstream plants have not come online the way they were expected in terms of the time, generally (they’re) about a year late.

“The other problem is the subsidies coming off the (electric) cars.

“Demand is starting to come back again, (but) we need to see more consistent demand.”

Prices for most lithium products are about 30 per cent lower than a year ago.

Mr Ellison said it would be at least a year before the three concentrators might be turned back on.

Across those lithium businesses with five-year TSR data available, the average return was 7.9 per cent.

Development

Among the eight graphite juniors with available data, five-year TSR was 2 per cent, while six cobalt hopefuls returned 0.3 per cent.

Nzuri Copper is working on feasibility for a cobalt project in the Congo, Australian Mines is focused on feasibility of a Queensland project, while Barra Resources and Conico Resources are working on pre-feasibility for the Mt Thirsty project near Kalgoorlie.

European Cobalt has shifted its focus to gold, while New World Cobalt and Galileo Mining are in exploration mode.

In graphite, Triton Minerals entered administration in 2016 and was restructured.

The company said its Ancuabe project has been approved by the board and processing is scheduled to kick off next year.

Battery Minerals has been working on feasibility of the Montepuez project in Mozambique, and Talga Resources is targeting an investment decision on its Vittangi project in March 2020.

Both had previously hoped to finish construction by 2018.

Recent commentary from Battery Minerals gives an idea of the long-term optimism many in the sector have.

“Graphite demand from large-scale battery and graphite anode plants is expected to drive a seven-fold increase in graphite demand from 352,000 tonnes in 2018 to 2,432,000 tonnes per annum by 2028,” the company said.

Jeffrey Wilson. Photo: Gabriel Oliveira

Perth USAsia Centre research director Jeffrey Wilson said critical minerals projects were more difficult than other commodities.

“Very few people, because of the politicisation of some of these industries, could tell you what the price is going to be even in a month’s time,” Dr Wilson said.

The price volatility was particularly prominent for some commodities which were mostly dominated by one major country as a producer, such as cobalt.

“When you get big lag gaps between supply and demand shocks, price does not allow you to reconcile those if there’s just two or three companies in one market,” he said.

“It’s hard to invest in the industry.

“You’ve got technological risk, political risk, commercial risk on price cycle, it’s a lot worse than any other resource industry is going to see.

“It is all those things that any mining company has to deal with magnified by 10.”

A recent move by the federal government to offer financial backing for critical minerals projects through Export Finance Australia and the Northern Australian Infrastructure Fund would be a boost, Dr Wilson said.

“It was a recognition that all of these industries face risk … that’s just too hot for investors,” he said.

“Because a lot of the risk in this industry is political and regulatory, it could be particularly significant.

“It helps, in perception, to de-risk the investment.

“That could be a potential game changer for companies trying to get projects up in this space.

“Apart from lithium … none of these (WA) projects have been able to stand up, get to final investment decision, they can’t get the capital.”

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