16/03/2022 - 15:43

Is this prudent use of taxpayers’ money?

16/03/2022 - 15:43

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ANALYSIS: The $243 million critical minerals package announced today adds to a seemingly neverending flow of federal government grants and cheap loans for commercial projects.

Is this prudent use of taxpayers’ money?
Poseidon Nickel’s Black Swan Project, which has been on care and maintenance since 2009. Image: Poseidon Nickel.

ANALYSIS: The $243 million critical minerals package announced today adds to a seemingly neverending flow of federal government grants and cheap loans for commercial projects.

Today’s round of grants are from the $1.3 billion Modern Manufacturing Initiative.

Then there is the $2 billion Critical Minerals Facility, established last year.

Added to that is the $200 million Critical Minerals Accelerator Initiative.

On top of these programs is the support provided by government agencies such as the Northern Australia Infrastructure Facility, the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.

NAIF alone has approved billions of dollars in lending to private sector projects.

One of the biggest beneficiaries has been BCI Minerals, a company backed by one of Australia’s wealthiest people, Kerry Stokes.

Last year, BCI secured a $490 million loan from NAIF and a $110 million loan from Export Finance Australia, which together went a long way towards funding its $1.2 billion Mardie salt project.

Why does an ASX-listed company with well-heeled shareholders like Mr Stokes need government loans for a commercial venture?

Especially when the NAIF scheme was originally established to support public infrastructure developments.

The grants announced today by prime minister Scott Morrison are very different in nature but also pose questions about the use of taxpayers' money.

The grants have been promised to small-cap companies hoping to build ambitious critical minerals projects.

The big winner from today’s round of grants was privately-owned Brisbane company Pure Battery Technologies, which has received $119 million to help fund a $460 million nickel, manganese, cobalt refinery in Kalgoorlie.

Its partner in the project is Perth-based Poseidon Nickel: a junior nickel explorer that counts Andrew Forrest’s Wyloo Metals as a shareholder.

Without being critical of the proponents, it is clearly a high-risk project.

Pure Battery Technologies was established to commercialise refining technology developed at the University of Queensland a decade ago.

It has successfully applied the technology at a refinery in Germany but now needs to make it work at commercial scale.

Its partner, Poseidon, has been battling for years to restart its Black Swan and Lake Johnston nickel projects, both of which are on care and maintenance.

The other grants announced today have also gone to small-cap companies with ambitious projects.

The immediate winners are the shareholders in these companies.

Australian Vanadium shares were up 40 per cent on the news, while Arafura Resources and Alpha HPA both closed up 15 per cent today.

Poseidon Nickel shares have been in a trading halt today, suggesting the company was caught on the hop by today’s announcement.

Business News is not suggesting there is anything untoward in these companies wanting to secure government grants.

If the money is available, why not chase it?

But what ‘market failure’ is the government addressing?

The government’s critical minerals strategy seeks to answer this question.

“Supply chains for critical minerals are opaque, concentrated and vulnerable to disruption, which creates market risk and price volatility,” it states.

“This makes it difficult for projects to secure offtake agreements and investment. 

“Developing critical minerals projects is also complex and technically challenging.”

However, if every challenging project in a volatile commodity market warranted a government grant or cheap loan, there would be no end to the handouts.

Multi-million-dollar handouts to commercial projects fail the public policy test, no matter what side of politics is in power.

For those who profess support for small government and free markets, the money could be better spent on tax cuts so individuals can decide how their money is used.

Or at least on tax concessions that are equally available to all businesses investing in this country’s future.

For those who see a bigger role for government, there is no shortage of alternative spending priorities such as homelessness, child poverty and indigenous disadvantage, that are more deserving.

But if recent history is any guide, our political leaders will continue to opt for big handouts to business, no matter who is in power.

That means project proponents will continue hiring lobbyists and other advisers to help them secure government backing rather than seeking commercial solutions.

There is already a long list of beneficiaries.

As Business News has previously reported, Lynas Rare Earths, Core Lithium and US chemicals giant Albemarle have already received grants under the Modern Manufacturing Initiative.

Australian Vanadium has been selected for two grants.

The Critical Minerals Facility, which is administered by Export Finance Australia, has supported two projects to date. 

EcoGraf secured a loan of up to $US35 million for its battery anode material facility in Rockingham, while Renascor Resources has secured a loan of up to $185 million for an integrated graphite mine and processing facility in South Australia.

Perth company Iluka Resources is likely to join this duo; it has previously disclosed it was in discussions with Export Finance Australia to secure a loan for its planned rare earths processing facility at Eneabba.

Iluka’s experience is instructive.

It is a substantial mid-cap company with a long track record of processing mineral sands.

It is slowly and methodically developing plans for what will be Australia’s first fully-integrated rare earths processing facility, using a high-quality minerals stockpile to produce separated rare earths oxides.

Its questionable whether Iluka needs a government loan to get this project up and running.

But when it does, we can be confident it will work as planned.

The same cannot be said for all the projects getting government backing.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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