Twigger's Tales (aka Argonaut’s Liam Twigger) tackles the big issues around the green energy and critical minerals revolution and the paltry sum of money committed by the Australian Government when compared to the USA’s big, bold cheque. It is time for Australia to have its own “Oppenheimer moment” to cement its place in the vanguard of the critical minerals charge.
The sun had just started to rise as I hit the road for a morning run.
The air was thick with what I thought at first was the odour you get from freshly-laid animal dung. But I soon realised it was in fact the open sewer beside the road I was jogging on.
It was downtown Lubumbashi in the Democratic Republic of Congo in 2007 and I was there as part of an investor and analyst tour of one of the richest copper mines on the planet. Like many mines in Africa, the potential was spectacular, with copper grades more than double anywhere in the western world. But this was balanced by the ever-present risk of civil unrest and violence, coupled with poor infrastructure and a dysfunctional government.
This was Africa!
I remember walking into the hotel and being handed a can of insect repellant with instructions to spray the room before I went to bed. Given the warp in the bedroom window, which a small animal could fit through, I had to compliment management for the initiative shown in protecting the international guests from malaria-carrying mosquitoes.
Still, as it turned out, mosquitoes were the least of my worries and getting arrested on the way back to the airport when one of the analysts was accused of taking photos of the anti-aircraft batteries, was surely greater cause for concern. Thankfully, he was using one of the first digital cameras and was able to spirit away the evidence with a look-away touch of the delete button as the DRC army general checked our passports.
And just like that we were all saved from a potential Midnight Express experience.
It’s a fact that many of the world’s key supplies of critical minerals, such as copper and cobalt, are located in areas where access is difficult or where there is significant civil unrest. Political risk is on the rise globally and making mining investment decisions in these jurisdictions is challenging to say the least.
But it also highlights the value of a stable and reliable country that offers both world-class mineral deposits and the surety that no-one is going to pull the rug out from under your mining investment.
Australia is blessed with globally-significant deposits of many of the minerals the world is screaming out for right now. Future demand is forecast to be off the scale as the world scrambles to meet the United Nations’ Paris Agreement deadlines.
The Paris Agreement was signed in 2015, with 195 of 197 countries agreeing to do their best to limit average temperature rises during this century to below 2 degrees Celsius and to work to achieve a 50 per cent reduction in carbon emissions by 2030 and 100 per cent by 2050 … ambitious goals by any measure. And fundamental to any reduction in carbon emissions is the transition from fossil fuels to clean energy, of which critical minerals are, exactly that, critical.
To bridge the gap in supply of critical minerals, the United States has led the world with its strangely-named Inflation Reduction Act (IRA) – only the US could be creative enough to label a big spending bill an “inflation reduction” act. It has committed more than AU$500 billion towards delivering the supply of critical minerals and fast-tracking the energy transition in that country. The IRA offers subsidies, grants and incentives to deliver critical minerals into the US and to create downstream processing and high-tech jobs, while essentially outsourcing mining.
That sucking sound that you can hear isn’t the Chinese economy going down the drain, it is in fact the rush of capital flowing to the US to take advantage of these incentives and subsidies.
In response to the US IRA, the Australian government set aside a meagre $500 million (that’s with an “m” not a “b” – or put differently, just 1 per cent of the US commitment – through the North Australian Infrastructure Fund to develop the Australian critical minerals business.
To be clear, Australia’s contribution is the miserly equivalent of about $20 per person (or a pint each at Rottnest Island’s Quokka Arms pub) as the country’s collective contribution to what could be described as the greatest existential threat to humanity we have ever faced.
We can and should do more, and this transcends all sides of politics. We have an opportunity to invest in the next industrial revolution. To create high-tech jobs for our children and to develop an industry that will take Australia into the next 100 years.
To do that, we need leadership and vision.
Australia should not resign its destiny to remaining as the quarry of the world. We have a comparative advantage in mining and should be able to deliver some form of value-adding processing rather than simply shipping off concentrates and buying back the finished product at a 100-times mark-up.
Australia needs an honest and comprehensive review of its energy transition plan. It is likely that fossil fuels are going to be around a lot longer than we anticipate. Furthermore, all options should be on the table, including the use of nuclear power, which is carbon emission-free.
Nuclear energy looks to have a real role in bridging the gap to a carbon-neutral world and in many respects is the least bad of the alternatives. As Twigger’s Tales has said before, being an advocate for nuclear power is like saying you’ve got the cleanest face at a mud wrestling competition.
But muddy or not, it has to be in the mix of alternatives for our transition plan. We also need to attract talent – the world’s best talent.
It is interesting to note Canada’s experience in attracting tech workers from the US, as reported in the Toronto Star last month. Canada Immigration launched a Tech Talent Strategy in July, aimed at luring 10,000 high-tech workers from the US by offering visas which gave applicants the right to work for three years and the potential to extend.
The 10,000-person cap was reached in 48 hours! I’m sure we can offer a better-value proposition than that in Australia.
The $2 billion the US invested in in the “Manhattan Project”, led by scientist J. Robert Oppenheimer, at Los Alamos when the free world was facing down its darkest moment during World War II in 1945, is remarkably about the same amount of money in today’s equivalent terms ($37.5 billion) that Australia should spend to match the $500 billion the Americans have stumped up for its critical minerals strategy.
The US investment in critical minerals amounts to about $1500 per person for that country’s population of 331 million. That amount for each of our 25 million Australians would equate to, ironically, about $37.5 billion.
Way back then, the US had the vision and leadership to rise to the challenge and bring together the smartest people on the planet to solve what was then an existential crisis for the free world. We can also do so much better here in Australia and need to create our own Oppenheimer moment!
Liam Twigger is the deputy chairman of Perth stockbroking, funds management and corporate finance firm Argonaut and he draws from more than 30 years of experience in corporate finance to regale you with his market tales. After starting his career as a professional soccer player in the UK, before working in the 1980s for corporate raiders Robert Holmes a Court and Alan Bond, he moved into investment banking in the 90s when he established Macquarie Bank’s Bullion and Commodities division in WA before establishing PCF Capital, which later merged with Argonaut. While he is an executive director of Argonaut (AFSL 221 476) this column is for information and entertainment purposes only and is not intended to constitute financial advice. The views and opinions contained within are those of the author and do not necessarily represent those of Bulls N’ Bears, this media outlet or Argonaut.
