Australia mining update: A look back at H1
Following a chaotic 2020, where the Australian resource industry showed resilience, 2021 kicked off on a bright note.
During the first three months of the year, Australia's mineral exports improved as the world economy rebounded from the impact of the COVID-19 pandemic.
"Australian miners have found their product in high demand, helped by the impact of government and central bank measures abroad," the Office of the Chief Economist's (OCE) March quarterly report reads.
In that period, the OCE's Resources and Energy Export Values Index rose 11.8 percent from the March quarter of 2020 — a 1.8 percent rise in prices added to a 10 percent gain in volumes.
Speaking at the recent Noosa Mining Conference in Queensland, EMR Capital's Owen Hegarty said Australia has outperformed almost every other country on the mining front.
"We have remote locations, (and) wonderful principles, policies and practices when it comes to occupational health and safety," he said.
The resource sector is looking strong for the expert in the next few years as demand continues to grow, backed by a sharp recovery, a growing population and the green energy transition.
"Commodities have a very strong demand going out for the longer term — supply side is the problem," he said, pointing to the lack of reinvestment from some of the bigger miners, paired with lead times for permitting and licencing approvals all of which are taking longer.
"There's only one thing that can happen to prices under those sorts of circumstances, and that is they will be under tension," he added.
Looking at how top Australian commodities performed, the iron ore price has remained strong in the first few months of the year, as a recovery in demand in some of the advanced industrialised nations has added to strong Chinese demand. That paired with low Brazilian supply has kept prices high.
"In the coming year, it is likely that the iron ore sector will make a significant contribution to (gross domestic product) growth, as high prices and margins drive growing volumes," the OCE said back in March. "The coal sector is likely to make only a modest contribution to growth in the first half of the outlook period."
Meanwhile, Australian miners and explorers continued to make progress at their projects, following a historic year for capital raising. In fact, according to Refinitiv, 2020 brought the highest total activity in the country since 2015, plus a record number of equity issuances.
In early June, BDO published a report on cash raised by explorers in the mining sector, showing positive signals for a continued strong recovery.
Exploration companies raised AU$2.37 billion in the March 2021 quarter, up 7 percent from the AU$2.21 billion raised in December. Of those companies, 48 raised funds of AU$10 million or more and made up 75 percent of the total funds raised.
"The first quarter of 2021 has proven to be a strong start to the year for Australian explorers, and is showing signs of a transition away from mere recovery to a new focus on ESG," the BDO report reads. "The global push for lower carbon emissions and clean energy has put a spotlight on EV-related commodities and greener energy alternatives, which we are already seeing in the March quarter."
Australia mining update: Expected trends in H2
As economies continue to open up, the fight against the coronavirus is still ongoing. The second half of the year kicked off with new lockdown measures in some countries and cities. However, many continue to be optimistic about the Australian mining sector's outlook for 2021.
Australia's resource and energy exports are estimated at a record AU$310 billion in 2020/2021, with almost half of those earnings coming from iron ore alone.
"The improved outlook reflects the ongoing rollout of vaccines, and the momentum this is providing for economic activity and trade amongst many of Australia's major trading partners," the most recent OCE quarterly report reads.
Australian iron ore earnings appear to have surged by almost 50 percent to an all-time high in 2020/2021. After topping the AU$100 billion mark ― the first time ever for any commodity ― in 2019/2020, iron ore export earnings are forecast to rise to AU$149 billion in 2020/2021, according to the OCE.
In other base metals, Australia's copper export volumes are expected to be moderate over the outlook period, from 924,000 tonnes in 2020/2021 to around 909,000 tonnes in 2022/2023.
"Australia's copper export earnings are expected to increase in-line with higher prices. Export earnings are forecast to reach $13 billion in 2021/2022, up from $10 billion in 2019/2020," the OCE forecasts.
Meanwhile, metallurgical coal prices have recovered moderately, in line with improving global industrial production and economic activity. The Australian premium hard coking coal price is estimated by the OCE to increase from an average of US$143 a tonne in 2021 to around US$157 by 2023.
Looking over to precious metals, Australia's gold exports are forecast to reach a record AU$29 billion in 2021/2022.
"Labour and skill shortages are affecting Australia's gold mine production, which is estimated to reach 332 tonnes in 2020-21," the latest OCE report reads. "Production from new mines and existing mine expansions is expected to boost gold mine production to 388 tonnes in 2022/2023."
For battery metals the story is also looking bright. Rising prices for lithium are supporting the recovery of Australian producers with two refineries under construction.
According to the OCE, Australia's lithium export earnings are forecast to increase from AU$1.1 billion in 2019/2020 to AU$2.5 billion in 2022/2023.
Australia mining market: Commodities to watch
Commenting on his favourite commodities going forward, EMR Capital's Hegarty mentioned copper, gold and met coal.
"Copper is electrifying China and the rest of the developing world. It's the noblest of all metals, it's got a great diversity of uses and now you've got the green energy transition, which adds another leg to copper demand," he said. "It's on the supply side that the issue is ― the discoveries have been declining, exploration spins have been at a low point, so it's going to be tough to bring on new copper."
Aside from copper, the expert also believes lithium, cobalt and graphite will be winners in this green energy transition, and EMR Capital has long positions in cobalt.
Hegarty has also liked gold for a long time, saying it's not only a commodity, but also a currency and a store of value.
"Exchange-traded funds are becoming more and more popular, and also the governments continue to buy gold," he said. "And it's the same thing as with copper — you've just got less exploration going into it, you've got less discoveries going into it and that's why gold continues to be under tension."
Looking over to met coal, Hegarty made the point that this commodity is part of the solution to decarbonisation and not part of the problem.
"It's so important to have that high-quality hard met coal going into steel production, so that we can actually continue to grow and the world can go through this whole decarbonising process," he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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