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Australia Resource Investing 101

If you’re curious about the Australia investing buzz that’s been happening in recent years, we’ve got a quick summary of how it started and where it’s going.

If you’re reading this, chances are you’ve seen some of the recent buzz around Australia as a destination for resource investment and potential profit.

Australia ranks as the 13th largest economy in the world, due in no small part to its mineral largess. Between 2010 and 2020, mining contributed an impressive 10.4 percent to Australia’s economy, translating to a gross domestic product of AU$202 billion.

The country is a global mining hotspot, and its abundant natural resources and government incentives have attracted some of the mining industry’s biggest names: BHP (ASX:BHP,LSE:BHP,NYSE:BHP), Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) and Newcrest Mining (ASX:NCM,OTC Pink:NCMGF).


Nearly half of the companies trading on the Sydney-based Australian Securities Exchange (ASX) — the primary stock exchange in Australia — are listed in the basic materials and energy sectors.

The state of Western Australia is one of the world’s premiere mining jurisdictions, coming in fourth after Nevada, Arizona and Saskatchewan. According to the Fraser Institute’s Annual Survey of Mining Companies 2020, three other Australian states and territories rank in the top 20 mining jurisdictions in the world: South Australia (seventh), Queensland (16th) and the Northern Territory (19th).

Australia has been a plentiful provider of diverse commodities in the resource investment space for over a century; if you’re curious about exploring it for yourself, here’s a quick guide on the origins of the country’s resource industry, the current landscape for mining investment and future opportunities.

Australia investing: The beginning

European settlers first arrived in Australia in the 1780s, and by the 1790s whale oil and baleen (whalebone) had become the colony’s first major exports.

When the 1820s rolled around, the economy grew exponentially through fine wool production. By the 1830s, wool had overtaken whale oil as the colony’s biggest export, with New South Wales replacing Germany as Britain’s primary supplier by 1850.

1851 saw the beginning of a major gold rush in Australia, causing the area’s population to surge from 430,000 to a whopping 1.7 million by 1871. In 1901, Australia’s first federal government was formed, and for the next 30 years, agricultural goods remained one of the country’s biggest exports, with wheat and dairy products being added to the roster.

The UK was Australia’s biggest export destination by the early 1960s, but it had begun to enhance its relationship with its European neighbours. At the same time, Australia was working to strengthen its ties with Asia, and by 1966/1967 Japan had become the country’s biggest export destination.

While Australia’s economic roots were formed in the agricultural sector, the 1970s brought a surge of mineral and fuel exports, driven specifically by iron ore and coal.

Fast forward to 2013/2014, and iron ore, coal and natural gas had become the country’s top three exports, with rural commodities falling to the wayside.

During this transitional period, Australia’s trading relationship with the UK further waned as Japan and China became the country’s two primary export destinations. China eventually overtook Japan as Australia’s leading export partner in 2009/2010, and according to a report from Australia’s Department of Foreign Affairs and Trade, the UK made up only 1.4 percent of Australia’s exports by 2013/2014.

Australia investing: Current opportunities

Today, Australia’s mining industry is comprised of more than 350 mines and the production of 19 different mineral commodities. Gold mines are the most common operations, and according to the US Geological Survey, the country is the world’s second largest gold producer.

While Australia’s major gold rush took place over a century and a half ago, current industry trends show that there is still much to be explored, discovered and put towards modern-day industries and technologies. You can find a number of gold investment opportunities to consider in the Investing News Network’s (INN) Best Gold Stocks on the ASX article.

Along with precious metals, Australia’s most valuable mineral exports include base metals, battery metals and energy resources. The country leads the world in iron ore production, and is also an important source of global aluminium, nickel and copper supply.

Western Australia is a key nickel-mining jurisdiction within Australia, and accounts for 90 percent of the country’s economic reserves of the metal. BHP and Glencore (LSE:GLEN,OTC Pink:GLCNF) both have nickel-mining operations in the state. Other important nickel stocks for investors to watch include IGO (ASX:IGO) and Mincor Resources (ASX:MCR,OTC Pink:MCRZF). Those interested in learning more about nickel opportunities should check out INN’s article Nickel Stocks in Western Australia.

Australia is second only to Chile when it comes to copper reserves, and the red metal reigns supreme in the South Australia, which is home to the world’s fourth largest copper-producing mine, BHP’s Olympic Dam. Other nickel operations in South Australia are OZ Minerals’ (ASX:OZL,OTC Pink:OZMLF) Prominent Hill and Carapateena mines. INN’s Copper Stocks in South Australia and Copper in Australia articles offer investors further insight on what to know about the base metal in the country.

Aside from that, Australia is abundant in energy resources such natural gas and uranium. With more than a dozen basins that yield natural gas, Australia hosts significant natural gas reserves. Natural gas is the country’s third most valuable resource export, as per the most recent data from the Department of Foreign Affairs and Trade, earning more than AU$49 billion for the economy. Chevron (NYSE:CVX) and Shell (LSE:RDSA,LSE:RDSB,NYSE:RDS.A,NYSE:RDS.B) are the biggest natural gas producers in the country.

Uranium is another important sector in Australia’s resource industry. The country is the third largest uranium producer globally and hosts more than one-quarter of the world’s known uranium resources. Both of the country’s two producing uranium mines are in South Australia: BHP’s Olympic Dam mine, the largest-known uranium deposit in the world, and the Four Mile mine, owned by Quasar Resources.

In recent years, Australia has also come to dominate the global lithium industry and is well positioned to capitalise on the rapidly growing electric vehicle market. Increased demand for lithium has proved positive for ASX-listed lithium stocks. The nation ranks second in the world for lithium reserves behind Chile, but when it comes to annual lithium production Australia’s output is more than twice as high.

Australia’s largest lithium mine is Greenbushes, which is majority controlled by China’s Tianqi Lithium (SZSE:002466), the largest hard-rock lithium miner in the world. Tianqi owns a 51 percent stake in Talison Lithium, which operates the mine, while major producer Albemarle (NYSE:ALB) owns a 49 percent stake in Talison via its acquisition of Rockwood Holdings.

Rare earths are another important commodity segment for technology, and Australia is set up to take advantage of opportunities in this market too. The country holds the sixth largest-known rare earths reserves in the world, and rare earths production in Australia has been rising over the last few years.

Northern Minerals (ASX:NTU) opened Australia’s first heavy rare earths mine in 2018, producing heavy rare earths products such as dysprosium, which is used in permanent magnet technology. Lynas (ASX:LYC,OTC Pink:LYSCF) operates the Mount Weld mine and concentration plant in Western Australia, and the company recently announced plans to boost production to 10,500 tonnes per year of neodymium-praseodymium products by 2025.

Other rare earths projects in the country include Australian Strategic Metals’ (ASX:ASM) Dubbo project in Central New South Wales, Arafura Resources’ (ASX:ARU,OTC Pink:ARAFF) Nolans project in the Northern Territory as well as Hastings Technology Metals’ (ASX:HAS) Yangibana project in Western Australia.

Australia investing: Investor takeaway

Australia’s abundant natural resources, close proximity to export partners, top-notch mining jurisdictions and plethora of publicly traded mining companies together put the country in a unique position to be a leader in the global economy of the 21st century. Investors with an eye on lucrative opportunities in the resource sector would do well to consider Australian mining stocks and further educate themselves about the Australian mining outlook.

As a resource-intensive economy, the Australian dollar moves with the commodities the country exports. Those who play the Australian market should have an understanding of how the Australian dollar impacts miners and look to where the Australian to US dollar conversion rate is trending.

This is an updated version of an article first published by the Investing News Network in 2018.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Featured

The mining and resources sector now sets its sights on Australia’s largest mining investment forum, Mines and Money @ IMARC, co-located with IMARC from January 31, 2022, to February 2, 2022, at the Melbourne Showgrounds.

It was gold price, lithium demand and China’s appetite for copper that dominated much of the discussion at Mines and Money Online Connect @ IMARC this week at the virtual event running from the 19th to the 21st October.

Mines and Money Online Connect saw 90 mining companies, 600+ investors and more than 2,000 participants log-on to hear mining executives and analysts discuss the next big thing for savvy investors in 2022.

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Rio Tinto Iron Ore Chief Executive, Simon Trott and Rio Tinto Managing Director of Port, Rail and Core Services, Richard Cohen, joined community members, local businesses and representatives from local government to celebrate the official opening of its new community ‘Hub’ in Karratha. Located on Ngarluma country in the heart of Karratha’s CBD, the new Rio Tinto Karratha Hub will make it easier for local …

Rio Tinto Iron Ore Chief Executive, Simon Trott and Rio Tinto Managing Director of Port, Rail and Core Services, Richard Cohen, joined community members, local businesses and representatives from local government to celebrate the official opening of its new community ‘Hub’ in Karratha.

Located on Ngarluma country in the heart of Karratha’s CBD, the new Rio Tinto Karratha Hub will make it easier for local people to connect with our busines.

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Rio Tinto is progressing an innovative new technology to deliver low-carbon steel, using sustainable biomass in place of coking coal in the steelmaking process, in a potentially cost-effective option to cut industry carbon emissions. Over the past decade, Rio Tinto has developed a laboratory-proven process that combines the use of raw, sustainable biomass with microwave technology to convert iron ore to metallic …

Rio Tinto is progressing an innovative new technology to deliver low-carbon steel, using sustainable biomass in place of coking coal in the steelmaking process, in a potentially cost-effective option to cut industry carbon emissions.

Over the past decade, Rio Tinto has developed a laboratory-proven process that combines the use of raw, sustainable biomass with microwave technology to convert iron ore to metallic iron during the steelmaking process. The patent-pending process, one of a number of avenues the company is pursuing to try to lower emissions in the steel value chain, is now being further tested in a small-scale pilot plant.

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a bowl of U3O8 yellow cake

Australia is the second largest producer of uranium in the world. Here's a look at the mines that are producing today, and the significant ones that are being developed.

Despite sitting on the largest known recoverable resources of uranium worldwide — 1.69 million metric tonnes in 2019 — Australia uses no part of it for energy. Instead, Australia exports the valuable resource, which accounts for one-quarter of its energy exports.

In fact, Australia was the second largest producer of uranium in 2020, producing 6,203 metric tonnes. It was only beaten by Kazakhstan, which produced nearly 20,000 metric tonnes that year.

Australian uranium production has centred around three mines in recent years — Olympic Dam, Beverly Four Mile and Ranger — until the Ranger mine ceased operations in 2021.

Main mines in the country

Here's a closer at these mines and the companies that own them:

1. Olympic Dam owned by BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BHP)

The Olympic Dam complex is built upon one of the world's most significant deposits of copper, gold, silver and uranium. In fact, it's the world's largest known uranium deposit. It has both underground and surface operations and it has a fully integrated processing facility, which means it is capable of extracting, refining and processing mined commodities.

In 2020, BHP Billiton produced 3,000 metric tonnes of uranium oxide (U3O8), which is nearly half of Australia's output and 6 percent of the world's production. In 2021, their uranium segment accounted for US$249 million in revenue.

Although the company produces a significant amount of global uranium, its production of copper, iron ore, coal and petroleum dwarfs its uranium production by a wide margin.

2. Beverly and Four Mile owned by private company Heathgate Resources

Australia's first in-situ recovery mine at Beverly sits on a uranium deposit about 520 kilometres from Adelaide. Owned by Heathgate Resources, a subsidiary of US-based General Atomics, the Beverly mine itself has all been mined out and production exclusively occurs at the nearby Four Mile mine (owned by Quasar, a subsidiary of Heathgate).

In 2020, Heathgate Resources mined 2,130 tonnes of uranium oxide from Four Mile, accounting for 4 percent of the world's uranium production.

3. Ranger Uranium Mine owned by Energy Resources of Australia (ASX:ERA)

Ranger was the longest serving uranium production mine in Australia at 35 years, located 8 km east of the town of Jabiru. The mine officially stopped processing operations in January 2021 after traditional owners of the land did not support extending the Energy Resources of Australia's (ERA) authority in the area. The company had already stopped mining operations back in 2012 and had been processing stockpiled ore since then.

The ERA, whose parent company is Rio Tinto, produced 1,574 tonnes of uranium oxide for 2020 — accounting for 2 percent of the world's uranium production — before shutting the mine down.

According to their 2020 annual report, continuing mining at Ranger in the future is also unviable. A change in legislation would be required and the company states that monitoring the mine in the gap between ceasing and resuming operations would simply add to its cost burden.

While ERA still holds the lease on the nearby Jabiluka orebody, it has been firm that it will not develop the site without the consent of the Mirrar Aboriginal people, and so the Jabiluka development has been indefinitely deferred.

Future mines in Australia

Australia accounts for almost one-third of the world's uranium deposits and there are several future exploration and expansion uranium projects brewing in the country. With 31 known deposits for uranium including the three discussed above, the list for potential new mines or mines being brought back online is long. Here are a few noteworthy ones.

1. Honeymoon

The deposit was discovered in the 1970s, and in 2015 Boss Energy (ASX:BOE) bought Uranium One Australia and acquired the mine as part of the deal. The project is permitted to export up to 3.3 million pounds (1,496 tonnes) per annum and production is expected soon.

2. Mulga Rock

This polymetallic deposit was first discovered by PNC Exploration in 1979 and is now owned by Vimy Resources (ASX:VMY), formerly Energy & Minerals Australia. The deposit is divided into Mulga Rock East and West, and also hosts scandium, nickel and cobalt.

With approvals from both state and federal governments in 2016 and 2017 respectively, the mine can produce up to 1,300 tonnes of U3O8 per year. Vimy Resources intends to start on the Ambassador deposit with open-pit mining with an 85 percent recovery rate.

3. Angela / Bigrlyi / Obagooma / Thatcher Soak

Elevate Uranium (ASX:EL8), formerly known as Marenica Energy, has acquired or bought stakes in several mining projects in the Northern Territory and Western Australia. While there is no clear timeline on start of operations for any project, managing director and CEO Murray Hill was quoted saying that he expects the price of uranium to increase over the next decade, meaning the company would be well-leveraged as it bought assets at a reduced price.

Hill also expects modular reactor technology to improve in the next decade, allowing nuclear energy to be used across the landscape in rural areas and not just the bigger cities.

Market Outlook

After suffering low prices after the 2011 Fukushima disaster, the nuclear energy market is expected to pick up, with generation growing nearly 3 percent annually by 2040, according to the World Nuclear Association's Nuclear Report. As the world continues to pivot to net-zero emissions, nuclear energy will find increasing favour from countries looking to shift their energy generation to cleaner sources.

The report states that uranium production will remain stable until the end of the 2020s and then decrease by nearly half from 2030 to 2040, highlighting the need for increased exploration and production in the space to avoid future supply disruptions.

Many projects are at advanced development stages and are only waiting for improved prices from the market.

Don't forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Pallavi Rao, hold no direct investment interest in any company mentioned in this article.

carbon emissions

Following international pressure, the Australian government has promised to reach net zero emissions by 2050.

In a last-minute commitment after months of debate, the Australian government has promised to reach net zero emissions by 2050, expecting to meet the goal largely through technology development.

The move comes following international pressure as Australia had previously refused to join countries in pledging to meet the target ahead of the United Nations' COP26 climate conference in Glasgow.

However, the plan unveiled on Tuesday (October 26), which includes a government investment of AU$20 billion, does not strengthen the target set for 2030, with Prime Minister Scott Morrison saying Australia is on track to beat its Paris Agreement goal, cutting emissions by 30 to 35 percent by that decade.


"We will do this the Australian way," Morrison said ahead of a press conference, announcing investments in new energy technologies like hydrogen and low-cost solar.

An Australian hydrogen industry could be worth more than AU$50 billion in 2050, according to the government. Meanwhile, expanding production and processing of metals like lithium, nickel, copper and uranium could together be worth around AU$85 billion in exports in 2050.

That said, Australia will continue to be heavily dependent on fossil fuels as the plan will not shut down coal or gas production. The country is a major coal player, with the third largest reserves in the world, but its reliance on coal-fired power makes it one of the world's largest carbon emitters per capita.

"We want our heavy industries, like mining, to stay open, remain competitive and adapt, so they remain viable for as long as global demand allows," Morrison said. "We will not support any mandate — domestic or international — to force closure of our resources or agricultural industries."

Australia's desire to achieve net zero emissions by 2050 is a step in the right direction, Prakash Sharma, Wood Mackenzie's Asia Pacific head of markets and transitions, said.

"Our analysis shows that Australia can reach net zero emissions by 2050," he said. The country's major trading partners — China, Japan and South Korea — are already in transition towards that goal.

According to Wood Mackenzie, nearly 83 percent of Australia's power generation will come from solar and wind by 2050, as compared to about 20 percent last year. Natural gas, bio energy, geothermal and small modular reactors will supply the remaining 17 percent in power output. Coal into power is expected to be phased out by 2035.

"Although the pathway requires complete transformation of its traditional energy and export sectors, there are significant opportunities to capitalise on and protect future revenues," Sharma said.

"This will require Australia to become a significant player in low-carbon hydrogen trade as well as being able to offer carbon storage and offset services."

Meanwhile, the Australian Conservation Foundation has welcomed the prime minister's commitment to reach net zero by 2050, but said the mid-century goal is only meaningful with deep cuts to climate pollution this decade.

"Unless the government sets the wheels in motion to cut our emissions in half by 2030, it is making climate change worse and turning its back on the opportunities," said Chief Executive Kelly O'Shanassy.

"Australia can become a global clean energy superpower in the next decade by replacing coal and gas with renewable energy," she added. "We have abundant clean energy, tools and talent, but we cannot delay any longer."

Don't forget to follow us @INN_Australia for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.