Green metals boom leaves old miners feeling browned off Brad Thompson and Peter Ker Aug 10, 2022 https://www.afr.com/companies/minin...ld-miners-feeling-browned-off-20220810-p5b8r7 Sherif Andrawes has tracked the money flowing into Australian mining for the past decade and has grown accustomed to seeing gold on top of the league table. But last year the precious metal, the cornerstone of mineral exploration in Australia for the past 170 years, lost its crown to lithium. If any further confirmation was needed on the rise of battery minerals and so-called “green” metals, BHP provided it with this week’s $8.3 billion takeover bid for copper, gold and nickel miner OZ Minerals. Mr Andrawes, the global head of natural resources for advisory firm BDO, said the “future-facing commodities” mantra of BHP boss Mike Henry is resonating from the top end of town all the way down to IPO-ready explorers. And the tailwinds of any project associated with the energy transition have only increased with Labor’s rise to power in Canberra. That is expected to make it harder for fossil fuel projects to attract both funds and permits, while the red carpet is rolled out of anything seen as “green”. Mr Andrawes said the winds of change were obvious at last week’s Diggers & Dealers mining conference in Kalgoorlie. The “future-facing commodities” mantra of BHP boss Mike Henry is resonating from the top end of town to IPO-ready explorers. “Anyone even halfway advanced in developing a lithium project had electric vehicle manufacturers and battery manufacturers all over them for off-take,” he said. “From the top end of town, reflected right through the industry, down to the smaller end, there’s strong interest in energy transition. “It comes into battery minerals, it comes into copper, which is part of the transmission of energy, and even uranium has interest because of the carbon-free element of the power it generates.” BDO research shows about a third of all IPOs in the past year or so have been in the battery minerals space or with exposure to battery minerals. The research shows a big chunk of all IPOs are still in gold, but many of them are gold-copper with the copper side increasingly relevant. The most successful Australian gold mining entrepreneur of the past decade, Bill Beament, committed a kind of heresy at the 2021 Diggers & Dealers when he declared gold was “not green” and he would instead pursue a future in “green metals” like copper. Mr Andrawes expects the local gold industry to remain strong, but he sees battery minerals and green metals becoming a key pillar of the Australian economy. “The opportunity around battery minerals and energy transition is probably even bigger (than gold) over the medium to longer term,” he said. Peter Bradford-led nickel producer IGO is evolving proof of the change. The company sold out of gold for a future paved with battery metals in 2020 when it struck a $US1.4 billion ($2 billion) deal for a 25 per cent stake in Australia’s best lithium mine and a 49 per cent stake in a lithium hydroxide plant that is set to come online later this year. Sources close to IGO and OZ Minerals this week hosed down speculation of a possible merger play between the two that might emerge as an alternative to BHP’s takeover tilt. IGO only recently wrapped up its acquisition of nickel producer Western Areas and has big plans to expand its lithium mining and processing assets in WA. Mr Andrawes said he was bullish about copper and could understand why BHP was courting OZ after a two-year period in which Australia’s biggest miner has divested its entire petroleum division and large chunks of its coal business. “They’ve moved away from oil and gas obviously, and they’re not going to capitalise on their coal assets so the move to focus more on nickel and copper makes sense in terms of their strategy,” he said. But the timing of BHP’s decision to exit its oil, gas and coal assets will see it forego very large short-term profits. The past year has shown that unfashionable commodities can boom too; prices for liquefied natural gas, the thermal coal used in power generation and the coking coal used to make steel surged to record levels long before Russia invaded Ukraine. When the Ukraine war convinced most of the world to stop buying Russian fossil fuels, the prices surged even higher, and it’s reasonable to think Australian producers of coal, oil and gas are in for an elongated period of high prices while Russian commodities are blacklisted. Former gold mining entrepreneur of Bill Beament: Gold is “not green”. But the zeal with which investors and miners are excluding carbonaceous commodities from their portfolios makes this year’s fossil fuel price boom unusual; economic theory suggests that high commodity prices will incentivise investment in new supply and eventually bring about lower commodity prices. But there is scant sign that money is rushing in to build new mines to capitalise on the high prices. Big foreign customers like India’s Tata Steel – which relies on Queensland’s Bowen Basin for the coking coal that goes into its Indian steel mills – are getting worried. “I don’t see too much investment happening in growing coking coal capacities in Queensland,” said Tata chief executive TV Narendran on a visit to Brisbane this week. “That’s a concern because if India does not see the coking coal supply from Australia increasing over the years then obviously India will have to start looking at other sources which would be a pity because India and Australia have a strong relationship. “We want to double our [steel] capacity in the next 10 years in India. Mr Narendran says if coking coal starts to be substituted out of the steel industry on emissions grounds, then LNG will likely be the initial winner before hydrogen takes over as the reductant of choice. But he doesn’t expect substitution to occur to any meaningful degree for a long time. “We believe we will be building blast furnaces [which consume coking coal as a reductant] in India for at least another 10 years,” he said. “A typical blast furnace life is 20 years. “Coking coal demand is not going to fall off a cliff.” Global thermal coal demand is expected to match all-time highs this year according to the International Energy Agency and Mr Narendran says India’s rapid adoption of renewables will more likely service growth in electricity demand, rather than cannibalise the market for incumbent coal-fired power producers. “India has made huge progress on renewables and is one of the biggest producers of renewable energy in the world, but coal will still be used to generate electricity for some time. Incremental capacity will be more renewables, but the existing capacities will still need coal,” he said. The phrase “critical minerals” was rarely heard in Australian mining and capital markets until December 2017, when then US President Donald Trump demanded his bureaucrats publish a list of the minerals that were “critical” to US national security and economic prosperity. Amid a trade war with China, Mr Trump saw the need to mimic and weaponise the sort of critical minerals list that the European Union had started publishing in 2011. The Australian government published its debut list in 2019 while India and Japan now have critical minerals lists too. As Mr Andrawes’ statistics suggest, the critical minerals lists published by governments have been a powerful marketing tool for junior miners when trying to raise funds for projects that will produce lithium, rare earth elements or any of the other “green metals” that tend to dominate the lists. BHP’s Olympic dam mine - not so green, says Coronado Global Resources’ Gerry Spindler. But if you have scanned the periodic table trying to work out which row the “critical minerals” are on, you will be left disappointed. “Critical minerals” is a political term rather than a scientific term; the minerals listed will differ by the nation depending on the particular needs and supply arrangements that exist in those jurisdictions. For example, the European Union’s list of 30 critical minerals includes coking coal. The US list of 50 critical minerals does not, and nor does coking coal feature on the list published by world’s biggest exporter of top quality coking coal, Australia. Asked whether Australia and the US should follow the EU lead and add coking coal to their critical minerals lists, Coronado Global Resources boss Gerry Spindler said: “Now you mention it, it is an option that probably ought to be explored.” Mr Spindler was speaking on Tuesday shortly after announcing that Coronado’s coking coal mines in Queensland and the US had delivered a $US561.9 million half-year profit; a far cry from last year’s $US96.1 million half-year loss. Rival coal miners like Whitehaven and Yancoal will report record profits over the next few weeks too. Despite efforts to distance itself from coal, oil and gas recently, BHP will confirm on August 16 that about a quarter of its earnings came from coal over the past year, if analyst consensus is right. Analysts believe BHP made about $US8.48 billion selling coal over the past year; a larger sum than it offered to acquire OZ Minerals this week. Mr Spindler reckons the market fervour for “green” minerals has gotten a bit out of control. “Frankly there is a little too much faith [among investors] in the attractiveness of what are determined to be green minerals, rare earths and lithium particularly,” he said. “Having had some brief experience with both, these things are not easy to mine and not environmentally pure in the processing or mining either.” BHP’s Olympic Dam mine and Lynas’ rare earths business might be classified by investors as green today, but barely a decade ago they were more likely to be targeted by environment groups for the low-level radioactivity of their wastes. “These are necessary minerals of course, hence their attractiveness, but the old, tried and true minerals are even more necessary,” said Mr Spindler. “Steel is going to be a fundamental requirement for changing the grid and changing the environment for the acceptance of green technologies. “Whether it is solar or wind, steel is going to play a part.” As deputy chairman of Perth stockbroking and financial services firm Argonaut, Liam Twigger is a well-known face in mining equity markets and the mergers and acquisitions space. He is also chairman of SolGold; the Ecuadorian copper explorer that many believe will follow OZ into BHP’s acquisition crosshairs. Mr Twigger reckons the recent slowdown in IPO activity won’t turn into a long winter for battery minerals aspirants. “Is there going to be a global recession? I don’t think so,” he said. “You’ve got very low unemployment across the globe, certainly in the Western economies, so people have still got money in their pockets. So, I think it’ll be a pause, and then gangbusters again, and that will underwrite the underlying demand for all commodities. “There was a shortage of everything just before we moved into this correction, and I think there’s still a shortage. The stocks on the LME for zinc and copper are still very low. “And it won’t take a lot to make prices rocket along. When prices rocket, there’ll be an appetite for development plays and potentially exploration plays, but I think the market has moved more towards production resources and advanced projects for now.” While BHP is rapidly moving from brown commodities to green metals, Mr Twigger said there was still a role for coal as much as some wanted to deny it. “Some of the profits that the coal companies are making are insane,” he said. “New dollars and the millennials want to invest in green projects and opportunities, but there’s still a lot of money to be made out of fossil fuels. “But we need to recognise they’re on the wane, and ultimately, we will transition to what is, hopefully, to a carbon-free world.”
So we are seeing some volatility back into the markets, what's going on? My call, we are seeing a bottom forming, typically rising highs and rising lows. We have one bottom low, now the 2nd bottom low will shortly in time be created. Illustrated with a couple of simple charts.... I use a 5MA as a short term buy/sell signal, a 25MA as a medium term signal. My hunch, SPX will fall just below round number 4000 level to create the 2nd bottom, somehow doubt it will hit 3900. The second example is AMZN, price will come down, close the gap and bottom @ round number $125 approx. Therefore, not much downside to go, but panic merchants will hit their straps with maybe a small type blowoff bottom - seeing a nice spike in volume next few days. The third chart is in my favorite stomping ground metals, I doubt we will see much in the way of a double bottom, my call, price close may penetrate below 5MA for a day or two on base metals. In conclusion, as is trading/investing, be brave, take risks, it's either be eaten or be fed.
After the markets have closed Monday this is $TXBM, a proxy for metals and mining sector....with a close above 5MA. and on very close scrutiny, according to price action, Tuesday's 'prediction', confirmed by the majority of metal majors, is to be a down day! Here I've used BHP one day, 5 minute chart but other major metals co's indicate similar EOD price behaviour. A one minute chart indicates similar results. My comment: I call BS to intraday price action as any form of accurate analysis, my call, tomorrow will be an upday, albeit probably a weak upday. Where do I get this contrarian analysis from??? The majority of US indexes and global mining Co's did not close near their lows or bottoms for the day, which will in all likelihood drag up metals slightly. The majority of major Metals mining companies are still above 5MA. Let's see who's right? As an aside of all this, Uranium Monday was particularly strong. Here's just one example, Denison Mines. I've been advocating for some while, uranium is the next market darling sector in the making.
A bloody nose is what I've received, a good smack in the head for being wrong. Intraday closing price action Monday was correct on metals and I was sorely wrong. Tuesday US time, the metals/mining sector suffered the most damage of all the markets, getting it's first clobbering for some while with prices across the board falling. Energy stocks including Nat gas got a bit of a bashing but nothing severe. Uranium stocks were the exception of the whole market and continued rising. Coal was hammered. Nickel has been under performing for some while and results were mixed, some green, some red, I think Nickel is just going nowhere atm, crabbing. Lithium stocks all red, nothing serious yet. In summary, metals/mining clobbered the hardest Tuesday - it was due, but I stand by this comment...... We're getting a fright but I'm not bearish yet.
Wednesday 31 Aug, US time, this day more bearish than previous. I run an algo on 640 major individual US stocks and indexes. Energy stocks finally turning down into the red. Uranium holding up as is coal. Metals flat to down a tad. Lithium undecided, wavering. Base Metals index having its 2nd day below MA5. Crypto continuing a very slow grind down but indicating signs of recovering. Gold and silver a cot case as per usual on this ponzi commodity but that doesn't stop gold cultist raving on about it every day. In conclusion, in general bear dogs have control atm.
I woke up at 2am Western Australia time (2pm NY time) and all I could see was carnage on the markets, so began planning in my head my next move which was wholesale dumping of positions. However now after a small snooze it appears with US mkt closed, we are heading in for a bounce. The shorts are ducking for cover while everything else is turning green including crypto on bar lengths. That is, except for some metals and uranium, they thought they were immune to bad medicine but their turn is now for a dose of heebie jeebies. Oh yes, gold and silver, let's not forget God's precious metals, well the sad news is this POS is still doing what it does best - dissapoint, it's mostly still deep in shit red. Take your medicine! My next move is to sit on my hands, by the time I exit and re-enter, the slippage will not be worth it. At this point in time sticking to the opinion we are doing a double bottom move with typical high volatility. However it is September, notorious for badness, so gotta think about that too.
Bears continue to hold control! Most metals were up, as was Gold & silver, oil, Nat gas, coal, but as far as committing to buy as an investment, not a good idea yet imo. Keep your toes out of the water.
A double bottom may be forming but it is just a tad too early yet to determine. Markets are becoming more bullish, strong sectors were Uranium, Lithium, Copper, Crypto, Semiconductors, Banks. Turning?
For those not keen on direct investing in crypto, but wish to gain from the price moves there are altenatives, such as stocks and ETF's....