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Podcast

Mining is strong – but we can make it stronger

Brent Steedman
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Australia has the second largest reserve volumes of lithium in the world, yet only 4% of it is refined or processed in Australia – we send it all offshore.
Contents

We have 19% of the world’s cobalt resources (also used in batteries), and 18% of global vanadium resources, but we do no production here. The opportunity exists to diversify outside of traditional resources and take our resources sector up several notches by building onshore secondary processing in Australia.

Merger and acquisition activity has remained stable; the IPO market has been strong, and the ability of companies to raise funding through debt or equity has been good. However, with international borders closed and frequent state border shut downs, access to labour is one of the most difficult and limiting factors in a buoyant market.

In our podcast, Brent Steedman, National Head of Energy and Resources, says the positive sentiment is there – but we need to realise future opportunities by developing the next frontier – critical and Rare Earth minerals.

Available on Apple Podcasts, Spotify or within your browser

Podcast transcript available here

Therese Raft

Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.

I’m Therese Raft and today I'm joined by Brent Steedman, Partner and Energy and Resources leader at Grant Thornton. Today we're talking about the mining sector and the Modern Manufacturing Initiative.

Welcome, Brent.

Brent Steedman

Thank you.

Therese Raft

Now Brent, with the release of the MMI’s Resources Technology and Critical Minerals Processing road map a few months ago in April, it's quite clear there is an intersection between the resources sector and Australia's energy future. So how do the two work together?

Brent Steedman

I think the whole key objective with the roadmap is really to support the government's modern manufacturing strategy, which is – in simple terms – is to enable manufacturers to scale up, become more competitive and to build more resilient supply chains. To achieve these goals requires getting the economy right. Making science and technology work for you and to focus on various areas of advantage and build national resilience. It’s important that we all understand that none of these goals are easy to achieve. The obvious question behind is how does the Resource Technology & Critical Minerals Processing fit into these objectives and goals?

So in my opinion I think there's four components with respect to these goals and strategies. I think the first is the resource industry optimising the use of technology in the traditional commodities like iron ore, gas and coal to improve safety, increase production and reduce carbon emissions. Safety and production and carbon reduction will be with us as long as we're in the resource industry. So we’ve got to keep moving down this path.

I think the second is to develop the critical minerals resources like Lithium, Graphite, Vanadium and other rare earth minerals in particular. Locate the initial processing of these minerals in Australia (and I'll talk about this a little bit further in this podcast).

The third is leveraging our strengths in renewables, like wind and solar, and in new opportunities like fuels like green hydrogen. Number four is being able to blend the traditional energy sources like gas and coal with current and future renewables, in a way that manufacturing entities and the companies in this country can attain cost effective and reliable power supply.

Therese Raft

Now it's interesting that you talk about leveraging our strengths, and the road map does certainly outline opportunities of strength and growth in what is already a strong part of the economy. What's your take on how the road map plays out in practice?

Brent Steedman

Well, I think each component of the resource sector will take a slightly different initiative and look at it a different way. You know, for example, you mentioned the sort of the traditional commodities. I think it will focus on how we use robotics to improve safety and reduce costs, carbon sequestration to lower carbon emissions. How we use artificial intelligence to improve geoscience outcomes – like how do we find the actual resource and reserves that we ultimately produce, and then things like application of new technologies? Because one of the more recent one is how do we actually get value from the waste that the resource sector creates? Then if you look at it from the critical mineral developers’ point of view, you know, they need the confidence to invest. They need the confidence in terms of access to people, technology and financing to establish processing based in Australia. You know, when we had traditional minerals a number of years ago when we developed them, we didn't have the capabilities to do the secondary processing here, so it was largely offshored.

The question is how can we develop that capability now with some of these new minerals? For example, we have 38% of lithium mine concentrate market in terms of resource and reserves in Australia, but we're only doing 4% of the refining processing in that market. How do we make that change to increase that? I think the last point I really talk about is achieving scale in size and application of the next generation technology in terms of the cost of renewables. We've got to bring the cost down so it becomes competitive. Okay, if we could bring the cost down it will increase the uptake of wind and solar by companies to meet power generation needs. So I think it's a combination of government and industry. Investment, if done properly, should result in our domestic energy supply becoming reliable, cost effective and reduce carbon, which is consistent with all the modern manufacturing initiatives.

Therese Raft

Brilliant segue. You've just mentioned carbon because there is a sustainability aspect to this road map as well. And they – and I mean the government – want to see a sustainable resources industry. But resources is inherently detrimental to the environment. How do we achieve this?

Brent Steedman

Well, the reality is that burning coal for power is carbon intensive, and we've seen a lot of that, you know, in the news and talk politically. So I think it's clear from both the markets and the government's point of view. And they all agree that we need to transition away from coal to renewables and or less carbon intensive fuels. And we see some discussion about the transition of gas and how gases will be used in that transition period. But this is going to occur over a period of time. The key issues are there are really the timing of this transition. And also in the meantime, how does the fossil fuel industry reduce carbon emissions. Globally, the aspiration end game is to get zero net carbon emissions by 2050. And we saw that discussion recently at the G7 meeting that was recently just held. To achieve this outcome requires a range of initiatives to be implemented, and I'll just give you sort of three examples. You know, I've talked about, you know, one is carbon sequestration and in effect, this is pumping the carbon generated by some of our traditional resources and minerals and commodities back into reservoirs where it came from. For example, coal, oil and gas. A second example would be green or grey hydrogen, and this is really a potential game changer where electrolysis is used to extract the hydrogen from water and hydrogen can then be used for the power generation. Green hydrogen is when the renewable like wind or solar are used for the processing. Grey hydrogen is when fossil fuels are used for the process. You know the key issue with hydrogen is developing the technology to get the cost per unit produced lower, so it could compete with fossil fuels for power generation. Then the market will take over this particular resource. I think the last one’s really applying technology to improve efficiency of power units. For example, aeroplanes and motor combustion engines. New aeroplane engines have approximately a 40% improvement in fuel efficiency, compared old engines. That makes a big difference in terms of carbon generated.

Therese Raft

There's quite clearly some big picture or long term goals in there. And I would like to actually ask you now about maybe some more immediate opportunities. There was an article in the AFR a couple of months ago, referring to ‘Lithium boom 2.0’. Now, this demand seems to be largely driven by the manufacture of batteries, especially for electronic vehicles. How does that fit into the government's grand plan?

Brent Steedman

Well, clearly, lithium production and processing is a key component of the government’s initiatives. Let's look at the facts. Australia currently has the second largest reserve volumes of lithium in the world, it’s currently the largest producer in the world and it also has high geological potential. Then we put that in the context of demand. Demand for lithium, for electric vehicles alone, is expected to grow from 25,000 tonnes per annum in 2020, to 425,000 tonnes per annum by 2030 over 10 year period. Now this is data from the CSIRO, and it's a significant increase, so this is ability to take lithium and make a step change in terms of Australia and its contribution to the world. Now, if you look at it, it's the reality is it's unlikely that we will build electric cars in Australia in any significant volume, but we do expect to extend our reach in the supply chain. For example, we can refine the lithium in terms of processing it into oxides, alloys and pre-cursory materials. An example of this is the Kwinana Lithium Plant in WA that, when finished, will process concentrates into hydroxide, which is a key component of the battery cathodes. The obvious next step in the process is assembling the battery cell itself here in Australia. So the challenge is, can we also compete and complete this process?

Therese Raft

Well, that's really interesting and obviously that just one critical mineral. What other critical mineral opportunities are there on the horizon for Australia?

Brent Steedman

Yeah, I think there's a number of other uses of other critical minerals and some of the recent reports that's been done by the Australian government have used a few examples and I'll just sort of draw on some examples from them. Australia has 19% of global cobalt resources in the world, and 59% of cobalt is used in batteries. And we already talked about batteries in terms of the growing market – an ideal opportunity. Australia has 18% of the global vanadium resources in the world, but currently we do no production of vanadium here. It's used in steel alloys – another opportunity. Australia is the fourth largest producer of rare earths, which have a variety of applications and things like magnets and batteries and polishing and other opportunities. And it's so it's clear that the opportunities exist and these are just really just an extension of the previous discussion around lithium. It's a matter of taking these opportunities and implementing the appropriate investment and technology, to achieve outcomes.

Therese Raft

If I can ask you about iron ore, given there's been significant coverage about iron ore in the news, the price is over, I think it's $200 per tonne. I understand our biggest competitor is Brazil, and of course they're still heavily impacted by COVID. I think their biggest iron or producer, Vale, said that they wouldn't be in a position to ramp up production until mid-2022, and considering when we're recording, that's 12 months away. Are we able to fill that gap and will Australian iron ore will be able to maintain that when Brazil comes back online?

Brent Steedman

Yeah, certainly Brazil has struggled with production of iron ore and I think it's a culmination in terms of the Rue Martineau tailing dam collapse 3-4 years ago and the more recent COVID issues that Brazil's faced. So this has resulted in a combination of environmental, logistics and production issues. I think in my view, their production levels will return to their historical levels. It's really a matter of timing and when, and I think it's going to take him some time. But this has given Australian produces the opportunity to meet this production shortfall, and also build further relationship with global customers. You know, in the wider sense, Australian companies have been very successful in increasing iron ore production over the years. And if you sort of look back, you know, in 2016, Australia produced about 750 million tonnes per annum. 2021, we're going to produce 900 million tonnes per annum in 2021 this forecasted to increase to 1,100 million tonnes per annum in 2026. Increasing production in a period of high iron ore prices results in significant economic benefits to Australia and you just really have to follow the news and the political news to see what this means.

Therese Raft

So there's clearly quite a lot of opportunity in the sector at the moment. What's the market sentiment about the opportunities that lie ahead?

Brent Steedman

I think the industry sentiment is very good at this time. You know there's some negativity around coal and we see that. But overall, if you look at just the indices, the ASX 200 resource index is up 23% over the last year and it's up 100% over the last five years, which is very good returns. And this demonstrates confidence in the markets. And I've shared my thoughts sort of on our traditional minerals and some of the newer minerals, critical minerals already, and I think the key reasons to be positive are that global demand for resources are increasing and this is due to a combination of industrialisation of developing countries and also global government infrastructure programmes and, to a lesser extent, the electrification of transport. The world knows Australia has high quality resources. It has stability in of respect, economic, regulatory, political, and tax systems and processes. Further, Australia has significant exploration potential due to the large land mass and favourable geology and a history of delivering on development production. Now, having said that, there are some challenges and some of these are fairly significant and the first one really is just access to talent and people, given our international borders are closed and the uncertainty what the future looks like. You only have to read in the newspaper in Western Australia in Perth today. The fact that they're forecasting it’s going to be 30,000 people short in Western Australia alone in terms of resource industry in two years’ time. You know, it's a key issue. We just can't get the people that we need. I think the other real challenge is being able to maintain our position in the traditional commodities and then build our presence in the emergency commodities. And this is when require a significant investment in technology and innovations like robotics, artificial intelligence, digital economy, and also we need to be politically astute to manage shifting global political trends. But overall, it's very positive.

Therese Raft

Now, you just mentioned the digital economy. The federal government is giving money to Geoscience Australia and you've mentioned them right at the beginning of this podcast, to create a 3D map of the country to identify pockets of resources. Now, from what I understand, that's government owned data that's publicly accessible, which could have some fantastic benefits for the resources sector.

Brent Steedman

Geoscience Australia has been very successful in recent years in improving the quality of this seismic data, you know, and that's through the use of artificial intelligence and interpretation solutions. This has enabled them to process larger volumes of data in shorter time frames. The result of being able to do this is improvement in the quality of the data over a wider area. So we get a higher quality figure volume of data. So what's happened is the resource sectors, and the companies and the entities in the sector, have taken this data and they also apply their own data processing capabilities, to achieve an even better result. This enhanced analysis, improves the operators in the company's understanding of the subsurface. You know, it can make a big difference in terms of whether they make an investment or they don't make an investment based on that quality of data, and it's really a win-win situation

Therese Raft

Now it has been two months since the roadmap was released and we had a Federal Budget to boot. So when you're talking to clients and colleagues in the resources space now that they've had time to digest everything, are they excited by the refocus? And what does the next 12 to 18 months look like for them?

Brent Steedman

The key issue we’ve talked about is really the shortage of people and contractors to build and operate the projects. And that's whether they’re mines or windmills, you know, I think the sector is really hoping the vaccine strategy works out here in Australia. And then in due course, we can open up both the movement of people within Australia and the international borders to attract more talent. That's the biggest issue, but notwithstanding this challenge, the market is strong and our clients are in good shape. Australia's geology is very good, global commodity prices are holding up, the IPO market has been strong. The ability of companies to raise funding, either through debt or equity for projects is good, so overall results were positive and we look forward to the future.

Therese Raft

Well, Brent, thank you so much for your time.

Brent Steedman

Thank you, Therese. Absolutely delighted.

Therese Raft

Now, if anyone wants to track you down on LinkedIn, phone or email to perhaps talk a little bit more about what's next for the resources sector and the MMI, you're around and available?

Brent Steedman

Certainly. Give me a call anytime.

Therese Raft

If you liked this podcast and would like to hear more, you can find and subscribe to Grant Thornton Australia on Apple Podcasts or Spotify.