Australian mining companies – particularly the juniors – are facing challenges when it comes to funding their projects, and in the future, this could fuel a lack of supply in commodities for which there will be a definite demand, according to John Forwood of Lowell Resources Fund Management.
Speaking to investors and other attendees at the MiningNews Select conference in Perth on Monday, Mr Forwood said cost escalations and inflation often meant that companies were unable to get the go-ahead at the critical point.
“There are a number of companies here in in WA who have a nice feasibility study in their back pocket, permitting may be in place, the project is shovel ready,” he said.
“But either the board doesn’t doesn’t quite trust its own numbers and is worried about cost escalation – in terms of the cost of building and operating cost – or the financiers will say, yeah, look, we’re going to keep our money in our pocket because we’re not sure about the cost of building this project.
“And I think over the last couple of years with inflation that’s hit the mining industry particularly hard, maybe not harder than many other industries, but certainly it’s a factor in deferring or delaying project development.”
Changing relations between Australia and other countries – and global investing tendencies generally – were also a factor in terms of financing becoming harder to access, he added.
“China dropped out of the top ten sources of foreign investment in Australia in the first quarter of last year,” he said.
“That’s quite amazing to me that, you know, our biggest trading partner is not even in the top ten of investors here in Australia.
“During the 2000s mining boom, there was a lot of Chinese investment. Now it’s almost completely dried up, and that’s a major source of finance, which isn’t available to a number of mining companies here in Australia.”
Speaking to the situation for companies dealing in particular commodities, Forwood noted that despite the recent rally in copper prices, Australian equities had not responded warmly, which partly reflected the reluctance of investors to buy into projects developed around the red metal.
“Recently we’ve seen copper hit all-time highs, and we have seen some reaction from equities, but certainly not the reaction that the market might have been expecting or hoping,” he said.
“One obvious reason is there’s just less copper plays on the ASX.
“But I think the other thing is the market and the reluctance of the financial investors to fund new copper projects…it’s not just the five, six, or seven billion projects that are struggling for funding.
“It’s the, it’s the small projects, you know, the $100 million projects that are that are struggling for funding. And it’s almost a self-fulfilling prophecy.”
He added that with forecasts for global demand set to double in the next 25 years, potentially reaching 50 million tonnes by 2050 – with a likely stronger impact from the energy transition – this was an issue that needed to be resolved.
“We’re hearing a lot about, you know, potential demand from for electricity for AI. You don’t have electricity without copper,” he said.