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As part of this week’s mining conferences in Perth, we invited you to submit questions through HotCopper. We received plenty!
While some have been answered in videos in our From the Floor section, we have received more answers from conference presenters: Argonaut executive director & head of funds management, David Franklyn, and, Eden Group founder, chair and chief investment officer, Nicholas Boyd-Mathews.
We hope this helps you in your investment decisions:
Uranium
Viewer question: Do you think we should allow uranium mining?
David Franklyn: Australia has a large Uranium resource and uranium will be an important part of the decarbonisation energy mix. As such I support Uranium mining in Australia.
Nicholas Boyd-Mathews: Yes, absolutely. Uranium has been a source of reliable, low-carbon, base-load power for decades and it is critical for sustaining several major economies including the USA, Europe, Japan, China and South Korea. The safety and power density of nuclear energy is unmatched by any competing technology, and the scaremongering around its use is both unscientific, erroneous and foolhardy. Having a ban on uranium mining in certain Australian states is the height of ignorance, arrogance, and unsophisticated politicking.
Viewer question: We have resources stories like Uranium and where it can go. Do you think the number side also adds up over the next decade?
David Franklyn: There is ultimately an abundance of uranium in the world. The problem is getting the funding and approvals to get it out of the ground and into production in a timely and environmentally sensitive manner. My view is that the next five years is the time to be an investor in Uranium, as demand is increasing and supply is constrained. After this point I would then reassess the demand/supply situation.
Nicholas Boyd-Mathews: Yes, absolutely. Nuclear energy is experiencing a resurgence, with a near-global political consensus recognising it as a scalable, reliable, and zero-carbon solution. Unlike intermittent power sources such as wind and solar, nuclear provides consistent baseload power. The 2021 images of frozen wind turbines in Texas underscore the importance of non-intermittent energy sources. Furthermore, nuclear power boasts one of the lowest operating costs and is exceptionally energy-dense. Currently, about 10% of the world’s electricity is generated from nuclear energy. With the growing trend towards electrification and advancements in next-generation reactors, nuclear energy offers a compelling proposition in terms of cost, scalability, and sustainability. At the recent UN Climate Conference in Dubai (COP 28), over 20 countries committed to tripling their nuclear energy output by 2050, just 25 years from now. Additionally, the number of new reactors under construction or planned is at an all-time high, as more countries aim to boost their GDP and standard of living through increased energy availability. Emerging economies such as India and parts of Southeast Asia are embracing nuclear energy as their manufacturing industries become more ambitious and their populations transition up the ‘standard of living’ curve. No other energy source provides the same energy return-on-investment.
Oil and Gas
Viewer question: Are oil and gas ASX stocks still a viable investment, say, over the next few years?
David Franklyn: Gas is increasingly being recognised as a transition fuel, and oil is also hard to replace in many applications. As such there will continue to be investment opportunities in this space. The key is to focus on value and recognise that the market will apply a discount to earnings streams generated from carbon sources.
Nicholas Boyd-Mathews: Well-run oil and gas companies with demonstrable positive free cashflow could be interesting investments. In the first quarter of 2024, US natural gas traded at over 50 times its oil-equivalent price, a level not seen since 2012. However, today’s gas market is vastly different from that of 12 years ago. Increased electricity usage by data centres and a decline in shale supply could lead to a new era of high US natural gas prices, impacting most oil and gas markets and stocks globally. With surging demand and faltering supply – along with rising geopolitical tensions, especially in the Middle East – oil and gas prices are unlikely to drop significantly, even if the global economy enters a recession.
China, REE and critical minerals
Viewer question: Are mining companies getting worried about China’s control on rare earth minerals?
David Franklyn: Companies are worried about China’s ability to influence rare earths’ prices due to their dominant position in raw materials production and processing capacity.
Nicholas Boyd-Mathews: Governments, not miners, would likely be worried as REEs are strategically important elements for several modern technologies including military defence systems. Western nations allowed the offshoring of REE processing to occur so have only themselves to blame.
Viewer question: When will onshore processing happen with critical minerals?
David Franklyn: In most critical minerals markets Australia will struggle to be a cost effective processor. Greater government support is required to level the playing field and stimulate a processing sector.
Nicholas Boyd-Mathews: I cannot ever see a scenario where REE refining and value-added manufacturing (such as alloys and magnets) are ever viable in a country like Australia due to the endemic low productivity and very high-cost base. Governments may wax lyrical about grants and funding for such initiatives, but it is all ‘pie in the sky’ in my opinion.
Viewer question: Why are we letting China influence ASX-listed mining companies?
Nicholas Boyd-Mathews: Perhaps you mean: Why are certain individuals with apparent links to the Chinese State allowed to invest in ASX stocks? China has almost complete market dominance over the REE market, including the supply of raw materials and the downstream processing of ores into value-added products. This major investment by the Chinese State is underpinned by their recognition of the strategic importance of REEs as they do not, for example, have vast resources of oil or other critical commodities. Hence, it should not be surprising that Chinese-backed entities may be interested in investing in companies with REE resources, such as the Browns Range heavy REE deposit owned by Northern Minerals (ASX:NTU). It should be remembered that China is Australia’s largest trading nation and Australia has no existing refining capabilities for REEs or any value-adding manufacturing capacity.
Lithium
Viewer question: How are lithium players managing the short sellers?
Nicholas Boyd-Mathews: The best way to manage short sellers is by proving them wrong. Any Li company that can consistently meet production targets profitably shouldn’t have any concerns.
Viewer question: How has the boom in lithium exploration over the last three years changed the forecast supply side of lithium going forward to 2030?
David Franklyn: Lithium remains a small, fast growing market with volatility in demand and supply and, hence, price. The big factor recently has been the entrance of lepidolite production and increased production from Africa which forced the market into oversupply.
We expect that the lithium market will continue to mature, with solid demand growth and consistent additions of supply. Price spikes will be muted by the ability to activate higher cost lepidolite production when price rises are excessive.
Nicholas Boyd-Mathews: The current general consensus is that Li prices are likely to be depressed for the next ~5 years as EV adoption rates decline below previous very high forecasts, inflation pressures bite into the general consumer, and, hybrids are more widely adopted. The size of the Li market is such that it will tend to experience volatility periodically until it becomes larger and more established.
Viewer question: How and when will lithium prices rise?
David Franklyn: When demand exceeds supply prices will increase. We expect that medium term spodumene prices will settle between A$1,500t and A$2,000 tonne (6% spodumene).
Nickel
Viewer question: What are your thoughts on what’s going on with nickel at the moment and the future for nickel mines in Australia?
David Franklyn: There’s rapid expansion of low-cost nickel production in Indonesia, supported by China. This will keep prices subdued in the medium term and makes it difficult for higher cost producers in Australia.
Nicholas Boyd-Mathews: It will likely be several years before nickel mines are profitable in Australia due to endemic low productivity and a very high-cost base. A large supply of nickel laterite-sourced material ex Indonesia hit the market in recent times causing price volatility and uncertainty for higher-cost producers.
Niobium
Viewer question: Could niobium be the next lithium?
Nicholas Boyd-Mathews: Niobium is currently ‘flavour of the month’ for ASX investors due to the recent ‘unicorn’ success of WA1 Resources (ASX:WA1). However, it has completely different uses and market dynamics to Li.
Green Steel
Viewer question: What do you think about the emerging green steel sector?
Nicholas Boyd-Mathews: ‘Green’ steel has been on the agenda for miners and technology suppliers like Metso for several years and it is great to see Rio Tinto (ASX:RIO) recently announce progress with their BioIron project. In terms of commercialisation, it will likely be several years before the technology is mature enough to challenge the incumbent tech.
Viewer question: Do you think South Australia will lead the ‘made in Australia’ with steel manufacturing?
Nicholas Boyd-Mathews: No. In my view, the cost of doing business is not competitive enough in South Australia.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
