Diggers and Dealers Day 2 lunch wrap: Are green metals valuations ‘too good to be true’?
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Evolution Mining executive chairman Jake Klein produced a sensational zag on Day 2 of the Diggers and Dealers, hinting a dot com style bubble may be forming around the valuation of “green minerals” companies.
It came in the wake of day-one proceedings that saw decarbonisation and battery metals dominate the agenda, which included former Northern Star Resources boss Bill Beament of all people stating “I’m not in gold full stop, mate”.
Klein said while Covid was still raising havoc around the world, markets were acting as if it was all over.
“New so called green metals are the rage,” he said.
“Companies with assets in these commodities are being priced a lot like internet companies, all about their potential and their future earnings.
“It all seems almost too good to be true, and just maybe it is.”
Klein, unsurprisingly, thinks gold companies deserve better valuations than they currently have in the context of major debt-fuelled stimulus spending that he says will eventually have to be paid off.
“The scale of government spending and central bank asset buying is historic and breathtaking,” he said. “The US Government is forecast to tally a fiscal deficit of US$6.1 trillion or 14% of their GDP.”
“That’s money they just don’t have. On the monetary stimulus side, in the past 15 months only, the Federal Reserve has US$3.6tn worth of government debt and mortgage backed securities — and it still pledges to buy at least US$120 billion a month.”
“That means they’ve printed more than 20% of all the US dollars ever printed in just the last 15 months.”
“Yet it really is interesting that few people appear to be focusing on these major risks that are evident.”
“Almost zero risk is being priced into markets and markets are priced for perfection.”
“Isn’t that the best time to buy insurance? And the best insurance over time has been gold.”
Klein beamed into Kalgoorlie from locked down Sydney, protesting Australia’s lax vaccination rates with Elvis’ Jailhouse Rock and some mad Photoshop and/or MS Paint skills to kick off his video-linked presentation.
“A plan without a date is just a wishlist.”
Australia’s richest person Gina Rinehart, via the mouth of Roy Hill iron ore CEO Gerhard Veldsman, has sent a searing message to the Federal Government to get its arse into gear on a serious plan to reopen Australia.
Veldsman said sourcing labour for shutdowns at the company’s 60Mtpa Pilbara iron ore mines, which was reliant on FIFO talent from the East and overseas, was becoming extremely difficult as covid cases continue across the Nullarbor.
“If we don’t want to fall behind the rest of the world we need to look at how we can get up over 80 per cent vaccination so we can move freely, not just across Australia but also internationally,” Veldsman said.
“Talking to a CEO in Germany the other day they actually test school kids every morning for Covid.”
“If you want to go to a beer garden you have to have had a covid test or both vaccines.”
“If we don’t (come up with a plan) we won’t actually get the resources we need to do these projects we’re talking about.”
Eddy Haegel, the executive who took BHP’s unloved Nickel West division from the chopping block to its battery-focused future, delivered his final Diggers and Dealers presentation before he steps aside.
Haegel will be replaced by BHP WAIO executive Jessica Farrell and his final Diggers presentation – four years since announcing the division’s pivot from stainless steel to EV supply – was a demonstration of its newfound ESG credentials.
Coming as the broader company looks for buyers for its oil and gas assets, Nickel West is aiming to ramp up its use of renewables as it looks to reduce Scope 1 and 2 emissions over the course of the decade.
That will include increasing its share of power purchased from the Merredin Solar Farm for its Kwinana refinery and Kalgoorlie smelter from 20MW to 50MW (half of the farm’s output), and investigating the use of wind power in both the South West and Northern Goldfields.
If successful that could see BHP cover its power generating needs at the Kwinana refinery and Kalgoorlie smelter – which is due for a major furnace rebuild in 2025 – from renewable sources.
Haegel said 85% of BHP’s refined nickel now goes to the battery industry, which going forward will include a major supply deal with Elon Musk’s Tesla, up from nothing when he took over in 2015.
BHP’s own analysis shows EVs will be 25% of all new car sales by 2030 and 40% of new car sales in Europe, although as IGO’s Peter Bradford noted yesterday reality often outpaces expectation when it comes to the uptake of new technology.
Haegel also believes nickel rich lithium ion battery chemistries will retain supremacy over cheaper lithium-iron-phosphate batteries because of their range and energy density, despite the increased substitution of LFP by Chinese small vehicle makers in recent years.
It is also looking to build new mines in the coming years, including at its Honeymoon Well project 40km from the massive Mt Keith operations, which has helped increase its overall nickel resources by 20% to 7.4Mt.
BHP’s broader leadership has signaled its intention to ratchet up its investment in nickel outside Nickel West recently with an off market C$238 million takeover bid for Canada’s Noront Resources.
Got a project of interest? Let Newcrest Mining know about it.
With the growth of mid-tiers like Northern Star into majors, Australia’s biggest gold miner is facing a challenge to its supremacy at the top of the ASX-listed gold space for the first time in years.
Most of Newcrest exploration chief Fraser MacCorquodale’s presentation was largely dedicated to the miner’s 3.4Moz Havieron discovery with London-listed Greatland Gold.
MacCorquordale believes other Havierons could be nearby, and given the success farming into Havieron – 45km from Newcrest’s large but often marginal Telfer mine – he said Newcrest remains keen on JVs and partnerships to find the mines of the future.