Investors are clamouring for battery metals exposure and explorers are splashing the cash to find them
Markets have been full of pessimism in the past year, with runaway inflation, interest rate rises and a slowdown in China’s once rampantly growing economy prompting recession fears.
Conventional wisdom dictates that atmosphere would prompt a flight from risk into the safe hands of the known, tried and tested.
In mining, funding for exploration, an irreplaceable requirement for companies who want to grow production and make new discoveries, is often the first thing on the chopping block.
Yet last year we saw the opposite. According to BDO, Appendix 5B reports from ASX-listed explorers show they spent more money drilling in the September quarter than at any point since its Quarterly Explorer Cash Update was first published in 2013.
Figures from the Australian Bureau of Statistics back that up. Miners in Australia plunged into the deep, showering $1.0849 billion on exploration in a September quarter that eclipsed the record expenditure set in the June 2012 quarter, the height of the China-led mining and investment boom.
What is behind these startling numbers?
Many market commentators believe we are on the cusp of a very different commodity cycle, one that could last longer than the old booms as demand for metals to fuel the energy transition – think battery metals like lithium, copper, nickel, manganese and graphite – protects against macroeconomic pressures.
In short, the drive behind the production of electric vehicles and renewable energy to replace fossil fuels is not slowing down. On the other hand, the pace of new discoveries is.
In that context there is no shortage of investor capital searching for the next big discovery to supply the EV industry.
ABS data shows drilling for ‘selected base metals’ in Australia, comprising EV metals like nickel and copper, rose to a record $267m in the September quarter.
The “other” field, which includes white hot lithium, graphite and rare earths, saw spending up a massive 36.6% QoQ and 69.5% YoY to $140.7m.
“We’ve certainly seen a significant pivot towards battery critical minerals over the last six to 12 months, it’s been much more noticeable in some of those other minerals like rare earths in the last six,” Association of Mining and Exploration Companies CEO Warren Pearce told Stockhead.
“And I think that’s largely because of significant investor interest and, particularly, a better understanding in the industry about the significant amount of these minerals are going to be required for the EV revolution and renewable technologies.”
You can make a mineral discovery anywhere.
But some jurisdictions have stood the test of time. Nowhere is that more true than Western Australia, the luckiest part of the Lucky Country when it comes to the mining industry.
Spending in WA hit an all time high of $692.4m in the September quarter, almost 70% of the total, with Queensland seeing its biggest quarterly spend since 2012 at $156m, thanks to drilling for gold, copper and coal.
Greenfields exploration, generally considered far riskier than brownfields discoveries around existing mines, is also being prioritised for the first time in a long time after explorers and miners chose more conservative options during the mid-2010s downturn.
Spending on greenfields drilling rose from $314.9m in the June quarter to $344.9m in the September quarter, with brownfields drilling falling slightly to $740m.
While brownfields exploration still had the larger share of the pie, Pearce views the amount committed to unexplored areas as “extremely encouraging”, with support for critical minerals a big factor.
“That’s allowed mineral exploration companies to go and look for those minerals in places we hadn’t previously been exploring,” Pearce said.
“That’s also been helped by a large piece of work that’s been done federally called Exploring for the Future, which has helped map out some of those electromag surveys to give an indication about where some of those minerals might be.
“It’s also been driven by mineral exploration companies and geos working through the old data, where previously they’ve been looking for other minerals, gold or other base metals, and realised where there’s been some hits around some of these other minerals like lithium and rare earths.”
At the same time metres drilled fell from 3644km to 3048.9km between June 2021 and September 2022, despite expenditure rising $170m over that period, revealing explorers have not been immune from inflationary pressure.
While drilling costs have risen in some parts 15-20%, Pearce said cost escalation was a larger concern at the production and development stages of the industry.
“Realistically while costs have increased at the exploration end, (if) investors are there and supporting those projects, then we’ll continue to find the funds to keep exploration going,” he said.