• Miners in the west are confident they can satisfy demand for critical minerals: KPMG
  • Dale Henderson and Tom O’Leary lend key insights to KPMG report on miners’ role in energy transition
  • St Barbara board again refuses to engage with Silver Lake on Gwalia bid

 

Miners have issued one of their most confident calls yet that they will be able to supply the metals crucial to the energy transition amid bullish demand projections and projected supply shortfalls caused by the rise of metal-intensive electric vehicles and renewables.

KPMG’s 2023 Global Mining and Metals Outlook suggests miners are more optimistic on their prospects of meeting the challenges posed by decarbonisation than many forecasters.

The latter have warned we are nowhere near finding the new mines required to underpin growth in EV, wind and solar panel production needed to shift the global economy away from predominately burning coal, oil and gas for energy.

In its annual survey, accounting firm KPMG has enlisted the responses of leaders across the global mining industry and called on the insights of two ASX titans in Pilbara Minerals (ASX:PLS) managing director Dale Henderson and Iluka Resources (ASX:ILU) lead banana Tom O’Leary.

 

So what do the respondents say?

Before we get to the experienced mouthpieces of Henderson and O’Leary, consider this.

There is plenty of pessimism around the place that miners can achieve their growth ambitions and create value for shareholders AND improve their ESG metrics.

Western miners, in particular, are at a disadvantage when it comes to convenience against places like China and Indonesia, where more lax environmental standards pose a far less impenetrable regulatory roadblock.

Yet 53% of the miners surveyed by KPMG in its Global Mining Outlook Report 2023 – Executive Insights on Decarbonisation say they are confident the industry can meet demand for clean energy minerals.

Some 26% count themselves as “very confident”, with 55% confident and 24% very confident the sector can reconcile growth with meeting ESG and net zero objectives.

“The global mining sector knows there is a great deal of heavy lifting ahead to achieve net-zero targets – and that time is of the essence,” KPMG Global Mining Leader Trevor Hart said.

“Our report shows metals and mining company executives understand that to succeed in reconciling ambitious growth targets with stringent carbon-reduction objectives, they will have to design their operating model to accommodate both objectives.

“Achieving net-zero carbon emissions by 2040 or 2050 may seem a long way off, but now is the time to integrate those ambitions into enterprise strategy.”

Other responses to the survey of 430 mining and metals executives from around the globe struck an equally bullish (many would say “hopeful”) tone.

33% said they had a plan to reduce and eliminate Scope 3 emissions by 2040 with 39% saying they would get rid of them by 39%. Those are the tough emissions like those generated by copper smelters and steel mills over which the miners themselves have little control.

Meanwhile 41% identified cutting carbon emissions though improving energy consumption efficiency was their priority for reducing the environmental impact of mineral and metal processing, and 36% said the most important aspect was exploring alternative low-emission technologies to produce clean energy materials.

KPMG’s report also focused on innovation, with 54% of respondents saying changes in technology would be the most important factor affecting their demand projections over the next five years, just ahead of cost-efficiency, 5G (26%) and, equally, exploration techniques, internet of things and extraction technology (24%) were thought to be the biggest tech opportunities for miners.

AI (48%) and data and analytics (42%) were the largest technologies expected to help increase metal supplies.

 

WHAT DO THE BIG DAWGS SAY?

Musings on China

While much of the energy-transition discourse has been about the need to diversify away from China amid a simmering diplomatic and trade war between China and the US, PLS’ Henderson says the Middle Kingdom will be incentivised to maintain good relationships with Australian miners.

“At the business-to-business level, we don’t have any cause for concern. It’s always been a healthy relationship, but of course we watch the geopolitical utterings between the US and China,” he said.

“I don’t foresee China making any detrimental move to increase the distance between Australia and China, in respect of raw materials, particularly within the lithium supply chain, because it would hurt them massively.

“Their industries are very dependent on Australia, and we have a very co-dependent relationship.”

Henderson told KPMG that while PLS was diversifying its trading relationships – it is the minority JV partner in a 43,000tpa hydroxide plant POSCO is building in Gwangyang in South Korea – Australian companies can’t sever ties with China.

“We are thinking about strategies to manage the geopolitical dimension. From the inception of the business, we have a strategy of being diversified, because it makes business sense,” Henderson said.

“We’re balancing the fact that the whole lithium industry pretty much looks to China for the processing of raw materials, so we can’t sever that tie, nor do we want to.

“We continue to diversify into other markets, although we can’t pivot elsewhere too quickly.

“The expansions we are executing will deliver a considerable step-up from current production levels and enable us to further integrate down the supply chain.

“The combination of our scale, downstream integration and innovation efforts will further support our objective to be a leader in sustainable battery materials.”

 

There will be a supply shortfall

While mines are confident they can meet demand for clean energy minerals, Iluka’s Tom O’Leary, whose company will open Australia’s first rare earths refinery producing separated neodymium, praseodymium, terbium and dysprosium for wind turbines and EV motors, says there will be a shortfall.

“The expectation is widely acknowledged in the industry that there is a going to be a shortfall in global supply into the early 2030s, though, and we’ll be looking to meet some of that shortfall,” he said.

He noted the miners’ role will be to provide materials to facilitate a regulatory and societal shift to zero emissions energy.

“We see that our core role in the global push to decarbonise is to facilitate others’ drive to net zero through the production of rare earths,” said O’Leary.

“We are continuing to apply research and development money to refine and metalise critical minerals in ways that are most attractive from a carbon perspective, but many of those processes cannot be done in a zero-carbon way at the moment.

“Australia’s objective of decarbonisation is a sound one, not just from a jobs and development perspective, but from a diversification of supply chain and environmental perspective, to see those minerals processed in a manner that meets high Western standards of environmental outcomes and ESG more generally.”

 

Mining will be of greater strategic importance

Miners are facing a challenge to maintain social licence and foster and keep talent to help staff their operations and produce the materials key to net-zero objectives.

O’Leary says it will become more evident as the energy transition progresses how central miners will be to the shift.

“Provided the industry continues to engage candidly with our stakeholders and industry participants and do so truthfully and pragmatically, then, as we advance further through this process of electrification, it’s going to become more and more evident for stakeholders and the public [as to] the necessity of certain critical minerals.”

According to respondents, government policies and the availability of data from national geological surveys will play the key role in ensuring metals supply.

O’Leary’s firm, previously a mineral sands specialist, received a groundbreaking $1.25b loan from the Commonwealth Government to construct its Eneabba rare earths refinery in WA last year ahead of its projected 2025 opening.

“The objective of the government was not merely to enable Iluka to process our own deposits of rare earths, it was really to enable the development of a rare earths industry in Australia and that objective is being achieved,” he said.

“The government was facilitating the diversification of the supply chain for rare earths from the current concentration in China.”

 

Miners believe they have strong growth prospects

Despite concerns we are past the peak of the recent mining cycle, where miners appear most bullish is their expectations around growth.

75% have high confidence in their growth prospects over the next two years, described by KPMG as “an overwhelming majority of executives”.

“With the market predicting a significant deficit in lithium supply relative to demand over the next 10 years, this presents a challenge for the world, but a massive opportunity for us,” Henderson said.

“We have a strong level of confidence that, through our strategy, we can deliver into that, so, for us, the game plan is pretty simple: Put the foot down and maximise the value of the resources as rapidly as we can.”

According to KPMG 79% of mining executives surveyed have high confidence they can meet growing global metals demand while still hitting their ESG and net-zero targets.

 

 

Iluka Resources (ASX:ILU) and Pilbara Minerals (ASX:PLS) share prices today:

 

 

 

Silver Lake shareholders … rejoice?! as St Barbara rejects fresh Gwalia bed

Silver Lake (ASX:SLR) shares rose more than 2% after St Barbara’s (ASX:SBM) board again put the kibosh on a more than $700 million cash and shares bid for its Gwalia gold mine.

It follows a pattern – Silver Lake’s shares have fallen on average 5% each time it has made a new bid for the Gwalia mine, currently betrothed, pending a shareholder vote, to Raleigh Finlayson’s Genesis Minerals (ASX:GMD).

They have subsequently rebounded each time SBM has rebuffed SLR’s advances. The latest of three SLR offers came in at $722m including $370m in cash (the same as the Genesis quantum) and the balance in shares, reported by SLR as a 15.8% premium to the latest GMD offer.

SBM’s rationale largely comes down to timing and execution risk.

49% of Genesis’ shareholders across its Top 20 already support its bid, which has come after months of due diligence. It also owns two assets already in the region, the Ulysses underground 30km south of Gwalia and its underfed mill, and the Mt Morgans mine via a majority stake in listed Dacian Gold (ASX:DCN).

Silver Lake has less obvious synergies but it’s a larger and more established business, producing over 250,000ozpa from its Deflector and Mount Monger mines in WA and the Sugar Zone operation in Canada.

SBM has offered a long rebuttal to the latest Silver Lake offer. We’ll summarise thusly:

– It says the approach SLR claimed to have made to discuss a merger in 2022 was never followed up on, and that SLR waited five months until after an initial Genesis deal to make an offer.

– It says the poor performance of Silver Lake’s shares after each Gwalia offer raises doubts on whether its shareholders would approve the deal. The condition that SBM abandons its agreement with GMD is, according to SBM, too risky in that context.

– As a future shareholder in the acquirer, SBM says GMD has more synergies. It also says SLR has indicated that to fill the Gwalia mill it would try to execute a toll treatment agreement with Genesis over its Ulysses mine, which would be unlikely.

– While 9.3% shareholder L1 Capital has indicated its intention to vote against the Genesis sale, SBM’s board says it needs to act in its shareholders’ interests as a whole. “The St Barbara Board is firmly acting to ensure that the compelling advantages of the Binding Genesis Transaction are not put at unwarranted risk without a superior and deliverable transaction to replace it,” the company said. L1 had no additional comment when we got in touch today.

“The Binding Genesis Transaction is fully and definitively documented, fully funded by a committed $400m capital raising, not subject to due diligence, supported by a $25m deposit and has received indications of support from ~49% of Genesis’ register,” SBM chair Kerry Gleeson said.

“Silver Lake’s latest proposal would still require termination of the Binding Genesis Transaction before the satisfaction of conditions attached to the Silver Lake proposal, including a Silver Lake shareholder vote.

“Silver Lake was given the opportunity to make a non-binding indicative offer in September last year and it did not do so. Instead Silver lake has waited until the eleventh hour to demand that St Barbara entertain a disruptive and unrealistic two-week, due-diligence exercise without any indication that Silver Lake shareholders would ever approve the proposal themselves.”

We eagerly await Silver Lake’s response.

 

 

St Barbara (ASX:SBM), Genesis Minerals (ASX:GMD) and Silver Lake Resources (ASX:SLR) share prices today: