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Monsters of Rock: Lithium is worth a massive $900m to WA’s all powerful Labor Government
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- Lithium royalties push WA to a record haul of almost $11.2b, more than tripling in 2022-23 to $910m
- The battery metal is now comfortably the state’s second highest earner behind iron ore
- AMEC laments lack of IRA style plan for downstream processing in federal and state budgets
WA’s budget papers are out and all powerful State Daddy Mark McGowan (gross, but it’s a thing over here in the isolated backwater of Perth) is dining out on another surplus, his third as Premier-Treasurer, to the tune of $4.2 billion.
Over the next three years revenue estimates have been revised up by $4.3 billion since the last mid-year review, largely thanks to iron … oh wait.
No, largely due to lithium!
WA is the world’s lithium quarry, its spodumene accounting for over half of the world’s lithium raw materials and higher lithium royalties from stronger than expected prices for the battery and EV metal will contribute $915 million for a $1.9b lift in royalty income over 2023-24, 2024-25 and 2025-26.
Iron ore royalties will add $856m to previous forecasts due to a higher forecast price of US$74.1/t in 2023-24 and higher forecast production volume.
This afternoon’s budget papers show lithium royalty income will eclipse gold this financial year for the first time, raking in $910m against the yellow metal’s $469m gift.
The State’s iron ore haul will fall from $9.9b to $9.286b, but overall royalty income will come in at A RECORD $11.158b against $11.091b last year thanks primarily to the lift in lithium (a more than threefold increase from $261m in 2021-22), gold royalty revenue and nickel ($119m to $154m).
Lithium royalties are forecast to climb further to $928m in FY24, while iron ore is expected to slide to $5.97b on lower prices.
Iron ore prices are expected to drop to US$74.1/t next year and US$66/t in the three years that follow, even as sale volumes rise from 861Mt this year to 885Mt in 2024-25, 898Mt in 2025-26 and 890Mt in 2026-27.
As previously noted, treasury estimates for things like iron ore prices tend to the conservative side, since Government forecasters like leaving a little wiggle room.
And lithium is driving the market too
The materials sector was a little droopy today, with lower iron ore futures pantsing the big three, making a 0.45% drop in the index a foregone conclusion.
Lithium miners had plenty of drip though, with Allkem’s (ASX:AKE) monster US$10.6b merger with Livent powering it to a 16% gain and lifting its rivals as investors bank on premium offers flying in for lithium players amid a rising tide of M & A in the space.
Pilbara Minerals (ASX:PLS) was up more than 5%, with fellow big four lithium names MinRes (ASX:MIN) and IGO (ASX:IGO) also in favour.
Looking tasty in the mid-tier were Quebec miner Sayona (ASX:SYA) and NT digger Core Lithium (ASX:CXO).
A few explorers in Argentina’s Lithium Triangle, the most famous triangle since the Bermuda, were also on fleek, inspired by Allkem and Livent’s big nearby corporate play.
Lithium miners share prices today:
Budgets miss the mark on critical minerals
Spare a thought for the miners raking in those record prices, pulling in those royalty earnings for the State Government.
There were a handful of small measures in the budget to throw back at the industry, including the $40m Sustainable Geoscience Investment package announced in April.
But the Association of Mining and Exploration Companies views both this and Tuesday’s federal number crunch as a missed opportunity when it comes to a large, nation-building critical minerals plan akin to America’s US$370 billion Inflation Reduction Act.
Echoing comments from Iluka Resources boss Tom O’Leary yesterday, CEO Warren Pearce said WA needs a more focused approach to diversifying its economy and bringing more value-adding and downstream processing onshore.
“In an increasingly competitive international environment, Western Australia needs to do more to incentivise international investment in value-adding,” he said.
“The Federal and State Budgets were Australia and Western Australia’s first chance to respond to global efforts to steer investment capital in the critical minerals value chain away from Australia.”
“Both Budgets have missed this opportunity to signal to the world that we are prepared to fight for these investments, the high paid, high skilled jobs and long-term economic benefits they offer.”
“There is still time, and our industry will be looking for both the State and Federal Government to back us in as we pursue these opportunities.”
