WA's nickel and lithium earnings crater as mining state continues to milk iron ore cash cow

Iron ore keeps WA budget humming, with higher than expected price driving $3.2b surplus

Nickel and lithium royalties nose dive as low prices threaten WA miners

Industrial land preparation, a critical minerals processing hub and smoother approvals processes among the carrots waved at resources sector

Iron ore royalties will come in almost $4 billion above the WA Government’s budget in 2023-24, salvaging a $3.2 billion surplus stung by blowouts in an expansion of the Perth train network and falling lithium and nickel royalties.

Lithium’s position as the State’s third largest resources earner behind iron ore and North West Shelf oil and gas grants was short-lived, with falling spodumene prices to see the lithium sector’s contributions slide from $1.04b last year to $422m in 2023-24, less than half of initial budget forecasts of $928.4m.

Nickel royalties had been expected to bring in $173.8m in government revenue, instead on track to pull in $104.9m on lower prices and consequent mine closures, as well as a royalty assistance program rolled out to try stem job losses.

Earnings will fall even further in 2024-25 to $377.5m for lithium and $88.2m for nickel, though gold royalties are forecast to rise from $533.4m to $608.9m.

Iron ore pulled in $9.85b to underpin the State’s $11.2b mining haul, up from a budgeted $5.97b and 2022-23 take of $9.08b.

That comes down, in large part, to the conservative price forecasts used by the WA Treasury. Those have been lifted from US$66/t to US$71/t with the cost curve for iron ore miners rising in recent years.

Iron ore is expected to raise $6.33b in 2024-25, sliding periodically to $5.69b by 2027-28.

More for the miners

There was little more in the way of relief for nickel producers, who received concessions a few months ago in the form of a partial royalty holiday and the inclusion of the commodity on the Aussie Critical Minerals List.

The latter powered an 80% gain for Stellantis and Samsung backed nickel laterite hopeful Alliance Nickel (ASX:AXN), which was the first potential nickel development to receive major project status from the Commonwealth today.

Any nickel players hoping for further relief may need to look towards the Federal Budget next week.

But there were a number of other commitments to the mining sector.

$373m will be spent on port infrastructure, including $17m for roadworks to assist iron ore producers using the Utah Point berth in Port Hedland.

$500 million is also being spent on industrial land to prepare them for ‘clean energy’ projects, though those include many that are white elephants thus far like the Mungari SIA near Kalgoorlie.

$100m will also be spent over the forward estimates to develop a common user critical minerals processing facility, something first proposed by the Association of Mining and Exploration Companies in 2021. WA’s Labor Government will seek an equal commitment from their Canberra counterparts.

“This state of the art facility will assist Western Australia critical mineral developers to finalise their processing and refining methodologies and explore greater value adding opportunities,” AMEC CEO Warren Pearce said.

“This will support industry to deliver on a downstream reality for Western Australia and is a substantial investment in realising Western Australia’s critical minerals value-adding ambitions.”

But Pearce criticised Premier Roger Cook’s Government for lifting mining tenement rental fees at a time when junior companies were struggling to raise capital from shareholders.

Additional money raised through the ‘services to industry’ component of the tenement rental fees will be used to partly cover the costs of the critical minerals common user facility.

The Chamber of Minerals and Energy WA lauded the investment to prepare SIAs, many of them currently ghost towns, for development by installing common infrastructure, but warned $500m could be stretched thin across 13 industrial zones.

CEO Rebecca Tomkinson also supported the use of $125m to open a new industrial zone at the packed Kwinana, nicknamed WA’s ‘Battery Alley’ in a green face lift for the rugged southern suburbs community.

“The government needs to take a lead in progressing stakeholder engagement plus heritage and environmental assessments for the SIAs so they go from undeveloped land to turnkey and ready to go,” Tomkinson said.

“Competitor jurisdictions including North America have attractive incentives to move into promoted industrial areas. Similarly, Ontario’s ‘Investment Ready: Certified Site Program’ in Canada, is taking advantage of emerging critical minerals opportunities.

“While no one is expecting WA to match other jurisdictions dollar for dollar on some of their significant funding initiatives, targeted government investment and up-front co-ordination of these processes is a critical enabler of growth. It would mean certainty for investors that industrial land is project-ready and WA is supportive of development.”

$36m will also be spent on plans to streamline approvals.