Mines and Money: Melbourne Mining Club reminds resources companies of the ‘law of the jungle’

In mining, the law of the jungle is such that the majors are at the top of the pecking order and junior exploration companies tend to follow the pack trying to survive.

While being far from an ‘anything goes’ environment, the code of survival in the mining jungle refers to a hierarchy of superiority, brute force, and self-interest in the struggle for survival.

Melbourne Mining Club Chairman Richard Morrow, who has enjoyed a career spanning more than 30 years in stockbroking and is part of the Lowell Resources Fund team, details to Mining.com.au how the law of the jungle applies to mining in Australia now more than ever.

Speaking ahead of Mines and Money Connect Melbourne held on 14-15 June, in which this news service is official media partner and where he’s scheduled to present, Morrow says the top of the food chain (mining majors) are set to seek out target prey (junior explorers) in a period defined by consolidation and concerns around access to capital.


He tells this news service that across the board it’s very much a tale of haves and have-nots. There are many “actually swimming in money and doing good things with it” and others with work programs that have “gone all the way through and they’re coming to an end”.

It’s the latter, which are looking at their bank account and thinking – ‘I better do something about this’. In turn, they are seeking to be fed and sustained by those at the top of the pecking order.

There are many “actually swimming in money and doing good things with it” and others with work programs have “gone all the way through and they’re coming to an end”

According to Morrow, generally, smaller resources companies prefer to have at least $1 million in cash reserves when reporting each quarter. He says many juniors have drill rigs on the ground and whatever cash reserves are available they are currently working to “plough through it”.

“The idea is that you get out there, you invest that money in the project and achieve some success, report that to your shareholders and then go back again and say, ‘Hey, let’s keep going with this’, and then shake that begging bowl out there. In fact, you know, there are quite a few exploration companies over the last year in particular that couldn’t get access to either equipment for drilling or geotech, or even the people. And a lot of them are just getting access to those facilities and that equipment (now) and they’re out there exploring.”

Morrow notes that in Australia, each region, state, and territory is different and has many variables in terms of when companies plan or are able to undertake exploration work.

Oftentimes juniors are forced into an exploration hiatus. Whether it be inclement weather due to seasonal cycles such as those experienced in the Northern Territory, tenement access issues, or delays in receiving assay results, the vagaries of exploration work are as varied as there are resources companies.

Tough habitat for juniors

Morrow notes: “I tell you, normally in Victoria, the field season for exploration is well and truly finished by Anzac Day and we’re past that and these guys haven’t even started. So, a lot of companies that are cashed up, raised that money over the last 6 months, 2 years, and now they’re only getting the chance to deploy that, put it into the field, put it into projects.

I would much prefer to see that money and as much of it as possible going into the ground and heading for the next discovery. I think it’s going to be maybe down a bit. I reckon the quarterly we’ve just gone through what may well have been peak news for the explorers because so many of them got their access to their equipment, they got their access to their ground.”

“I would much prefer to see that money and as much of it as possible going into the ground and heading for the next discovery”

However, Morrow tells Mining.com.au that turnaround times for assays have retreated back from 9-12 weeks to about 2-3 weeks now, meaning juniors no longer have to drill blind. He expects there will be an ‘enormous’ amount of news flow coming through over the rest of 2023, as many of the aforesaid issues subside.

Although he adds that the wetter parts of Australia such as Victoria and Tasmania may still present access issues for exploration companies during the winter period.

“To me, there’s so much going on out there and there’s so many results that have come in that have caused people to look at things in different ways. You don’t just send your exploration crew out there into the field and say, ‘Drill here, drill here, drill here, drill here’. The smarter companies tend to look at the results and they come in and go, ‘Oh, that’s not what I expected. Let’s just go 100 metres to the left’, or something like that, and drill at this angle.”

In other words, Morrow says companies need to exhibit patience and be ready to pounce when conditions are ripe.


Valuation and consolidation

Shifting focus to valuations and consolidation, in a trend often seen every few years, major miners are seemingly willing to undertake mergers and acquisitions which eventually trickles down to the smaller end of town.

A recent example includes BHP (ASX:BHP) and OZ Minerals (ASX:OZL). On 2 May 2023, BHP completed its OZ Minerals acquisition and implementation of the scheme of arrangement.

At the time, BHP Chief Executive Officer Mike Henry noted the acquisition strengthens BHP’s portfolio in copper and nickel and is in line with its strategy to meet increasing demand for the critical minerals needed for electric vehicles, wind turbines, and solar panels to support the energy transition.

“Combining our 2 organisations will provide options for growth, bring new talent and innovation to unlock these resources in a sustainable way, and deliver value to shareholders and communities.”

When Mining.com.au asked Morrow whether the wider market will follow larger miners engaging in M&A, or whether they might be one-off deals not indicative of a wider emerging trend, he was forthright in his answer – “Well, it definitely it is (indicative of a wider trend).”

According to the Melbourne Mining Club’s Chairman, this emerging deal activity all boils down to the cost of finding a commodity whether it be for a tonne of base metals, battery metals, lithium, or an ounce of gold.

He asks – is it cheaper to acquire those tonnes or through a junior’s own exploration? Or is it more worthwhile looking across the tenement boundary and determining whether a neighbouring mining company or project could be acquired at a cheaper price per ounce or tonne in the ground.

Law of the jungle

“It’s law of the jungle. It doesn’t so much happen here as much as it happens, say in the North American market, where a lot of companies there just set themselves up to be taken over upon success. And they’re happy to get a project off the ground, put a few holes in, get a resource up or even before that, and then pass it on to a bigger company that can really do the hard yards, those deeper holes and the other amount of advanced exploration that’s needed in some of these more difficult to find orebodies.

“you do have to spend more to find deposits … if the share market is too stupid to understand the value inside a small, listed company … a cashed up producer … will”

Let’s face it, the easy ones have all been found. So, you do have to spend more to find deposits and look if the share market is too stupid to understand the value inside a small, listed company yeah, a cashed up producer, and there’s plenty of them out there will…”

Morrow notes as an example in the gold sector, where the price is trading at about A$3,000 an ounce, is a level he would not believe would be reached 10 years ago. He adds, if it costs $1,000 cash an ounce to pull the precious metal out of the ground, such a margin can build up a lot of firepower.

He adds there are plenty of producers around that are ‘very flush’ with cash, which for are seeking to move first and acquire the better projects. The reasons for this M&A are varied but generally include adding to their production profile and not being left behind.

“Really, this is one of the most lucrative times for companies to be in production, and that money burns a hole in the pocket and the smarter ones move first and acquire the better projects. Then there’s that fear of missing out the old FOMO there. That tends to cause a bit of a bubble, really, and a follow through.

It’s not as intense as it has been in other cycles and with my grey hair, I have seen a few of them, but it’s out there and it’s just bubbling along. I know companies keep files on every other company that they’d like to own one day, and if a price hits a certain level, or maybe they start to run out of money bang, door flies open, takeover bid happens, and off we go.”

Deal activity aside, Morrow suggests that overall, there has been a lack of capital investment in larger projects. Despite the well-documented global need for certain raw materials and minerals such as copper, battery metals, and critical minerals, the sector hasn’t invested enough for the future.

While this applies across quite a few other non-mining industries, Morrow adds that a lack of investment in new capacity and exploration will cause shortages down the track although it will push prices up and make investment in these areas profitable – “if you pick the right one”.

“There just hasn’t been enough of it and so it may not happen this year, it may happen next year, but the shortages will come for the most in demand metals, like copper of course, is a bit of a standout in that department.”

These questions and global discussions will be canvassed at length and ideally answered at Mines and Money Connect Melbourne on 14-15 June.

This news service is official media partner of the conference.

Write to Adam Orlando at Mining.com.au

Images: iStock & OZ Minerals Ltd
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Written By Adam Orlando
Mining.com.au Managing Editor Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Adam has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.