Optimistic outlook for mining in 2023 despite ongoing macroeconomic challenges

Early 2022 was a robust period for the mining and resources sector, buoyed by record high prices for some commodities and rising energy transition-related demand.

According to S&P Global, however, macroeconomic conditions soured heading into middle of the year, leading to weakening near-term demand expectations and declining commodity price trends.

As 2023 approaches, a somewhat bearish S&P Global says these macroeconomic events are likely to weigh on fundamentals again in 2023.

In addition, as global efforts to decarbonise drive the rollout of technologies that are increasing demand for raw materials, for many commodities, the growing consumption is poised outstrip the industry’s ability to ramp up supply, resulting in commodity deficits as early as 2024.

Credit ratings agency Fitch also suggests that almost all mineral and metal prices will average slightly lower in 2023, on a year-on-year average basis. Fitch says that lead and gold are the only 2 commodities in which it holds a neutral to positive outlook for next year, with tin and lithium expected to underperform more than other metals and minerals.

This bodes well for companies like Barton Gold (ASX:BGD), which reported initial results from an ongoing drilling program have highlighted the growth potential at its Tunkillia Gold Project in South Australia. Barton uncovered multiple ‘high-grade’ intercepts up to 23.5 g/t Au support potential for higher-grade zones, including in the new ‘Main Deeps’ target below the higher-grade ‘223 Central’ zone.

Despite forecasted lower prices, in 2023 Fitch expects higher investment into mines and permits for critical minerals

Despite forecasted lower prices, in 2023 Fitch expects higher investment into mines and permits for critical minerals, with governments poised to work to increase domestic production and critical mineral security, to mitigate the pressures of resource nationalism and higher taxes from exporting countries.

In its latest global report titled ‘Sustainability on the horizon – the prospects of a net-zero future for metals and mining companies’, KPMG was a little more bullish but notes that critical minerals for decarbonisation is already outstripping supply.

The firm says that metals and mining companies are vital if the world is to reduce its reliance on fossil fuels, however it must also employ sustainable practices as part of formal ESG policies.

The report captures the views of 322 global mining leaders with a call to accelerate the production of minerals needed to help reduce the carbon footprint – and sets the scene for Australia’s critical minerals to play a vital role in a decarbonised future.

Mining truck

Optimistic outlook for 2023

National Mining and Metals Leader at KPMG Australia Nick Harridge notes the challenging but largely positive outlook for Australian mining in 2023. He says the economic shift toward a low-carbon future was being seen by mining executives as an opportunity for metals and mining companies.

“Locally, we continue to see critical minerals as the centrepiece for the sector in 2023″

“Locally, we continue to see critical minerals as the centrepiece for the sector in 2023. Australia has an abundance of the five key critical minerals: lithium, nickel, aluminium, cobalt and copper together with a number of rare earths and mineral sands. The key demand story is highlighted with lithium.”

Given the current transition away from fossil fuels, an abundance of critical minerals will be needed, driving demand for mining output. Electric vehicles (EVs) are just one of the key users of lithium for batteries, and estimates show there are some 1.4 billion cars in the world, of which only about 15 million (or about 1%) are EVs.

Chalice

KPMG estimates that more than 2 billion EVs will need to be manufactured to accommodate world demand and fully transition away from internal combustion engine vehicles by 2050.  The pace of EV sales is rapidly increasing with nearly half of the current stock sold in the past year.

The transition away from fossil fuels will continue to require a rapid increase in the number of EVs manufactured. On that basis the production of critical minerals used in battery technologies will also need to increase substantially.

Leo Lithium (ASX:LLL) is one company on its way to assist with meeting these demands. It recently uncovered further ‘high-grade’ drilling results at the Danaya Domain, located within its Goulamina Project in Mali. The company is aiming to increase the confidence level in this part of the orebody, as well as convert a ‘significant’ amount of inferred resources into the indicated category.

Pan Asia Metals (ASX:PAM) is also developing the Reung Kiet Lithium Project in Thailand, in which it is planning initial production of up to 10,000 tonnes per annum of LCE and associated by-products.

Lithium demand to soar

KPMG reports that mining investment is increasingly turning towards lithium and other critical minerals. Given that the price of lithium has surged in the past year, the firm notes that the incentive to invest further in lithium production and circularity remains very high.

Global production of lithium was around 550,000 tonnes of lithium carbonate equivalent and that is forecast to rise to 1 million tonnes by 2024. At that level it would take around 100 years to produce enough lithium to have 2 billion lithium-ion EVs in service. This ignores other uses of lithium and does not consider the potential to meet some of this demand through circular minerals. However, it still highlights lithium mining is in its infancy.

The firm estimates lithium production would need to grow by about 12% per year every year until 2050 to produce enough of the mineral to have 2 billion EVs on the roads.

Given that lithium production is expected to grow at nearly double that pace in the near-term, and that lithium investment is likely to accelerate, rather than slow, KPMG says that pace of growth over time is considered reasonable.

In addition, the firm says there are likely to be improvements in technology that will reduce the volume of lithium required in car batteries and other technologies, which will provide a partial offset to the level of lithium required.

KPMG’s view is that alternative technologies, while not yet of commercial scale, highlight a counter to lithium demand

KPMG’s view is that alternative technologies, while not yet of commercial scale, highlight a counter to lithium demand.

One such company making inroads regarding this is Belararox (ASX:BRX), which is focused on securing and developing resources to meet the soaring demand from the technology, battery, and renewable energy markets.

Belararox has in its portfolio the Belara zinc-copper-lead-silver-gold project located 100km north-northeast of Orange in Central New South Wales, and the Bullabulling gold-nickel project in Coolgardie, Western Australia.

Tungsten

Group 6 Metals (ASX:G6M), which is progressing works on its flagship Dolphin Tungsten Mine on King Island in Tasmania is another. It remains on schedule to achieve first tungsten concentrate production in Q1 2023.

Currently more than 75% of all primary tungsten globally comes from China, which gives rise to concerns around supply security and may lead to increase demand from Western suppliers to preserve supply diversification.

Australia a lithium refining hub

While Australia is not a major tungsten producer, it currently produces just under half of the global supply of lithium.

Harridge, who is KPMG’s National Mining and Metals Leader, emphasises that it is not just about Australia increasing refining capacity – but also conducting its refining activities with greener credentials – using renewable energy for instance. Australia has historically exported unrefined lithium to China which refines the lithium for use in batteries. But Australia is now investing into lithium refineries.

Core Lithium Finniss Lithium Project

By 2024, the country should have about 10% of global lithium hydroxide refining capacity, rising to about 20% of global lithium refining by 2027. Given the higher price for refined lithium – even more for refined lithium with sustainability credentials – the increase in lithium refineries in Australia should help support investment in lithium mining in the years ahead, he says.

Harridge adds that therefore, it is expected Australia will maintain a high share of global supply of lithium in the decades ahead.

Supply amounting to net zero

KPMG’s report finds that more than three quarters of mining companies have set net zero targets for carbon emissions. At the same time, 69% aim to achieve them by 2030.

As National Leader Decarbonisation Transformation at KPMG Australia Dr Cle-Anne Gabriel notes, integrating ESG goals into corporate strategy entails ensuring C-level executives lead the effort.

She says metals and mining companies are ambitious about their net zero targets.

“Our global report shows that more than three quarters have set a net zero objective at their companies”

“Our global report shows that more than three quarters have set a net zero objective at their companies and of those who have done so, 29% expect to achieve it by 2025 and another 40% by 2030.

Executives say the most effective measures that will help their companies meet net zero targets are, first, to ensure their company communicates clearly and fully to stakeholders and, second, to see to it that net zero objectives are incorporated into overall corporate strategy.”

Her view is that this is about setting clear decarbonisation pathways both in the scope of what a company is producing and also for the operation of the business itself.  The report also says investment in new technologies to help companies reach net zero holds promise, but 58% admit they either have a long way to go in using these technologies or have not even started to plan ahead.

Dr Gabriel says that demand for critical minerals for decarbonisation was already outstripping supply.

ESG

“Looking to the future, partner countries are likely to be prepared to pay a premium for “friend-sourcing” their supply of these minerals to ensure reliability, and sustainability. That means there is potential for Australia – a country regarded internationally as a safe democracy with a stable financial market and strong trade credentials seen– to move into the supply of critical minerals essential for decarbonisation.”

On the road to global decarbonisation, one critically important material that is often overlooked compared to lithium or nickel has perpetually been graphite. While historically graphite’s demand has been driven by traditional and industrial applications such as a solid lubricant, in pencils, and as a moderator in nuclear reactors, increasingly its prominence in EVs that is now driving demand.

Magnis Energy Technologies (ASX:MNS) has exposure to graphite and recently completed a Bankable Feasibility Study (BFS) update that confirmed the viability of its 100% owned Nachu Graphite Project in Tanzania. The mine will produce and supply ‘high-purity’ graphite anode feedstock at a commercial scale for the rapidly growing lithium-ion battery market.

Establishing ESG considerations

Global Mining Leader KPMG Trevor Hart says global decarbonisation goes hand in hand with sustainable mining practices, and that the firm’s latest report captures the challenges and opportunities for the mining sector in getting to net zero.

Hart emphasises that at the same time, mining companies must transform their own operations to conform with increasingly important ESG considerations, while reducing their carbon emissions – involving clear decarbonisation pathways.

While more than half of the companies surveyed were large with $10 billion-plus in market capitalisation, ESG and transitioning to net zero is increasingly important among the junior end of the market.

“More than 40% of the survey cohort said they will accelerate investment, opening the prospect of transforming the industry in ways that help the global economy meet its ESG goals”

Hart adds: “More than 40% of the survey cohort said they will accelerate investment, opening the prospect of transforming the industry in ways that help the global economy meet its ESG goals. Yet only 30% said they have integrated ESG goals into enterprise strategy.

Others admit they have a long way to go. We see a picture of an industry that has challenges and is undergoing rapid transformation but which is responding quickly – and has bright prospects.”

Fidelity International notes that sustainability analysis can add meaningful value over the long-term and that ESG factors are central to the firm’s research and investment process.

For emerging silica sand developer Metallica Minerals (ASX:MLM), ESG is at the forefront of its approach to delivering its low-impact Cape Flattery project, which is aligned to Australia’s 2022 Critical Minerals Strategy. Metallica has taken a proactive approach to ESG given the increasing focus on these considerations by investors, governments, and local communities.

All in all, the big winners in 2023 look to be countries with large resources of green minerals, such as Australia, which is a key producer of many strategic minerals, as well as Chile and Peru (lithium and copper). Refiners are also poised to benefit from increased critical mineral investments and export levels.

Write to Adam Orlando at Mining.com.au

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Written By Adam Orlando
Mining.com.au Editor-in-Chief 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). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.