This article is a sponsored feature from Mining.com.au partner ABx Group. It is not financial advice. Talk to a registered financial expert before making investment decisions.
Emerging rare earths developer ABx Group (ASX:ABX), who is the first to discover rare earths in Tasmania, arguably knows a thing or two about pivoting.
Its 83%-owned subsidiary ALCORE is a shining example. What began as an attempt to produce aluminium fluoride from bauxite is now focused on producing hydrogen fluoride from an aluminium smelter by-product.
“It was originally to take bauxite, which is a relatively low-value product, and use it to make aluminium fluoride, which is a higher value product. It was to use bauxite instead of alumina as the feed material to produce aluminium fluoride,” Managing Director and CEO Dr Mark Cooksey says.
“This was based on the idea that we would be able to make aluminium fluoride at a cheaper price.”
But in the process, ABx identified that the fluorine also needed to produce aluminium fluoride was high cost. Through discussions with industry contacts, it heard about a by-product from aluminium smelters which contained fluorine.
“We started investigating this opportunity as well, in parallel, so we were doing experiments with the bauxite and experiments with the fluorine,” Cooksey says.
“When we ran the economics, getting the fluorine from the aluminium smelter by-product was so good that we didn’t need to worry about bauxite. And the project changed. It went from being ‘the bauxite is the core project, and we are looking at fluorine on the side, to the fluorine becoming the whole project’.
“Without making that change we would be in a much worse position.”
Well-considered pivoting
Along the way, Cooksey and his team have become proponents of pivoting, as long as it’s a deeply considered decision and not just change for the sake of change or chasing the next big trend.
The Melbourne-based company’s sights are set on delivering materials to Western supply chains for a cleaner future through heavy rare earths, clean fluorine chemical production, and near-term bauxite production.
Its flagship rare earths deposits, Deep Leads – Rubble Mound and Wind Break, boast a reported JORC-compliant mineral resource of 89 million tonnes.
With 39 parts per million DyTb (dysprosium and terbium), it has the highest heavy rare earth grades of any clay-hosted rare earth element (REE) resource in Australia, and one of the highest in the world.
Globally, China currently dominates the rare earths market with about 70% of REE mining, 90% of processing, and 93% of magnet manufacturing.
The art of pivoting
According to Cooksey, pivoting can be good or bad.
“Let’s say you’re a copper explorer and you keep exploring for copper no matter what happens, and the copper market just disappears, well, that’s just a bit naive,” he says.
“Equally, if you’re a copper explorer and you think it’s a good long-term opportunity, just because someone gets excited about rare earths doesn’t mean you should suddenly jump and say, ‘Now we are a rare earths explorer’.”
Cooksey articulates pivoting in almost a scientific manner.
“You’ve got to be clear about what are the strengths and weaknesses of what you are doing and even think about what evidence could change your mind,” he says.
“Is that a speed bump or is it a roadblock? There is no black or white to it. The most effective way is thinking, ‘What could kill this idea?’ Be honest enough to recognise it.
“At the same time, even if a problem comes up, it may not be a project killer. We all see that there are people who jump too often, and people who stay on one thing too long.”
Global factors
Critical to the process, particularly in the current jittery global financial climate, is adopting a long-term position.
“Imagine you are an electric vehicle (EV) manufacturer, one minute you’re thinking, ‘This is fantastic, all these subsidies and all these governments are keen’, and now it’s quite changed,” Cooksey says.
“What I ask myself is ‘What is the long-term outlook?’ I think EVs are going to keep going. But today it’s a mess, so what do you do? Your strategy might be getting into EVs at a slower rate. If you try to overreact to the short term, you start going in circles.
“Some exploration companies do this often. One minute they’re a copper explorer, then they’re rare earths, and then they’re uranium. But it’s difficult to be successful if you never persevere with any one strategy.”
Assess sustainability, minimise vulnerability
Cooksey notes that another critical assessment is risk level, citing rare earths as a good example.
“The good thing about rare earths is there’s a lot of interest in it. It looks like demand is going up, there’s more supply needed,” he says.
“One of the challenges commercially is that it’s attracted all sorts of people to the market and governments are in there trying to assist. It appears that for some companies their strategy has become ‘How do we get government assistance?’”
To Cooksey, this is not a sustainable move because of the high level of risk involved.
“If you are lucky, you may get a big government grant or investment. But if you don’t, you are probably dead,” he says.
“Our strategy is ‘Let’s assume the government will not provide any support. Do we think this is a good project to pursue?’ It’s about putting yourself in a less vulnerable position. We know things will change that we probably can’t predict, so minimise your vulnerability.”
Cooksey cites global examples of mining companies performing dramatic pivots, such as the 3M Company which started as the Minnesota Mining and Manufacturing Company 100 years ago. It’s now an American multinational operating in industrial, worker safety, and consumer goods.
An important factor to understand is the sunk cost fallacy.
“It’s not about how much you’ve spent, it’s about how much more you’ve got to spend from now to get it to work,” Cooksey says.
“Even if you’ve already spent $10 million on something, that is not necessarily relevant to how much more you’ve got to spend. However, it’s really psychologically challenging trying to let go of what you’ve done.
“What really matters is that today we’ve got this much in the bank, we know x, y, z about the world, such as this opportunity or risk. What is the best use of those funds?”
Cooksey believes humans overall are “pretty bad” at pivoting but rates ABx an “eight out of 10” in that field.
“I think we’re [ABx] pretty good at it. You need to rule out the highest risks, but you also need the crazy optimist to start a project, or otherwise it’s very easy to rule out every option,” he says.
But unsurprisingly, the mining industry comes with its own set of specific challenges.
“The hard thing about mining is the time it takes to get a new project up is… a long time. It provides a lot more opportunity for all these problems,” Cooksey says.
Pivoting, he points out, becomes especially important when it comes to dealing with investors.
“Investors are saying they are backing the management to make the best decisions with the resources they have available, which means if they want to pivot, they’ll back them.”
In late March, ALCORE submitted its Environmental Effects Report to Tasmania’s Environmental Protection Authority for its fluoride pilot plant in Bell Bay.
Pilot plant equipment is about to be delivered to the site with the plant to begin commissioning in late Q3.
ABx Group’s other projects include the Sunrise Project in Queensland, with 37 million tonnes of gibbsite-type metallurgical bauxite 200km southwest of the Bundaberg port; the DL130 Bauxite Project in Tasmania, about 50km west of Launceston; and Taralga in New South Wales — 38 million tonnes of gibbsite-type metallurgical bauxite 200km inland from Port Kembla.
Write to Christine Retschlag at Mining.com.au
Images: ABx Group
