Sunday, 3 March 2024


Column-Can royalties help Australia’s critical minerals lift off?: Russell By Reuters

Column-Can royalties help Australia's critical minerals lift off?: Russell

© Reuters. FILE PHOTO: A plane flies above the Degrussa copper mine in Western Australia on August 5, 2018. REUTERS/Melanie Burton/File Photo

By Clyde Russell

LAUNCESTON, Australia (Reuters) – A consistent contradiction in Australia’s mining sector is that while there is a pressing need for new mines to be developed to provide raw materials for the energy transition, the capital to do so is hard to find.

The relatively easy part is getting an exploration permit, doing some initial drilling and proving up a resource.

The hard part is then raising the finance to develop the mine from exploration to production.

Despite the expected strong demand for critical minerals such as lithium, cobalt and rare earths, junior mining companies are struggling under the traditional model of raising equity and debt financing.

There are several reasons for this, including the higher cost of debt given the sharp increase in interest rates in recent years, and while rates may have peaked, they aren’t expected to drop rapidly in coming years.

Equity financing is also tricky, given potential investors generally want relatively quick returns and are really looking for mines that are close to production, rather than those still years out from first shipments.

A further issue is that both debt and equity investors generally require some sort of certainty of a return, and this means having some idea of the future price of the commodities involved.

The problem is there often isn’t viable futures pricing for certain speciality metals, and what prices that do exist are largely beholden to developments in China, the world’s largest commodity buyer and processor.

Australian government data goes some way to illustrate the problem, with the Resource and Energy Major Projects Report, released in December by the Department of Industry, Science and Resources, showing a decline in the value of committed and completed projects in 2023.

The value 86 committed projects underway in 2023 fell to A$77 billion ($50.3 billion), with the bulk of the money being invested in oil and gas, with critical minerals accounting for 11 projects valued at A$5 billion.

While the 2023 figure is down slightly from 2022, it’s also well below the more than A$200 billion that was invested at the peak of Australia’s resources boom in 2015, a time when major iron ore mines and liquefied ventures were being built.

Australia is the world’s largest exporter of iron ore, ranks second in LNG and is also the…

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