Australian resources investors can look forward to a prosperous 2022 as iron ore prices rise and global megatrends towards decarbonisation continue to gain momentum, according to experts.
Despite losing 30% of its value throughout the year, the price of iron ore has gained 30% in the past month, amid growing hopes of a revival in steel production.
And the unabating rise in demand for electric vehicles is good news for several critical supply chain metals, with lithium, copper, cobalt and nickel all seeing strong price growth.
Iron ore outlook
“When looking at the mining industry throughout 2021, it’s a case of what’s happening in iron ore and what’s happening in everything else,” Morgans senior resources analyst Adrian Prendergast says.
“By June we were concerned that the markets were overheating on any sign of pullback or blunted demand from China, which has had an impact on our markets.
“We’ve seen surging steel stockpiles and production plummeting in the late months of 2021, which is part of Chinese efforts to stabilise the property market.
“We’re probably now nearing what the worst forward demand picture looks like.”
The rally in iron ore prices is not only good news for the big players like BHP and Rio Tinto - both of which have seen share price bumps of 15% and 9% in the past month respectively — but also small-cap iron ore stocks.
Shree Minerals Ltd has taken another step in the application process for the development of a Direct Shipping Ore (DSO) operation at Nelson Bay River Iron Project (NBR) in northwest Tasmania, with the local council advertising the company’s proposals for public consultation.
The NBR Project is in the far northwest of Tasmania and about 150 kilometres from the Burnie Port, within an established mineral province in the region and operating mines including Grange Resources’ Savage River Iron Ore.
CuFe Ltd (ASX:CUF) has concluded attractive terms for its second shipment from the JWD Iron Ore Project in Western Australia, ensuring the company receives the best price possible at a time of volatile iron ore pricing.
Active management of future production and sales scenarios is one aspect of the company’s drive to obtain maximum value from JWD, with another being the successful trial of a higher payload ultra-quad road train.
CUF's offtake partner has sold the second shipment for delivery to South Asia on a fixed price basis and given the sale is on a fixed price basis the November put option has been closed out.
When combined with realised hedge proceeds, the combined notional sale price from the physical and paper components of this cargo will be circa US$170/dmt on a CFR basis, which compares favourably with the October spot price of US$122.91/dmt and last week’s close of US$94.43.
And Burley Minerals Ltd (ASX:BUR), an iron and base metals explorer, has moved to expand its assets in the Hamersley Iron Ore Province of Western Australia by applying for an additional, third exploration licence in the world’s largest iron ore production district.
EVs driving multi-metals growth
“There has been significant strength in metal prices, particularly for anything related to global megatrends,” Prendergast says.
“Anything EV related, or sectors where the market can see finite supply against rising demand intensity, is being strongly supported by the market.
“The outlook for the resources sector in Australia is strong. Ours is a safe and advanced mining jurisdiction compared to elsewhere in the world.
“We’ve also got strengthening fundamentals and we’re seeing Australian miners comfortable enough to go for bigger targets locally.
“M&A has been unsustainably low in Australia, that will start to increase.”
And while Australia’s electric vehicle industry remains in its infancy, the US, Europe and China are wasting no time moving to electrify their huge fleets.
In an effort to “to grow good-paying, union jobs at home, lead on electric vehicles around the world, and save American consumers money”, US President Joe Biden signed an executive order to make half of all new vehicle sales by 2030 zero-emissions vehicles.
That, according to American investment magazine Barron’s, “means billions in spending”.
It also means the US needs lithium, one of the most crucial metals in the battery metals dynamic, and lots of it.
Currently, China and Europe represent the two biggest markets for electric vehicles, with data from EV-Volumes showing that 1.14 million EVs were sold in China in the first half of 2021, while 1.06 million were sold in Europe, growth of 197% and 157% respectively.
Pure-play cobalt exploration and project development company Cobalt Blue Holdings Ltd (ASX:COB, OTC:CBBHF) is focusing on advancing the Broken Hill Cobalt Project in New South Wales as well as downstream value-adding.
The company’s commercial aim is to make battery-ready cobalt sulphate from a new pilot facility on a scale sufficient to provide test samples for global commercial partners.
Most recently it received strong validation of its strategy to supply ethical cobalt from the Broken Hill Cobalt Project (BHCP) through participation in a critical minerals supply chain discussion with South Korean President Moon Jae In and other senior Korean government officials.
Hillgrove Resources Ltd (ASX:HGO) owns the Kanmantoo Copper Project, an advanced, fully permitted project with key infrastructure in place for a low capex restart and one of the few potential near-term copper producers on the ASX with multiple opportunities to increase resource base, annual production and mine life through lower-cost underground drilling.
In mid-December, it confirmed the “excellent project potential” of the Kanmantoo Copper Project with an underground stage one economic assessment demonstrating post-tax cash flows of A$196 million from the planned recommencement of operations in 2022.
The confidence of the company has been further lifted with the assessment indicating a net present value (NPV8) of A$166 million and an internal rate of return (IRR) of 389% for the South Australian project.
Not too far from Hillgrove's Kanmantoo or for that matter COB's BHCP, Havilah Resources Ltd (ASX:HAV) has the large Kalkaroo Copper Project and is progressing a strategy to first develop the oxide gold component within the West Kalkaroo deposit to help fund the copper development.
- Daniel Paproth