Now is the time to invest in critical minerals refining – By Joe Kaderavek

Following @AuManufacturing’s questioning of Australia’s progress in developing critical minerals, Joe Kaderavek says now is the time to invest in mid-stream refining in Australia.

Commodity prices move in deep cycles, causing mining boom and bust periods.

Many critical minerals markets are suffering from over-supply following a phase of over-investment after nearly a decade of low interest rates and aggressive Chinese financing.

Nevertheless, demand for critical minerals remains very strong.

Demand for battery raw materials has averaged 6-8% annual growth for the past several years and is expected to persist into the next decade.

Despite this trend, instead of increasing output in key metals such as nickel and cobalt, Australia is reducing production. Several operations across the country have shuttered in response to cyclical low prices.

Not only are existing operations struggling, but it is clear that new mines are not viable in today’s markets.

Emerging (critical minerals company) market capitalisations are down ~80% over the past 1-2 years, creating an environment where funding options are extremely limited.

Investing in mid-stream companies

Investment in mid-stream projects makes more sense in this environment for several reasons.

Commercially, mid-stream refinery projects are more financeable than greenfield mine projects as capital costs can be as much as 90% lower than new mines.

They are also less complex to build with short construction periods, and most employ well-established technology.

Furthermore, as the feedstock purchase price is directly linked to the prevailing spot price, profit streams are defensive against commodity price cycles.

Consequently, such projects with more reliable revenue streams are attractive to domestic and international partners for offtake and/or strategic interests.

Finally, without mid-stream projects, which represent a link between mining and lithium-ion cell manufacturing, there is no scope to develop a battery industry in Australia.

Mid-stream investment ‘enables’ the downstream to develop.

Strategically, mid-stream projects align with both domestic and international policies designed to promote refining capacity growth. Policymakers in aligned nations such as the US and EU have introduced legislation to secure responsibly sourced critical minerals supply that reduces reliance on China.

Australia is in a prime position to take advantage of this growing demand segment.

Districts, such as the Kwinana Industrial Area, possess extensive infrastructure, services, access to nearby port and export facilities, transport logistics and a skilled workforce that is ready and able.

The Australian government (Federal and State level) has set several programmes in motion to help develop new downstream projects driving value-added capability for the country’s robust primary resource sector.

The building blocks to generate a surge in new mid-stream projects are clearly in place. However, few projects have yet to receive the practical support required to get them off the ground.

Critical minerals prices will inevitably rebound and spark fresh interest in new mines.

In the meantime, however, conditions today are ripe to invest in emerging mid-stream capacity.

Joe Kaderavek has held senior management roles with PricewaterhouseCoopers, Five Oceans Asset Management, Bankers Trust, and Deutsche Bank. He has managed operational reviews and strategic option assessments across mining, processing, railway, and port facilities. Joe is Chief Executive Officer of mining and mineral processing company Cobalt Blue, which is owner of the Broken Hill Cobalt Project (BHCP).

Picture: Joe Kaderavek

Further reading:
Is Australia’s role in critical supply chains as ever – we supply materials, they do value adding