Australia is at risk of “missing out on the full value potential that the energy transition presents” if it doesn’t ramp up investment in critical minerals projects on the back of surging returns in the sector, according to PwC.
The financial services firm’s latest review of the country’s top 50 mid-tier mining and development companies (MT50) shows revenue climbing 75% year-on-year to A$53 billion in the 12 months to June 30 this year, while aggregate net profit for the MT50 surged to $12.19b from $2.06b last year.
The list has 11 lithium companies among 23 critical minerals firms.
Bumper coal prices also saw coal revenue account for $23b of the FY22 revenue bounty; $10b of free cash from coal operations was more than 1000% higher yoy. Coal represented 50% of the overall MT50 EBITDA in FY22 – up from 13% in FY21.
Meanwhile, lithium revenues were five times the FY21 level. The sharemarket value of the four Australian MT lithium producers and seven developers rose 136% yoy to $39b at the end of June and by a further 46% to $56b at the end of September.
“Australian companies, including MT50 companies, are taking advantage of the tremendous opportunities to move further down the battery supply chain, a big shift from the dig-and-ship mentality historically prevalent in Australia’s mining sector,” PwC said.
“Mineral Resources, Allkem, IGO, Pilbara Minerals and Wesfarmers are, together with international joint venture partners, investing in downstream chemical activities to produce battery-grade lithium hydroxide. Other MT50 companies are also considering the downstream potential for their spodumene projects.
“This is a significant development.
“While 50% of global lithium production is Australian-source, China dominates the EV battery supply chain producing over 50% of lithium chemicals, 70%/85% of cathode/anode and 75% of lithium-ion batteries.
“The current pipeline should see Australia become a meaningful producer of lithium hydroxide with around 10% of global capacity in the next few years, and 20% by the end of the decade.”
MT50 FY22 capex at $8.6b (plus-24% yoy) compared with shareholder cash returns of $4.1b (up 138% yoy). Critical minerals companies doubled capex yoy to $2.7 billion. About half of this spending was on lithium projects.
“This trend will continue with increased spending on new lithium mines and downstream lithium hydroxide facilities,” PwC said. It cited IEA projections for lithium that have demand increasing sixfold to 500,000 tonnes by 2030, “requiring the equivalent of 50 new average-sized mines”.
PwC’ report said despite increased investment activity in Australia, “our current pipeline of development projects falls short of the expected surge in demand”.
“Factoring in project lead times, we need greater exploration and pre-production activity urgently to match tomorrow’s demand growth,” it said.
“Australia’s at risk of missing out on the full value potential that the energy transition presents. This is a once-in-a-generation opportunity. We also risk failing to supply our allies with the critical minerals they need for energy independence, and for secure, reliable supply chains.”
PwC’s MT50 has a top 10 ranging from Evolution with a circa-$4b market capitalisation up to Mineral Resources ($9b). Number 50 Neometals had a market cap at the end of FY22 of around $500 million.
The total market cap of PwC’s top 50 MTs has grown from $35.4b 10 years ago to $123.8b this year.