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Government invests big in Critical Minerals, should you?

Carl Capolingua Carl Capolingua 17/03/2022
Government invests big in Critical Minerals, should you? Government invests big in Critical Minerals, should you?
Government invests big in Critical Minerals, should you? Carl Capolingua
Yesterday, the Australian Government announced another round of funding to help safeguard the supply of a number of critical minerals. Their long-term goal is to break our current near complete reliance on China for the production and supply of these minerals. In this article, we investigate 8 ASX listed mining companies which stand to benefit from this historic push.

Highlights:
•    Critical minerals and the problem with China
•    Alpha HPA(A4N)
•    Australian Vanadium (AVL)
•    Arafura Resources (ARU)
•    Lynas Rare Earths (LYC)
•    Hastings Technology Metals (HAS)
•    EcoGraf (EGR)
•    Renascor Resources (RNU)
•    5E Advanced Materials (5EA)
 
The scramble to become self-reliant in critical minerals  
The situation in Ukraine, and the resultant sanctions on Russia, have put at jeopardy the supply of a number of key industrial commodities such as aluminium, nickel, copper, and even iron ore. Also at threat, is the supply of key energy commodities such as crude oil and coal. The ramifications have been significant for global markets as the resultant supply shock has triggered massive spikes in the prices of many of these commodities, some to record highs.

The threat that China may choose to increase its support of Russia has highlighted another significant potential threat to global supply chains. Critical minerals, often also referred to as rare earth minerals, are essential in the production of a number of components of consumer electronics, electric batteries, powerful magnets, and in the production of construction materials such as hardened steel. The uses go on, but critical minerals are used in everything from mobile phones to electric vehicles, to the F-35 Joint Strike Fighter. The latter in particular, requires approximately half a tonne of critical minerals! 

Clearly, the impact on the global (Western?) economy if the supply of critical minerals where to be threatened could be catastrophic. The main issue for Western governments is that China accounts for 70-80 percent of global production of critical minerals, and controls just over 90 percent of their processing and supply. This dependency doesn't sit well with many governments. As a result, many, including Australia's, are taking substantial steps now to shore up their access to critical minerals in the future.

Fortunately, Australia has significant reserves of critical minerals. However, the majority of these minerals are transported overseas for further processing into the materials industry currently requires. As a result, Australia receives only a small portion of the potential value created throughout the supply chain for its critical minerals. This is why there is now a major push by the Australian Government to not only invest in new supply of critical minerals, but to expand Australia’s influence significantly further up the value and supply chains. 

"Australia is lucky to have some of the largest reserves of the critical minerals and metals which drive the modern global economy…“[China] continues to consolidate its hold over these supply chains. This initiative is designed to address that dominance."
Hon Angus Taylor MP
Minister for Industry, Energy and Emissions Reduction

Today saw $240 million worth of grants from the Australian Government's $1.3 billion Modern Manufacturing Initiative Collaboration Stream allocated to further develop the critical minerals industry in Australia. The moneys went to:
 
Alpha HPA(A4N) (Market Capitalisation: $460 million)
Together, A4N and ORI received a $45 million grant to be used toward the capital expenditure of the full-scale high-purity aluminium (HPA) project in Gladstone, Queensland. HPA is a critical ingredient in the production of synthetic sapphire which is used in the manufacture of LED lights and in the manufacture of semiconductor wafers used in circuit boards. It is a high-value, high margin product that is currently in high demand in the electronics industry. This project is aiming to produce approximately 10,000 tonnes per annum of HPA using A4N’s solvent extraction and refining technology. The project will leverage renewable energy from a local supplier.
 
Australian Vanadium (AVL) (Market Capitalisation: $159 million)
AVL received a $49 million grant to support the development of its Australian Vanadium Project in central Western Australia. AVL is aiming to create an integrated onshore Australian vanadium supply chain for steel and battery markets. In addition to the planned mine and processing plant located near Meekatharra, AVL intends to build a value-adding vanadium electrolyte manufacturing plant in Kwinana just south of Perth. The plant will be capable of producing enough electrolyte to create 33MWh of energy storage capacity.
 
Arafura Resources (ARU) (Market Capitalisation: $362 million)
ARU received a $30 million grant to facilitate the construction of a $90 million rare earth separation plant at its Nolans rare earths project in the Northern Territory. Nolans is located 135 kilometres north of Alice Springs and is Australia’s only shovel ready Neodymium Praseodymium (NdPr) project. NdPr is used in the manufacture of powerful magnets which are essential in the electric vehicle industry, among others. Nolans is a globally significant development with the potential to supply around 5 percent of the world’s NdPr demand. Importantly, ARU is targeting an "ore to oxide" business model which will see it participating in not only the mining of NdPr, but also in downstream processing.

Other ASX listed companies have benefited recently from the Australian Government’s desire to secure critical minerals production and processing. These include:
 
Lynas Rare Earths (LYC) (Market Capitalisation: $9 billion)
In February, Lynas received ministerial approval for its proposed Kalgoorlie rare earths processing facility. Lynas is currently transports the critical minerals it mines in Western Australia to Malaysia for processing. The Kalgoorlie facility will allow a significant proportion of processing to occur onshore. Last year, Lynas received nearly $15 million from the Australian Government’s Modern Manufacturing Initiative Collaboration Stream to fund the commercialisation of its refining process for critical minerals at the Kalgoorlie facility. A little off topic in terms of Australian Government support, but equally as relevant, last year Lynas was also awarded just over US$30 million from the US Department of Defense to build a critical minerals processing facility in Texas.
 
Hastings Technology Metals (HAS) (Market Capitalisation: $463 million)
In February, HAS secured a $140 million loan from the Northern Australia Infrastructure Facility to progress its Yangibana Rare Earths Project in WA’s Gascoyne region. HAS has lofty ambitions with its $1 billion project that contains the world’s highest composition of NdPr. It is aiming to be Australia’s second largest producer of NdPr behind Lynas. HAS believes Yangibana could supply between 6 to 8 percent of global NDPr demand.
 
EcoGraf (EGR) (Market Capitalisation: $250 million)
In February, EGR received a US$40 million loan from the A$2 billion Australian Government Critical Minerals Facility to support the planned expansion of its Australian Battery Anode Material Facility to 20,000 tonnes per annum. The project has previously received endorsement from the Federal Government through the award of Major Project status and has been granted Lead Agency status by the Western Australian Government. EGR will produce high purity graphite products out of its proposed Kwinana facility for the lithium-ion battery and advanced manufacturing markets in Asia, Europe and North America.
 
Renascor Resources (RNU) (Market Capitalisation: $542 million)
In February, RNU received a $185 million loan from the Critical Minerals Facility to support the development of the Siviour Graphite Project in South Australia. The Siviour Project, which has also been granted Major Project Status will produce battery anode materials for the local and international electric battery industries.
 
5E Advanced Materials (5EA) (Market Capitalisation: $1.1 billion)
5EA (previously American Pacific Borates) hasn’t receive funding from the Australian Government, but its California based Fort Cady Integrated Boron Facility in California has been designated as Critical Infrastructure by the Cybersecurity and Infrastructure Security Agency (CISA) in the US. 5EA is aiming to become a major supplier of borate products to the North American market. Borates are used in countless industrial applications, from laundry products to ceramics and glass (think mobile phone glass), to sustainable energy initiatives such as electric batteries and the production of nuclear energy.
 
Watch this space!
Clearly, governments have woken up the to importance of critical minerals in the global economy. We are likely only at the beginning of an ongoing range of initiatives aimed at supporting local resources companies in their production and processing of critical minerals. The funding allocations discussed above in many cases form a significant portion of the capital required to get these respective companies into production. With production, comes cash flows, and generally in the not-too-distant future from there, profits. We’ll be keeping a close eye on these and many others in the space for investing opportunities.
 

Addendum: Australian Government investment schemes for securing critical resources supply, manufacturing and industry:

The Australian Government’s Critical Minerals Facility ($2 billion) was established in September 2021 to assist the development of Australian critical minerals projects and to secure the vital supplies of resources needed to drive the new energy economy and support the resources jobs of the future.

Australian Government’s Modern Manufacturing Initiative Collaboration Stream ($1.3 billion) provides funding for a small number of large, transformational projects. Projects that will either directly feature collaboration or will create and facilitate collaborative ecosystems.

Northern Australia Infrastructure Facility ($7 billion) is a development financier to infrastructure projects in the Northern Territory, Queensland and Western Australia. A key focus of any financing is to drive public benefit, economic and population growth and Indigenous involvement in northern Australia.

This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication only. No representation or warranty is given as to the accuracy or completeness of this information.


Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.


Investing in derivative products carries significant risks and is not suitable for all investors. Please be aware that you do not own, or have any interest in, the underlying assets. We recommend that you seek independent advice and ensure you fully understand all risks before trading.

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Meet our contributors
Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Lesego
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Lesego Mthombothi
Market Research Analyst, South Africa

Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
 
 
 

Mahmoud Alkudsi
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Mahmoud Alkudsi
Chief Markets Analyst, MENA

Mahmoud is a market analyst, with over a decade of experience in financial markets. He follows main market movers and tracks their effect on the price chart. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and with his wide experience in providing educational and guidance materials to all levels of traders, he helps them in making informed trading decisions. Before joining ThinkMarkets, Mahmoud was head of market research departments in different reputed financial companies, where he provided market analysis for a variety of asset classes, including FX, equities, indices, and commodity futures. As an experienced market commentator, he was hosted by too many print and broadcast media, including not limited to Sky News Arabia, France 24, Alarabyia, Alsharq-Bloomberg, and CNBC Alarabyia to discuss key risk events their clear impact on the price action. Mahmoud holds a Master of Business Administration (MBA) from Cardiff Metropolitan University of Wales, UK, and speaks Arabic, English, and Spanish.

Shawn
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Shawn Lee
Market Analyst, Malaysia

Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.

Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Lesego
Lesego Mthombothi
Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
Mahmoud Alkudsi
Mahmoud Alkudsi
Mahmoud is a market analyst with over a decade of experience in financial markets. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and has experience in providing guidance to all levels of traders.
Shawn
Shawn Lee
Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.

This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication only. No representation or warranty is given as to the accuracy or completeness of this information.


Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.


Investing in derivative products carries significant risks and is not suitable for all investors. Please be aware that you do not own, or have any interest in, the underlying assets. We recommend that you seek independent advice and ensure you fully understand all risks before trading.

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