Mining sector outlook
Despite the impacts of COVID-19, Australia’s mining sector has largely remained in a position of strength over the past year. Industry has been faced with state and territory lockdowns, enhanced health screening and sanitisation measures as well as travel restrictions, interruptions to fieldwork and dealing with the pandemic’s impact between contracting parties and joint venture partners. Despite these challenges, Australia’s mining sector continues to be one of the largest contributors to Australia’s economy, contributing to around 10% (A$202 billion) of Australia’s Gross Domestic Product in 2019-20.
Gold and iron ore maintain a robust position; being the stand-out performers in Australia’s mining sector over the past year. Since Australia’s initial COVID-19 outbreak in early 2020, many gold mines have continued to increase levels of production with Newmont Corporation, Northern Star Resources and Kirkland Lake Gold being some of the highest gold producers. This uptake in production has increased growth in mining equipment demand and production and contributing to improving employment rates within the resources sector. We have also been seeing consolidation in the gold industry given the plethora of smaller and single asset players being acquired through M&A activity. For example, the A$5.8 billion merger between Northern Star Resources and Saracen Mineral, Newmont’s sale of its 50% stake in the Kalgoorlie Super Pit Mine to Northern Star for US$800 million and most recently, Regis Resources’ acquisition of IGO’s stake in the Tropicana gold mine for A$903 million - to allow IGO to focus on battery minerals for clean technology. Further, Newcrest Mining Limited, Australia’s largest listed gold miner, announced in August 2021 that it had committed A$246 million to expand open pit mining at its Telfer operations in Western Australia. The expansion of the gold, copper and silver mines at the Telfer operations is anticipated to extend the operations for at least two years.
National exploration expenditure was at a record A$699 million for the June quarter which was a 34% increase from the March quarter and 69% more than the June quarter of 2020. Exploration expenditure continues to grow which is a positive sign for Australia as an increase in projects would mean more jobs, revenue and opportunities.
Throughout the past year, iron ore was in high demand as many mines continued operation, due to their essential service designation. Rio Tinto and BHP boast strong portfolios for their iron ore operations and in particular, BHP has achieved record production in its Western Australian iron ore mine. Demand was largely driven by Asia as China imported 1.17 billion tonnes of iron ore in 2020. However, demand, especially from China, has slowed significantly and Brazil’s production has seen a marked increase. This has lead to a sharp fall in the price of iron ore since its peak in May 2021 and is down around 40% in August alone. Given ongoing trade tensions between Australia and China, China has turned to Brazil (currently dealing with COVID-19 infections in its mining sector and recent high-profile mining accidents) and India to reduce reliance on iron ore supply from Australia. While Australia is expected to continue to be necessary for China’s iron ore supply in the near future, there are signs that African iron ore suppliers will play an expanded role in fulfilling future demand.
With surging commodity prices across a number of commodities (such as iron ore, copper and aluminium) in the first few months of 2021, industry was showing awareness of commodity price risk and the effects of cost blowouts and inefficiencies that could leave mining companies vulnerable when there is a downwards shift in commodity prices. In August 2021, Australian shares fell and miners were some of the top decliners following a slump in commodity prices (lead by falling iron ore prices) amid investor concern over the economic impact of COVID-19 cases as lockdowns continue throughout the majority of Australia. Despite the slump in commodity prices, copper prices continue to rise and aluminium prices remain strong amid the global push towards electrification and decarbonisation.
Along with commodity price risk, there is a heightened need to maintain a social license to operate. This is likely to require diligent management of sites with cultural heritage significance and relationships with community groups, activists and investors. As a result, industry is increasingly needing to assess its practices against investor ESG expectations and measures as investors look beyond financial success, and look holistically at stakeholder returns including government and communities.
Lithium and battery minerals
Australia’s lithium producers are readying themselves for a predicted surge in battery demand. After a three-year supply in prices, lithium prices are already soaring, whilst lithium producers and battery makers have rushed to secure lithium supply amid expectations the global demand for electric vehicle (EV) batteries will create a structural deficit as soon as this year. Battery demand is expected to surge tenfold by 2030 as the global clean-energy transition accelerates.
In response to driving demand, the merger between Orocobre and Galaxy Resources to create the world’s fifth largest lithium chemicals (the refined form of the raw materials used to make EV batteries) company worth AU$4 billion was implemented on 25 August 2021. Notably, Mineral Resources, Orocobre and Pilbara Minerals point to a rebound in lithium demand through improved sales and building out new projects as well as positive forecasts of earnings growth. IGO Limited is currently engaging with Western Areas, a fellow nickel miner, in a potential takeover which would be in line with IGO Limited’s strategy to become a major player in battery metals. Expansion and development of lithium projects are on the horizon as lithium carbonate prices surged by nearly 140% over the past six months and spodumene (hard rock lithium) prices are expected to jump from $380/mt late last year to over $750/mt by the third quarter of 2021.
Native Title Act reforms enacted
On 3 February 2021, the Native Title Legislation Amendment Bill 2020 (Cth) was enacted. The bill introduced reforms to the Native Title Act 1993 (Cth) which seek to improve the efficiency of the native title system for all parties. The amendments validated most section 31 ‘right to negotiate agreements’ which might be invalid due to non-execution by any persons comprising the native title claimant, a technical requirement arising from the Federal Court’s decision in McGlade v Registrar National Native Title Tribunal  FCAFC 10. Further, parties to section 31 agreements that engage in the right to negotiate process must now provide notice to the National Native Title Tribunal of any ancillary agreements in existence. Additionally, the amendments allow historical extinguishment of native title to be disregarded on park areas, including those extinguished by public works and have also extended the objection period to 8 months for the creation of a right to mine for the purpose of an infrastructure facility associated with mining and to some compulsory acquisitions of native title.
We note that the amendments are separate from the Native Title Amendment Bill 2019 (Cth) – the legislative “fix” that addresses mining lease validity issues arising from the ‘Forrest & Forrest’ case (Forrest & Forrest Pty Ltd v Wilson  HCA 30) and which is expected to be re-introduced into Parliament this year. For further information about this bill, see our previous mining update.
Reforms to the Environment Protection and Biodiversity Conservation Act 1999 (Cth)
The Final Report of the Independent Review of the Environment Protection and Biodiversity Conservation Act 1999 ("EPBC Act") was provided to the Minister for the Environment and was publicly released on 28 January 2021. The statutory review was led by Professor Graeme Samuel AC, who delivered the Final Report. The Final Report is largely consistent with the matters set out in the interim report - for further information about the interim report and reforms to the EPBC Act, see our previous mining update.
The Final Report contains 38 recommendations to be implemented over the next 12 to 24 months and its key recommendations include:
- development of legally enforceable National Environment Standards for matters of national environmental significance, decision-making processes, compliance and enforcement so that they are concise and outcomes focused benchmarks;
- development of 'single touch' bilateral approval agreements with willing States and Territories;
- establishment of an Ecologically Sustainable Development Committee, an independent body who provides transparent policy advice to the Environment Minister;
- legislative amendments to the EPBC Act in the near future to address inconsistencies, gaps and conflicts and to better facilitate administration of bilateral agreements;
- establishment of a clear, market-based environmental offsets framework and a framework for proponents to report on the emissions profile of a proposed development;
- introducing mechanisms to encourage private investment and for greater collaboration between the private sector and government.
With the proposed reforms in the Final Report to be further considered by Government and potentially implemented over the next 12 to 24 months, these oncoming developments will be of significant interest to industry stakeholders.
Major Changes to Foreign Investment Review Framework
Since 1 January 2021, the major reforms to Australia’s foreign investment review framework have come into effect.
The reforms include:
- re-instatement of the monetary thresholds (which had been temporarily reduced to AU$0) for investments subject to foreign investment screening, and in some circumstances, the thresholds were increased;
- introducing notifiable national security actions where approval is required for acquisitions involving national security land (including defence premises or land in which the Commonwealth Government has an interest though a national intelligence agency) or a national security business (for example, a business that supplies critical goods or technology for military end-use or provides services to defence or intelligence personnel or agencies);
- introducing call-in powers that allow the Treasurer to review actions that raise national security concerns;
- introducing a last resort power that allows the Treasurer to review a previously approved action where the investor made a false or misleading statement or omission or there has been a material change in the person’s activities, circumstances or the relevant market;
- clarifying that exploration tenements acquired by private foreign investors are exempt; and
- exempting the acquisition of revenue streams (i.e. royalty interests) in mining and production tenements from requiring approval where the revenue stream does not include rights to occupy or have direct control or influence over, land. However, this exemption does not apply in cases where a royalty holder proposes to obtain security for the royalty payments by taking a mortgage over the underlying tenement.
On 21 July 2021, the Treasury released updated FIRB Guidance Notes to provide greater clarity to investors about their obligations under the foreign investment framework, including addressing a number of issues identified since major reforms to the framework commenced on 1 January 2021. For example, the updated Guidance Notes provide further detail in relation to when a foreign person starts to carry on a national security business and when land occupied by defence forces constitute national security land. Notably, the updated FIRB Guidance Note 5 states that a retention licence, general purpose lease or miscellaneous licence will generally not constitute an interest in Australian land as such a lease or licence does not confer a right to occupy land. It is noted, however, that this will depend on the facts of each case.
For more information about the legislation introduced, see our previous mining update and our publication titled, 'Major reforms to Australia’s foreign investment framework to commence on 1 January 2021'.
For a guide to Australia’s current foreign investment framework and the FIRB approval process, see our publication titled, ‘Foreign Investment in Australia: what you need to know’. For a guide to the specific considerations for foreign investment in the Australian energy and resources sector, please see our recently updated publication titled, ‘Foreign Investment in Australia’s energy and resources sector’.
Authored by Matthew Johnson, Michael Brady and Regina Yap.