With the potential for declining interest rates and more geopolitical stability, SRK Consulting believes growth is on the horizon for the Australian mining industry.
While some commodities have endured a difficult 2024 amid cyclically low prices, others are experiencing renewed prosperity in the face of heightened demand.
Mining and exploration companies must steel themselves to the undulations that come with working in an industry that hinges so dominantly on supply and demand.
But while all miners are likely to face a bear market at one point or another, there are ways in which companies can insulate themselves from the ups and downs.
Australian Mining sat down with SRK Consulting to examine the past year in the local and international mining industry, and to assess some potential trends for 2025.
The year that was
According to SRK’s principal geoscientist Carl D’Silva, the seeds of 2024 were laid when decarbonisation first became a global priority following the instalment of the Paris Agreement in 2015.
“The energy market is growing exponentially, and if you say you’re going to decarbonise an economy yet you’re not bringing in the battery minerals such as nickel, lithium, graphite, manganese and cobalt, you really aren’t making any dent into your decarbonisation goals,” D’Silva told Australian Mining.
“So when the decarbonisation push began, we needed a quantum change in how we mined commodities.”
Given the aspirations set out by the Paris Agreement in 2015, it was always going to be difficult to align the growth of the energy market with that of the battery minerals mining industry that feeds it. This created structural deficits, with prices increasing on misaligned supply–demand dynamics.
This balance is just as representative of lithium’s boom cycle in 2021–22 as it is of the commodity’s recent retreat.
“You cannot control energy growth, but if you do not mine enough minerals in a timely manner,” D’Silva said.
“This means that mining operations will not produce sufficient raw materials in an orderly timeframe, which will cause a lot more volatility in the market.”
While market volatility saw lithium prices soar during 2021–22 amid surging electric vehicle (EV) uptake, it also resulted in the declining cyclical prices seen in 2024; miners racing to bring projects online to capitalise on the boom in turn created a market surplus.
SRK senior geologist Stephen Johnson said 2024 has highlighted the sector’s resilient and less-resilient commodities.
“One piece of advice I was given by some seasoned explorers is that if you’re an exploration company, it’s best to play in the big markets,” Johnson told Australian Mining.
“And what we’ve seen this year is more mature minerals like copper have been reasonably resilient, because the copper market is so huge.”
Copper has been mined and consumed across the world for centuries, making the supply–demand dynamic more predictable. And because copper’s end market has significantly more scale than some other maturing commodities, a proportionally surging demand can make it hard for supply to keep pace.
“If the automotive sector suddenly said, for example, ‘We’re boosting EV production and we need copper for all of our electric cars’, the ability for the copper industry to all of a sudden produce 30 per cent more copper is more challenging than it is to do in other smaller-scale commodities,” Johnson said.
This can lead to the twin dreams for any mining or exploration company: surging commodity prices and an appreciating valuation.
Mergers and acquisitions
Several significant deals have been announced or closed in the international mining industry in 2024.
BHP pushed to acquire Anglo American in a hostile back and forth, while Rio Tinto announced its acquisition of Arcadium Lithium in a more amenable fashion as it aims to bolster its lithium business.
In selling its Telfer and Havieron gold assets in Western Australia to UK company Greatland Gold, Newmont looked to refine its portfolio with a focus on Tier 1 gold and copper mines.
Johnson said mergers and acquisitions (M&A) will continue to pervade the mining landscape as long as there are opportunities to be had. And with many companies enduring suppressed valuations amid a turbulent capital market, there will no doubt be opportunities.
“It comes down to fundamentals,” Johnson said. “We’re seeing the cyclical nature of exploration funding being really challenging, and the market capitalisation of some development companies in stronger-performing commodities has been low.
“There is potential for value-creating M&A activity in that environment.”
Johnson said M&A activity can be the trigger for a commodity’s next boom cycle.
“Commodity prices get so low that people become optimistic enough that commodity prices will reverse that they have the conviction to make transactions,” he said.
Rio Tinto’s move to acquire Arcadium Lithium has been seen as a strategic play to capitalise on a commodity’s downturn where assets and share prices are more affordable. Long bullish about lithium’s future and facing some development hurdles at its existing lithium assets, the major has been keen to build a vertically integrated lithium business for some time.
Arcadium Lithium, with a host of downstream and upstream assets stationed across the world, was the opportunity on which to capitalise.
D’Silva shared some thoughts on M&A.
“The general rule is, if you’ve got a good balance sheet and you’ve got a large enough portfolio, you should be in the M&A space at the moment,” he said.
“I see the bigger mining companies doing more acquisitions in 2025.”
The year to come
The interest rate in Australia remained at 4.35 per cent for much of 2024; however, expectations that interest rates will retreat in 2025 will potentially open up more opportunity for investment in local mining and exploration.
“If you’re paying seven per cent on your mortgage, for instance, you’re probably less likely to take a risk and invest in a speculative mining stock,” Johnson said. “So a declining interest rate would seemingly make investing in capital raises in the exploration industry more appealing.”
One contributor to higher interest rates is the global unrest that has occurred in recent years. Economic instability that was accentuated with Russia’s invasion of Ukraine has been further exacerbated by war in the Middle East, as well as a number of major elections.
D’Silva forecasts greater stability in 2025.
“We’ve had too many wars, too many people at election ballots and too many competing things occurring in 2024,” he said.
“When you have wars, people hold onto money because they don’t trust equity markets and financial institutions to serve their best interests in the timeframe.
“It’ll also be about five years since the beginning of COVID-19 and all of the monetary policies that supported that unprecedented event are likely to be on the way out.”
D’Silva said economies have had to navigate legacy issues, with countries working their way back from significant debt amid the COVID-19 era. But with interest rates regressing in some countries across the world, there are signs of economic optimism.
“We’ll start to see some structural changes in 2025, and I believe we’ll go back to the thinking of, ‘These projects can survive on their own merit’,” D’Silva said.
This feature appeared in the December 2024 issue of Australian Mining.
