HWL Ebsworth Lawyers (HWLE) was delighted to return as legal sponsor at the RIU Explorers Conference in the Port City of Fremantle last month with HWLE Partner, Shaun Hardcastle, taking the stage to provide an update on current legal trends in exploration.
High attendance rates meant booths overflowed into the foyer with existing major producer exploration teams sitting alongside the next generation of ASX listed resources companies. Seventeen of HWLE’s clients were represented at the booths and in the auditorium.
Notably, HWLE’s clients Chalice Mining Limited and Bellevue Gold Limited were jointly awarded the prestigious Craig Oliver Award 2021 recognising excellence in exploration and mining, market results, environmental and community over the past 12 months. Alex Dorsch, Managing Director of Chalice, reminded delegates that the Julimar Project discovery was announced to the ASX the same day the Australian market bottomed due to Covid-19 fears. This discovery, and particularly its exposure to palladium to support the hybrid to full EV transition, typifies the exploration spirit as well as the resources industry’s ever renewing opportunity to make an important contribution to Australia’s GDP through a still challenging period for many other industries.
As we look to the future, the HWLE team noted the following 5 key thematics at RIU which sets up the resources industry’s strong outlook for continued outperformance in 2021:
- Green revolution and copper/nickel evolution – driving out performance
- A number of presenters emphasised the continued price run in copper/nickel with the potential to outperform gold against the macro backdrop of an EV credentialed White House policy from President Biden.
- Near term supply shocks in copper are forecast due principally to: (1) the dominant producers in Peru/Chile facing upcoming elections which feeds into labour renegotiation tensions; and (2) travel bans for recent Chinese New Year celebrations meant workers stayed home and smelters kept burning depleting stockpiles over a period factories typically close.
- ASX exposure to copper remains limited and with the direct correlation of commodity price to exploration expenditure, copper will be strongly supported at the drill bit. Typified by recent strategic funding package and substantive investment into Venturex Resources by Executive Chair and founder of Northern Star, Bill Beament.
- Mincor Resources’ Cassini deposit, being one of the few notable greenfields discoveries, is well under development with the resultant nickel concentrate due to come online into a strong nickel market (purportedly, concentrate supply to BHP’s Nickel West will be of kobe beef quality).
- Exploration spend to increase but brownfields or M&A still preferred
- The generally positive macro backdrop for most key commodities in 2021, and optimistic ECM market sentiment, is likely to see good conditions for increased exploration expenditure. A number of presenters remarked on delays in assay results due to assay analysis backlog at labs.
- Despite some market participants touting a resources super cycle at the start of the calendar year, exploration spend across the board does remain lower on prior year comparables. Whether this is due to technology improvements prior to direct drilling expenditure, Covid-19 impacts on site access or something else is not clear.
- Many delegates noted that brownfields exploration expenditure continues to be dominant with a bias from the producers towards M&A to eat into exploration spend given lower risk to add ounces than greenfields exploration.
- ESG wagging the dog
- Whilst environmental, social and governance (ESG) issues have always been front of mind locally for mining operations of resources companies, foreign ESG funds are dominating ECM capital raising trends by providing cornerstone funding to projects, as well as extraction technics, that are viewed as important to the clean energy transition.
- On the regulatory front, it struck us that the Australian government has an opportunity to support this transition (as well as an increase in exploration industry expenditure in EV exposed commodities) by looking to the Canadian style income tax breaks recently utilised by Matador Mining to issue shares at a premium due to tax incentives to investors for expenditures that qualify as flow-through mining expenditures under local law.
- Uranium – finally bankable (almost?)
- With nuclear generation expected to grow by 52% by 2040, Australia remains a very attractive location to access arguably the lowest carbon fuel source (as shown by lack of force majeure events called on existing Australian producers given traditional supply jurisdictions outside Australia are subject to geopolitical exposure).
- Vimy Resources Chief Nuclear Officer put it well when seeking to explain the recent global uranium surge in equities (up 33% since late October 2020, despite no significant change to spot price) that it is likely due to United States transition from ‘getting woke’ to ‘waking up’ and (re)embracing nuclear power under Biden.
- M&A driven by post-virus stimulus as WA emerges from its hard border lockdown
- Delegates were upbeat on potential for M&A in 2021, particularly in light of vaccine development and roll-out. Despite efforts to ‘crush’ the virus, WA is hiding under the covers in many respects and the virus will continue to need careful management for at least the balance of 2021.
- HWLE has therefore been considering opportunities for deal flexibility in the local resources market to bake in adjustment events for Covid-19 impacts on mine production results or mining services revenues to allow public M&A transactions to straddle uncertain business impacts during increasingly long implementation periods.
This article was written by Partners Oliver Carrick, Shaun Hardcastle and Michael Boyce.
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