Australia Mining Outlook 2020: Quiet, Confident Optimism

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Last year was one of consolidation and quiet confidence in the Australian resources sector and its ability to keep its head above water amid global economic turmoil. Analysts think those trends are likely to continue heading into 2020.

In 2019, the trade war smothered base and industrial metals and lifted gold to new highs on the back of uncertainty. However, Australia was seemingly in a world of its own as its precious metals sector made gains and its iron ore exports had a roaring start due to a disaster in Brazil.

News over the course of last year was varied as issues came from weather, politics and trade concerns, with all three hammering Australia through the period. Many of those issues — though most predictably the trade concerns — will be present in 2020 as well.

Australia mining outlook 2020: The year(s) ahead

Gold has been highlighted by analysts as the commodity to keep an eye on in Australia for 2020.

That said, David Thurtell, who is manager of resources and energy with the Department of Industry, Innovation and Science for the Australian government, told the Investing News Network (INN) at the International Mining and Resources Conference in November that for 2020 and beyond, strong demand from Asia will hold other doors open too.

“The outlook is still very strong in the long term for resources and energy demand,” said Thurtell.

Owen Hegarty, executive chairman of EMR Capital, said that his optimism for 2020 is based on the stories of 2019 resolving themselves.

“I think we are going to see an uplift in demand next year, because we’re already starting to see the breaking news in regards to the trade and tech war,” he said back in November.

“(In 2020) you’ll have Brexit over with, you’ll have Europe starting to see increased demand, you’ll also see demand coming from India and Indonesia and China … so we’re going to see good, strong demand in 2020,” Hegarty continued.

“I would get invested. We’re looking for projects now, taking the opportunity when things are a little bit down to try and invest in projects and operations to get that set up for 2020 and beyond.”

Hegarty highlighted gold and copper as his (and EMR Capital’s) favoured commodities, adding that the specialty metals like cobalt should be picked over carefully. He also said there is always investment opportunity in iron and coking coal due to Asia’s growth, which he said will underwrite Australia’s own growth through resources.

In an interview with INN, Thurtell was thinking big picture and looking mostly beyond 2020, noting that Australia will be able to play to its already significant strengths in resources in coming years.

“The need for nickel and copper going forward is going to be immense,” he said, pointing out that Australia produces significant quantities of both metals, which are vital for electric vehicles (EVs) and renewable energy uses. “It’s the same with lithium, cobalt and renewable-type commodities … we’ve got significant resources and we’re keen to get those out of the ground and developed to help the world transition to using more renewable power and emitting less carbon.”

Warren Pearce, CEO of the Association of Mining and Exploration Companies, told INN that the next 12 months will likely be better than 2019 given the caution of investors the world over.

“2020 should be a better year, with greater investment likely to return to the industry, as investors seek higher returns and funds return from other industries,” he said.

Paola Rojas, who is the managing director of Synergy Resource Capital, told INN that recent news events in Australia mean that, as a resources economy, it is likely to continue moving away from thermal coal and towards the commodities needed for renewable options and EV infrastructure.

“With our current bushfire season getting so serious this year, I believe there will be a stronger community push for cleaner energy options, and I expect more plants to be shut down,” said Rojas.

She took the opportunity to say that there is plenty of scope for improvement domestically in regards to EVs on top of resources.

“EVs are still less than 2 percent of cars sold in Australia. For a first-world, healthy economy, we are seriously lacking in that department. Synergy is bullish on EVs and battery minerals for the long term once the market stabilises,” said Rojas, although she added that in order for EV adoption to increase, Australia has a long way to go with infrastructure development.

“We are monitoring a couple of interesting firms that may help with that. I expect some progress in this front in 2020,” she noted.

Australia mining outlook 2020: Main issues for (and raised by) investors

When asked about what she thinks the main issues facing the Australian resources industry in 2020 could be, Rojas said that there are ongoing problems with financing and access to capital, as well as communication and environmental, social and governance (ESG) investing. 

Exploring her themes for 2020, Rojas said that a major aspect of access to capital has to do with generational renewal in the resources industry.

“Everyone keeps targeting basically the same group of people, and they are Baby Boomers and older. … To reach younger generations, you need to change the way you communicate, you need to be transparent and be where your prospective investors are,” she explained.

“Many firms still believe they can avoid social media and marketing; they may be okay in the short term, but eventually life will catch up with them.”

“On top of this, many institutional investors are putting their foot down and demanding more ESG investing options … so places like (the Democratic Republic of) Congo will have a tougher time attracting capital, but the industry will need to continue improving its relationship with the environment, etc., as society demands it — not an easy task.”

Australia mining outlook 2020: Commodities to watch

Willem Middelkoop, who is the founder of the Commodity Discovery Fund, told INN that he believes the trend to watch out for in Australian resources in 2020 will likely be a continued recovery in gold stocks.

“We think gold will do very well again, because (quantitative easing) will come back in many parts of the world,” said Middelkoop.

When asked about issues that investors should watch out for in 2020, Middelkoop said that the abundance of economic uncertainty is the main concern. “And don’t forget the US elections,” he added.

An issue that will likely carry over from previous years is the lack of new discoveries, said Middelkoop, who said it will be a huge problem further down the line. 

Speaking about what she thinks will be the commodity to watch in 2020, Rojas said that, because of all the uncertainty in the markets, it has to be gold.

“I think gold will remain strong because the global turmoil is not ceasing anytime soon, and obviously gold is a flight-to-safety commodity — and Australia has plenty.”

Same as Hegarty, Rojas also highlighted copper’s future in the near term. “I think copper will become stronger, as its role in the electrification revolution is becoming more mainstream and understood. And under them, all commodities with presence in batteries will start to improve, maybe by the end of the year or into 2021.”

Rojas said that 2020 will be an important year to set the tone for the next few years.

“I think it will be a year that will teach us a whole lot about what’s coming over the next decade.”

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.