Euroz Hartleys: Energy Transition Needs More Mining Investment and Junior Exploration

From inflation to higher interest rates, investors have been tracking the impact of macro factors in the resource space.

But wealth management firm Euroz Hartleys remains incredibly optimistic about the market's resilience and global outlook.

“Although the current inflationary environment has put pressure on margins, it's created a strong backdrop for commodity prices more broadly,” Tim Bunney, managing director and head of institutional sales, said. “The decarbonisation and electrification thematic that has emerged, coupled with significant underinvestment, bodes well for commodities.”

Sharing his thoughts with the audience attending the recent RIU Sydney Resource Round-up, he said he continues to see a strong focus from investors on execution and asset quality.

“We believe the market remains open for quality projects with strong management teams,” Bunney told event attendees in Sydney. “With organic production profiles under pressure and well-capitalised balance sheets from the majors, we continue to see a thematic of acquiring over exploring.”

In 2022, overall M&A activity hit a total value of US$24.49 billion, according to S&P Global Commodity Insights. Australia hosted 45 percent of the companies and projects targeted in 2022, with total deal value reaching US$7.96 billion.

Critical minerals, which are key to meeting decarbonisation targets, remain a key focus of governments around the world, and Australia is well positioned to take advantage of its natural resources. As it stands, the country is the world’s top lithium producer and the fifth largest producer of nickel.

“Without these (critical) metals, there will be no renewables, and without renewables, there will be no net zero by 2050,” said Michael Scantlebury, resources analyst at Euroz Hartleys.

The expert also argued that there’s a need to increase oil and gas investment while rapidly building out the renewable sector to ensure an energy crisis doesn’t happen during the transition period.

“Without a substantial increase in mining investment, there will be no energy transition,” he said. “We believe that the junior sector needs to continue to increase exploration to continue to backfill and roll out resource projects, as metal demand is truly amazing over the coming years.”

Declining greenfield exploration has been a trend over the last 20 years. Back then, it accounted for 50 percent of exploration budgets, compared to just 16 percent now, which goes a long way toward explaining the lack of new discoveries.

“There's always short-term noise in the market,” Scantlebury said. “However, the longer-term fundamentals of underinvestment underpin our bullish outlook.”

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.