How to Invest in Australia's Booming Mining Industry

How big is Australia's mining market? What is its GDP?

The size of Australia’s mining market is vast. Exports of metals and energy raked in revenue of AU$413 billion for 2021/2022, accounting for 69 percent of the country’s total export revenue, according to the Minerals Council of Australia.

The industry association also points out that the country’s mining sector has been responsible for 21 percent of the growth in Australia’s gross domestic product (GDP) over the last 10 years. Australia’s GDP has grown from US$1.56 trillion in 2012 to US$1.7 trillion in 2022, and is projected to reach over US$2 trillion in 2028, as per research by Statista.

It’s a safe bet that Australia’s mining industry will play a significant role in reaching that milestone. Nearly half of the companies trading on the Sydney-based Australian Securities Exchange (ASX) — the primary stock exchange in Australia — are listed in the basic materials and energy sectors. In fact, the ASX is the second largest exchange for the mining industry in the world.

Why is Australia so rich in minerals?

Australia has a long geological history that dates back billions of years and includes two of the world’s oldest Archaen cratons, the mineral-rich Yilgarn and Pilbara cratons, which cover much of Western Australia. To the south, the heavy mineral deposits of the Gawley and Murray basins, to name a few, have given rise to important mining operations such as BHP’s Olympic Dam mine, which is the largest-known uranium deposit in the world, and the Four Mile mine owned by Quasar Resources.

Hosting such substantial mineral resources has made Australia one of the top producers of many economically important commodities, such as iron ore, zinc, nickel, gold, uranium, lithium and cobalt. With more than a dozen basins that yield natural gas, Australia also hosts significant reserves of the energy fuel. In fact, it has the largest operating liquefied natural gas export capacity in the world.

Is Australia in a mining boom?

While Australia’s first major mining boom took place over a century and a half ago, current industry trends show that there is still much to be explored and discovered, and many of the world’s leading resource exploration teams are up for the challenge.

S&P Global Market Intelligence states that mineral exploration budgets in the country reached a decade high in 2022. “Australia is the second largest exploration destination in the world behind Canada,” explains the firm in a recent report. “Exploration allocations to Australia increased to $2.3 billion in 2022 from $1.9 billion in 2021. This saw drilling activity increase to 57,341 reported drill holes in 2022 at 661 distinct projects.”

Copper, zinc and nickel mining are especially seeing a resurgence in mining investment as the global economy shifts to cleaner sources of energy, which are needed to feed demand for electric vehicles and energy storage systems. Rare earths production and lithium mining, as well as hydrogen output, are also seeing increased activity.

“We’re going through a period that’s been as good as we’ve seen probably in 20 or 30 years,” said Warren Pearce, CEO of Australia's Association of Mining and Exploration Companies.

What is the most common type of mining in Australia?

Today, Australia holds over 350 operating mines producing 19 different mineral commodities in significant amounts. Gold mines are the most common, and according to the US Geological Survey, the country is the world’s second largest gold producer.

Along with precious metals, Australia’s most valuable mineral exports include base metals, battery metals and energy resources. The country leads the world in iron ore production, and is also an important source of global aluminium, nickel and copper supply.

Western Australia is a premier nickel-mining jurisdiction, and accounts for 7 percent of the world’s production of the mineral. BHP and Glencore (LSE:GLEN,OTC Pink:GLCNF) both have nickel-mining operations in the state.

Energy resources are also a major focus for the resource extraction industry. Natural gas is the country’s third most valuable resource export, as per the most recent data from the Department of Foreign Affairs and Trade, earning more than AU$47 billion for the economy in 2021. Uranium is another important sector in Australia’s resource industry. The country is the fourth largest uranium producer globally and hosts more than one-quarter of the world’s known uranium resources.

In recent years, Australia has also come to dominate the global lithium industry and is in a good position to capitalise on the rapidly growing electric vehicle market. The nation ranks second in the world for lithium reserves behind Chile, but when it comes to annual lithium production, Australia’s output is more than twice as high.

Australia’s largest lithium mine is Greenbushes, which is majority controlled by China’s Tianqi Lithium (OTC Pink:TQLCF,SZSE:002466). The mine isn't just the largest lithium mine in Australia — Greenbushes is also the largest hard-rock lithium operation in the world. Tianqi owns a 51 percent stake in Talison Lithium, which operates the mine, while major producer Albemarle (NYSE:ALB) owns the remaining 49 percent stake in Talison via its acquisition of Rockwood Holdings.

Rare earths are another important commodity for technology, and Australia is set up to take advantage of opportunities in this market too, especially as diversification away from Chinese supply gains importance. The country holds the fifth largest-known rare earths reserves in the world, and rare earths production in Australia has been rising over the last few years.

Northern Minerals (ASX:NTU) opened Australia’s first heavy rare earths mine, Browns Range, in 2018. It produces heavy rare earths products such as dysprosium, which is used in permanent magnet technology. Additionally, Lynas (ASX:LYC,OTC Pink:LYSCF) operates the Mount Weld rare earths mine and concentration plant in Western Australia.

What problems does Australia's mining industry face?

While blessed with a vast, underexplored mineral landscape and supportive government policies, Australia’s mining industry is not immune to challenges, namely ongoing labour shortages, the looming threat of recession and exposure to China’s economy.

A 2022 report by Techforce Personnel, a labour agency in Australia, explains that the drought of skilled workers in the mining industry may only get worse — another 24,000 new workers will be needed over the next five years to advance projects in the country.

Meanwhile, economists have warned that the world may face a recession in 2023, although there is optimism that some countries can avoid it, including Australia. What would a global recession mean for the Australian mining industry? It would likely lead to dampening demand for commodities and lower commodities prices, which would translate to reduced profit margins.

China’s economy is already showing signs of slowing down, and with Australian mining exports to the Asian nation representing more than AU$100 billion in revenue annually, that poses another challenge for the industry.

Why invest in mining in Australia?

Australia’s abundant natural resources, close proximity to export partners, top-notch mining jurisdictions and plethora of publicly traded mining companies place the country in a unique position to be a leader in the 21st century's global economy.

As the currency of a resource-intensive economy, the Australian dollar moves with the commodities the country exports. Because of this, those who play the Australian market should have an understanding of how the Australian dollar impacts miners and should look to where the Australian-to-US dollar conversion rate is trending.

The state of Western Australia is the world’s second premier mining jurisdiction after Nevada, according to the Fraser Institute’s 2022 Annual Survey of Mining Companies. Three other Australian states and territories rank in the top 20 mining jurisdictions in the world: the Northern Territory (sixth), South Australia (ninth) and Queensland (13th).

What are the best ASX mining stocks to invest in?

Investors with an eye on lucrative opportunities in the resource sector would do well to consider Australian mining stocks and further educate themselves about the Australian mining outlook.

It's often a good idea to start with the largest players before moving down into developers and explorers. These established companies can provide a stable base for investors. Click the links to read about the largest ASX-listed gold, silver, copper, nickel, iron, lithium, cobalt, graphite, oil and gas, uranium, rare earths and agriculture stocks.

If you're curious about which ASX-listed resource stocks are on the move, click the links for information on the top-gaining gold, copper, nickel, iron, lithium, cobalt, uranium and agriculture stocks.