Australia’s resource sector is forecast to end the financial year at a record high as the global economy continues to rebound from the Covid-19 pandemic. Australian mining and minerals companies have had their exports in huge demand, with projected earnings to account for 70% of Australia’s goods exported.
Spearheading Australia’s economic performance, this revenue underlines the resilience of Australia’s resource sector. The diversity in our commodities, with iron ore and gold offsetting the lower returns for coal, and our investment in innovation, has helped the industry overcome the challenges presented by the pandemic.
The resource sector is a critical component of the health of our financial systems. It will continue to drive local jobs, investments, manufacturing businesses, and developments in new and emerging technologies. But, while the sector provides an economic backbone, it is not operational without consideration of critical issues, such as ESG and the climate change debate in particular. The Covid-19 pandemic has accelerated global concern for the conflicts that are inherent to mining operations. So, while the industry’s future is certain, there is both prerogative and pressure to commit to a strong reform agenda to ensure our future market potential and the development of our country’s resources for the benefit of all.
Outlook for Key Commodities
While global industrial activity saw a downturn during the Covid-19 pandemic, key markets are on the rebound. Australia’s resource sector is already capturing the growth in demand for both existing and new low emission technologies.
The price for iron ore is at its highest level in a decade. New mines opening in Western Australia will grow Australia’s expected export volumes by 20% over the next few years, and stronger prices are expected to push value to above $100 billion annually.
Gold exports are forecast to reach record value by the end of the financial year, despite reduced demand. Australia’s gold mines continue to rank as the world’s best and largest.
Australia’s LNG (liquified gas) earnings are recovering after export volumes declined due to technical issues at several big plants. Our LNG resources are sold mainly on long-term contracts, and the 5-year forecast sees LNG prices increasing by $12 billion.
While prices are currently volatile, the cost of hard coking coal is projected to increase by 25% as the steelmaking industry improves globally. The ban imposed by China initially disrupted supply chains; however, these have now largely re-organised, and Australia is successfully directing exports to new markets.
Both the prices and output of Australia’s copper continues to grow, driven by rising investment in electric vehicles and renewable energy. Earnings are forecast to improve on average 7% a year over the next 5 years.
Our minerals and mining resources have proved outstandingly profitable on the global stage. Both short and long term, the economic outlook of key commodities shows that Australia’s mining profits have been able to recover from the pandemic, unlike a lot of global markets. The big picture impact this has had on our economy and our recovery from Covid 19 will be evident at the end of the 20/21 financial year.
For a complete commodities analysis, see here.
Innovating portfolios
Large-scale adoption of alternate power sources is primarily supported by the significant decline of the cost of renewable energy solutions, with solar now the cheapest in energy in history. Also pertinent, sales of electric vehicles are forecast to see a compound growth rate of 29% annually, and vehicles powered by hydrogen fuel cells similarly underpin the growing global trend toward electrification in general. Mining companies themselves are electrifying their operations, no longer put off by high costs. Gold Fields, here in Australia, is leading the way globally by meeting over half its energy needs through renewable sources, with hybrid power grids, electric fleets and lithium-ion battery storage.
The global move toward the future of energy will involve mass conversation to renewable energy sources and increased electrification of goods and services. With visibility and foresight into emerging commodities demands, the resources sector has shifted its realities in more recent years. Aware of enormous stakeholder demands for companies to reduce the production of fossil fuels, many in the industry are playing a role in the clean energy future and transitioning their portfolios, reinforcing trust with stakeholders and general society alike.
With an increased demand for renewable energy generation comes the need for key minerals such as copper, cobalt, and lithium. The physical properties of these transition metals are critical to transforming the basis of our energy system toward renewable sources. Copper in particular is the best affordable material for use in cables, batteries, transistors and inverters – all key technologies on the path to replacing hydrocarbons, through the use of wind and solar, and the adoption of electric vehicles. A substantial pivot to growth investment in copper is underway, in terms of long-term greenfield mine projects and short-term known brownfield projects. Australia is also one of the founding partners of the Energy Resource Governance Initiative (ERGI), which aims to promote resilient supply chains among all energy minerals.
There is investment risk associated with building mining capacity for these minerals before they’re needed. Still, companies are making sufficiently flexible plans to respond as different technologies gain favour, without losing access to commodities deemed essential to the economy.
Advancing the future of the workplace
Never before have technologies and new ways of work been implemented so quickly, says Deloitte. While the focus on safety is not new for the resources industry, in Australia, technology and a fast-tracked post-covid agenda has put wearable technology and data in place to protect employee wellbeing and improve their trust. While, admittedly, wearables are currently siloed and un-unified under an integrated system, they provide real-time operation and health and safety analytics previously unavailable. Improving the technologies use in high-risk zones and creating an open platform that enables enterprise-wide data would put us on the verge of a truly integrated wearable safety solution. We are certainly on our way, with safety analytics and artificial intelligence being incorporated into Australian mines to create predictive models to prevent safety incidents before they happen. More and more workers are also being moved directly out of harm‘s way through the use of automation, drones and robotics.
This transformation is indicative of the broader digitalisation of company processes and the future of work. Operations are becoming mechanised, and data from on-field physical assets are being monitored remotely. Accelerated by Covid, this digital capacity enables virtual access to real-time information, giving companies the view needed to drive integrated-system level thinking and performance. Digital leadership soon follows, as both supply and value chains within a company become more collaborative and holistic than ever before. Executives will need to consider the implications an increasingly networked operational environment will have on company culture. Plans to proactively target the development of a culture and value system appropriate to new and emerging ways of work will be a focus for many companies in Australia.
ESG conflicts
Australian mining companies are addressing their ESG commitments throughout the supply chain, with the hopes of directly benefitting the communities in which they operate. Companies have both mandates and individual agendas associated with their environmental, social and governance (ESG) commitments. Mandates have largely been brought about by external pressures, with stakeholders and institutional investors, even pension funds, demanding specifics about how companies are moving from strategy to execution. This is across each pillar, be it environmental and how companies plan to decarbonise operations, socially how companies are earning community trust and creating socio-economic value beyond compliance, or governance regarding how companies are approaching and resolving human rights issues and ethical conduct. This also involves good internal governance regarding the culture, behaviour, and reputation of a company.
A group of cross-sectoral Australasian CEO’s set public decarbonisation targets through the Australian Climate Leaders Coalition (ACLC) in late 2020. The first of its kind for ESG in Australia, several big mining companies make up the CEOs and members creating shared value through climate solutions, with the growth of the economy front of mind. Such a strong commitment, alongside reports that 70% of Australian organisations fast-tracked their ESG commitments and workforces demanded actions, shows that companies across various industries are empathising and delivering on the needs of stakeholders. For the resources sector, beyond the ACLC, we must put sustainable and ethical futures at the heart of the transformation agenda for social and governance issues. More representative coalitions would serve to narrow in on the strategies and tools by which companies can do good. This will help companies build value beyond compliance. BHP, for example, has established a $50 million fund to bring services to the Australian communities it operates within. In turn, this has improved their brand image, their ability to attract capital, and has begun to repair the trust deficit. More of this is needed.
