Contractors bullish on mining as they eye multi-billion $$$ iron ore and lithium splurge Mining
November 29, 2023 | Josh Chiat
NRW toasts growth prospects in Australian mining industry as iron ore and lithium players plan billions in capex
Rare earths giant Lynas hints at potential dividends at 2023 AGM
Gold sub-index up over 4% as prices rose to US$2025/oz and beyond
Enthusiasm for the mining sector has been waning for much of 2023, with falling commodity prices — outside iron ore, gold and uranium — placing a question mark over growth plans across the sector.
While it has been a common refrain to talk about the need to find and develop critical minerals like lithium, nickel and copper, prices and bearishness about the broader economy amid rate rises and both global and Chinese economic uncertainty have hurt the market.
Among those concerns have been a more than 75% fall in a variety of lithium indices, with most of the producers down in 2023 so far.
At the same time margins remain strong even at prices below US$1600/t (compared to sales prices of around US$6000/t for spodumene concentrate early this year).
And those in the know say investments in new production will continue ahead of massive shortfalls of the lithium needed to meet EV sales targets later in the decade.
Contractors are among the cohort trying to capture and hold some of that value, with one giving an indication of the wall in capital to be spent on Australian mines in the coming years.
NRW Holdings (ASX:NWH) is presenting its AGM in Perth today, and there CEO Jules Pemberton is planning to wax lyrical on the opportunities coming up for mining services firms, including $7.5 billion of lithium project capex coming in the next four financial years.
That’s right: $7.5b in Australia alone.
“Outside of the iron ore capex cycle, the Australian Lithium sector is expected to continue to its capital expansion with A$7.5B of lithium project capex in the period FY24 to FY27,” he will say.
“Established lithium producers are planning to increase production capacity through expanding existing mining operations or transitioning underground.
“Capacity expansion creates surface mining/drill and blast opportunities for NRW,
together with process plant design and construction and operations and maintenance opportunities.”
Major lithium producers are planning up to $7.5b in capex to 2027. Pic: NWH
Iron ore miners returning to major projects
That comes alongside a renewed boom in Pilbara iron ore operations, where Rio Tinto (ASX:RIO), BHP (ASX:BHP) and Fortescue (ASX:FMG) expect to expand output across the rest of the decade.
“Recently all of the three major Pilbara iron ore producers have announced verysignificant growth and sustaining capital expenditure programs – which we believepromotes a very positive outlook for NRW,” Pemberton noted.
NRW has diversified of late, but is targeting more work in the iron ore sector, expecting capex for BHP, Rio and FMG to rise at a CAGR of 6% from FY23 to FY26, with combined output from the Aussie giants expected to lift beyond 1Btpa later this decade.
“However, in the context of the group’s record FY23 results, what is interesting to note is the share of revenue that was derived from Pilbara iron ore projects.
“In FY21, over 20% of the group’s revenue – around $500m – came from Pilbara iron ore projects. However, in FY23 only 9% of revenue was derived from Pilbara iron ore projects.
“Again, this speaks to the success of the group’s diversification strategy, where we can deliver record financial performance but with greatly reduced reliance on a market that has historically been a key driver of the group.
“So, with the continuation of our diversification strategy and an iron ore sector that is commencing a major phase of multi-year capital development, NRW’s potential for growth over this next phase of Pilbara iron ore development is significant.”
NRW expects to hit $2.9 billion in revenue in FY24, with EBIT expected to be at the high end of the guidance range of $175-185m.
Director Peter Johnston retired as a director ahead of today’s AGM.
$1.25 billion NRW’s shares are down 2.15% YTD, but up over 3% today. ….
(20min delay)