It seems not a week goes by where I don't read or observe something that is material to our STX.
The push by our federal and state (WA) governments to promote energy-intensive downstream processing is gaining significant momentum and yet what is at odds is they appear to be acting against low-cost and reliable energy supply, i.e. gas. I feel the energy policies to make sure there is affordable and reliable gas supply needed for such energy intensive downstream processing is clearly inadequate and of great concern to industry with the potential to result in significant lost economic and investment opportunities.
Thinking about the ramifications of this government failure - if I was the CEO / BoD of a such a large company, be it domestic or international, would you sit around hoping, blindly wishing the government does enough to ensure enough supply and, at the right price? Given the recent history, would you have any confidence be it on the east coast or west coast markets? So, I think we can all understand why MIN (Ellison) and Hancock (Rinehart) made the bold move to consolidate and importantly control their energy supply and input costs.
So, as the drums beat louder for further investment in downstreaming of critical minerals such as lithium, rare earths, nickel, PGEs etc. which has just been supercharged by the US / AUS critical minerals agreement, who will be the next to move and take control of their energy supply?
Don't get me wrong, I very much wish for STX to remain independent, to kick off Walyering gas supplies and CF revenue, to continue appraising SE and WE with the aim to further grow their already significant 2P/2C reserves positions... as I honestly see STX growing into a multi bn $ company, surpassing BPT on that journey. I think a $1.5 SP will settle that score and is very achievable IMO... which is the 150%+ upside that some analysts have indicated as an achievable upside for STX. I'm dreaming of the dividends too... not unrealistic when we are likely to have some of the lowest cost gas in AUS if not the western world.
Recent news on comments from WES did catch my attention, maybe others saw this, and this all comes back to what I said above above companies becoming worried and anxious and choosing to take control of their energy situation. Think of it as prudent risk mitigation. As reported... "The Perth-based conglomerate said WA’s Labor government needed to do more to enforce the domgas reservation policy, and that its failure to do so had contributed to sharp increase in gas prices."
It wasn't long ago WES was paying $2-$3 GJ and now with spot prices nudging $10+ GJ, well they have reason to be concerned. WES are a major energy user in WA. Something like 90TJ a day, that's 90,000 GJ per day for their current fertilisers, chemicals and energy businesses. So at $10 GJ (which it isn't right now but soon they will be facing much higher costs)... that equates to over ~$300m p.a. in gas usage costs. And this gas usage will ramp up a fair bit more when WES start producing lithium hydroxide from their plant in Kwinana in 2025. IMO? I don't see WES sitting on their hands, being in any way comfortable in the knowledge that gas will be in a supply deficit and gas prices are only going to keep rising. What is worse, you are scrambling to secure enough gas to run your plants (and dare I say have to ration or limit your production) or the gas you do manage to secure blows a great big hole in your margins and P/L? What would you do to mitigate this risk? And then play this scenario out to all the other companies looking to downstream in WA... not hard to join the dots is it.
Overlay this with the pressure on all industrials, upstream or downstream, to continue with their decarbonisation plans as they ramp up their mining and/or processing operations. We see it with STX's mid west low carbon manufacturing precinct. It was 3,500 hectares of prime land secured to build wind farms, solar farms, carbon tree farms, and let's not forget the project Haber plant itself. Just for context on the scale we are talking about, Rio's plans to decarbonise its WA iron ore operations require an initial 1GW of wind and solar covering up to 18,000 hectares. This is a larger footprint than the cumulative area Rio uses directly for mining in WA. And that's ~5 of STX's WA precinct. Rio also said it would need 4GWs of renewables to repower their Boyne aluminium smelter in QLD (which I've personally had a site tour, it's huge) with a solar and wind farm footprint of up to 80,000 hectares. That's equivalent to ~23 of STX WA precinct. How much land do we have to commit for renewables? And really, how will the govt policies ensure gas is a viable and effective transition fuel to ensure we meet the world's hunger for critical minerals?
Apologies again for the long post... but I just wanted to post more food for thought, as these are some of the things worth considering as you contemplate your investment in STX. I am personally very happy fully invested in this journey, watching and observing, but fundamentally very comfortable in holding STX as a significant part of my portfolio.
GLTA
ps - keep an eye on the volume... it has increased notably and there has been some large trades going thru the past week or so including S3 trades... something is brewing IMO.
(20min delay)