The mining and exploration industry is probably
"near the bottom" of the cycle, but any foreseeable recovery in
the market will not be as sharp as its decline proved to be,
according to investment management firm, BlackRock.
Speaking at the 121 Mining Investment Conference
in London in April, Tom Holl, a portfolio manager for
BlackRock’s natural resources team, said that the
mining industry is "probably closer to the bottom than the
majority of market commentators think".
"I don’t think the recovery will be
V-shaped (…) I think that part of the reason
commentators are so bearish is because they know how long it
takes for the supply side to work itself out."
Scott Marsh, portfolio manager for private equity
find Hawke’s Point Capital, said he thought that
there was "more pain to come in the mining sector", but denied
that companies like his were deliberately painting a negative
picture in order to take advantage of cheap company
"That is hedge fund investing, not private
equity," he said.
One of the routes to riding out the bumpy market
floor, and appeasing dissatisfied investors in the process, is
cost-cutting, the financial panellists said, but noted that for
companies with mining projects in developing countries,
reducing staff wages is usually not an option.
"Investors often turn around to management and
say, 'cut costs’. Try cutting salaries in an
emerging economy," Holl said
Marsh said that while trimming salaries was an
appropriate measure in places like Australia, which saw
unsustainable levels of wage inflation during the mining boom
years, miners should really be looking to reduce capital costs
wherever possible and stressed that companies needed good
management in place to execute this effectively.
Lithium is no field of
In the lithium market, the present euphoria
around potentially stratospheric demand growth for lithium
compounds from battery makers hasn’t made it any
easier for companies in the sector to surmount the practical
challenges of getting projects into production.
Speaking at the 121 event, Anthony Tse, managing
director of ASX-listed Galaxy Resources Ltd, told
IM that the "build it, and they will come"
mantra does not apply to lithium, where final product
specifications are strict and difficult to achieve and
customers can afford to be picky.
"For a high purity lithium carbonate project,
there are lots of steps you need to go through to get the
product that the market wants," he said.
"All the euphoria about Tesla and electric
vehicles is great, but lithium companies need to show not only
that they can get into production, but also that they can make
the high grade products".
Over the last two years, Galaxy has clawed itself
back from crippling levels of debt, which contributed to the
closure of its Mt Cattlin spodumene project in Western
Australia – a situation which Tse put down to mistakes
made by previous management.
The miner is now developing a lithium brine
project at Sal de Vida in Argentina and a pegmatite project at
James Bay in Quebec, Canada.
Galaxy recently closed the sale of its 17,000 tpa
Jiangsu lithium carbonate plant in China to Sichuan Tianqi
Lithium Industries, putting it in the "fortunate position" of
having $30m cash in the bank, having been left with a gross
balance of Australian dollar (A$) 50m ($38.6m*) from the
The company has also lately signed a three-year
lease agreement with General Mining Corp. to restart
Mt Cattlin project in Western Australia for tantalum
production. Under the terms of deal, Galaxy will receive
a 10% royalty on all production
from the site with the exception
of spodumene, which is subject to a 50/50 split and will be
marketed by Galaxy.
Tse explained that even though Galaxy has
observed some "tightness" in the lithium compounds market as
South American supply has so far not ramped up in step with
projected increases in demand, customers can still be
"Buyers are very precise about their product
needs and it takes a lot of expertise (…) to make sure
you can meet these," he said.
There is also relatively little concern about
global lithium supply at present, Tse conceded.
Graphite industry run like
According to Manoli Yannaghas, managing director
of UK AIM-listed StratMin Global Resources Plc, the opacity of
the graphite industry is a functional barrier to progress for
many junior producers and explorers.
"The graphite industry is run like MI6,"
Yannaghas told IM. "It wants expertise and
there isn’t much of that to go around."
He said that he expected to see "some sort of
corporate activity" – or consolidation –
within the junior sector in the next year. "There will have to
be for companies to survive," he said.
StratMin commenced production at its
past-producing Loharano graphite mine in Madagascar in March
2014 and has an offtake agreement with a major Northern
Hemisphere buyer, but is yet to get over the "final hurdle" of
making profit from its operations.
"We’re getting there," Laurie
Hunter, the company’s non-executive chairman, told
IM. "But getting graphite to [a purity] of 94%
C without destroying your flake size is a black art."
The failure of investors to understand the
nuances of niche, speciality minerals was lamented by many
producers and market commentators at 121. However hopes remain
that for battery minerals like lithium and graphite,
"contrarian opportunities" – investment options that
present themselves when company valuations are at an all-time
low while end markets are seeing unprecedented growth
– will prove attractive enough to secure cornerstone
investment for some projects.
*Conversion made April 2015