What do you look for when considering investing in ASX listed junior mining companies?
We mainly look for growth opportunities, but in this market, we also look for value. For miners, this means a mix of explorers, developers, and producers; in lithium, copper, and more. More options are needed, especially in copper on the ASX.
We like getting in before the company lists, but that’s not always possible, and these days, it may prove too risky. When reviewing potential opportunities, we use a couple of strategies, but some key aspects are:
- Only within criteria, five to seven year horizon
- For explorers/developers, their next catalyst must be less than a year away
- For explorers, zero debt
- They must have at least
- an inferred resource
- Ideally, we know them or have invested in a previous venture with a good outcome
- Price always matters, we must feel it’s undervalued: trading close or at 52-week lows, or we see a significant rerating coming due to catalysts
- Monitor M&A to see where the puck will be, and aim to make educated guesses on which miners could be targets in 12-24 months
- Use technical analysis to identify entry points, staying away from bottom-chasing!
What sort of investments are you currently focused on at Synergy Resource Capital?
As investors and corporate advisors, our main focus has been the energy transition for some time, mainly across the battery supply chain. This includes base to battery and just a sprinkle of precious metals; plus some investments in technology, semiconductors, etc.
Harnessing critical minerals supply chains is a key focus for the energy transition. Can you explain the importance of lithium and copper in the energy transition?
Although there are a growing number of minerals used in electrification, copper and lithium are (in my view) the leaders, due to their role in batteries, but also across the whole ecosystem.
First up we have lithium, being the lightest metal in the periodic table and programmed to give off a charge, which is the core of the most efficient and mainstream type of battery — lithium-ion. Despite substitution options, lithium-ion will eventually be widely accessible and experience says that they are at least a decade away from doing so.
Lithium, globally, is still a small market, growing from about US$5B to US$15B between 2021 and 2022. Granted, these calculations change as price fluctuates, but production is growing — 2023 production is expected to nearly double from 2021 figures.
Top producers, Albemarle (ALB) & SQM, see lithium growth accelerating. ALB puts 2030 projections at 3.7Mt lithium carbonate equivalent (LCE) and a supply deficit of 800Kt, while SQM sees a deficit of 1.5Mt by 2025.
Investment requirements were estimated by Benchmark Mineral Intelligence earlier this year in the range of US$54-US$116B.
Copper, in turn, is the battery’s current collector as the efficient conductor it is. It enables the grid, which will need to grow to accommodate increased electrification across the board.
BHP says that copper investment may need as much as US$250B by 2030 to satisfy demand, and that we’ll need two times as much copper over the coming 30 years as opposed to the previous 30.
On the market side, copper sings another tune. In 2022, the copper market was over US$180B, and although investment has picked up a bit, it is still weak and many challenges exist: declining grades, excruciatingly long permitting processes, etc.
These are two very different metals that need specific strategies to reach targets.
What is the role of the mining industry to ensure that supply? How do the Australian government and financial institutions play into industry growth and in helping spur exploration to ensure that demand is met?
Firstly, many new investors need to come to the fore. This is a very hard industry for newcomers with all the jargon, distant jurisdictions, and the sector’s lack of communication skills (sorry guys, but it’s true). So, more educational resources would be great.
Also, I would like to see more opportunities for private capital from the general public to flow into early-stage ventures. Pre-IPOs will need to loosen regulations, as today they are restricted to 708 investors. Sure, some limitations are needed as this is a risky market, but I feel there’s an opportunity here for something great.
Can you comment on the potential of mining in Australia in the coming years? What makes Australia an attractive mining jurisdiction right now?
Over the last few years, with regards to lithium, Australia has grown significantly. But this is still a small market (in comparison to something like global iron ore.
The best part is that the ASX provides investors the possibility of diversifying not only among different stages with growing production alternatives, but also different types of deposits (hard rock vs brine), which in turn impacts capex, construction times, permitting, and more.
I personally prefer brine, but I would recommend for those with a deeper interest in lithium to consider a broad range of investments, which may protect against technical issues and cost overruns that arise during the development of these projects.
On the other hand, what I see as a relative weakness, is we have fewer options for copper.
BHP says that copper investment may need as much as US$250B by 2030 to satisfy demand, and that we’ll need two times as much copper over the coming 30 years as opposed to the previous 30
What will be some of the key challenges to meeting metals demand for the energy transition?
I’m in the camp that we’ll see significant shortfalls across the board. Lithium needs to keep growing at a very fast pace, but copper also has its own unique challenges.
JP Morgan said we could reach a demand of 32Mt of copper by 2033 compared to 25Mt this year. That’s a lot of copper considering the challenges mentioned.
Citi Bank thinks we’re headed for US$15K/t which would certainly incentivize more exploration and investment in mines. Current prices have been fine for some time but as inflation solidifies and seeps through economic studies, we need to see higher copper.
Lithium prices have been terribly volatile in the last 12 months. While we don’t need a massive growth there, some increased stability would be better as it impacts all the lithium stocks deeply. So, despite short-term choppiness in both, the long-term outlook appears extremely bullish.
Besides lithium and copper, what other metals do you feel confident in at the moment?
Rare earths. Rare earth elements are a niche market that is highly concentrated in the BRICS countries and, so far, efforts in the rest of the world have proved difficult with very little move in the needle. This is potentially a place where Australian companies could improve and continue working on, hopefully with better results.
We also look favourably on silver due to its growing use in the industry (most of which relates to solar panels), and it has remained a difficult one to allocate. But, patience is crucial when mining and investing in metals.
