Commodities surge drives SA mining investment

Rising commodity prices and demand for critical minerals is driving investment in South Australia’s resource sector as the local mining industry approaches levels not seen in more than a decade.

May 24, 2021, updated May 24, 2021

While booming iron ore prices and exports out of Western Australia are stealing the national headlines and filling government coffers interstate, SA’s production of key minerals and metals such as copper and gold have received a boost in the past 12 months with strong prices fuelled by global demand.

This renewed confidence is sparking a string of investments in mining exploration across the state as other more advanced projects approach key decisions about construction and production.

Recent investments include:

  • Hillgrove Resources raised $10.9 million in February to fund underground drilling at its Kanmantoo project, a former open-pit copper/gold mine in the Adelaide Hills.
  • SA Company Australian Rare Earths this month launched its IPO, which aims to raise $12 million ahead of its listing on the ASX in June. The company plans to explore and develop ionic clay rare earth resources in the South East of SA and Western Victoria.
  • Rex Minerals raised $9.5 million in April to retire its $4 million debt and progress its Hillside copper/gold project south of Ardrossan on Yorke Peninsula.
  • Publicly-listed company Magnetite Mines is set to push forward with its Razorback iron ore project, in South Australia’s Braemar Region, following the announcement of a $7 million capital raise in May.
  • New SA company iTech Minerals is preparing an IPO, which aims to raise up to $7 million ahead of listing on the Australian Securities Exchange in July or August. The company has agreed to purchase the halloysite-kaolin and graphite tenements of Archer Materials.

Adelaide-based commercial law firm DMAW Lawyers has been working with a number of local mining and exploration clients and says South Australia’s mining sector is seeing a level of investment activity not experienced since before the Global Financial Crisis (GFC).

DMAW Lawyers principal, Peter Kupniewski said increasing demand for the firm’s services within the sector had supported the creation of new positions in his team.

“Australia’s thirst for renewable energy and an emerging market for critical minerals is helping to drive significant mining investment, with IPOs taking place across the country from Western Australia to New South Wales,” he said.

“This includes explorers having a renewed focus on base metals, in particular copper and other elements that support sustainable energy, as well as companies that deliver energy from renewable sources.”

“With South Australia, in particular, investing in new technology around renewable energy and energy efficiency we are also seeing increased levels of M&A activity in this space.

“We haven’t seen this level of investment activity in the sector since pre-GFC.”

High demand

Copper, graphite, lithium and the clay mineral halloysite are among minerals expected to be in high demand in coming decades as the world transitions to new technologies such as electric cars and renewable energy.

Andromeda Metals has lodged an application with the Department for Energy and Mining to establish a halloysite-kaolin mine near Poochera on Eyre Peninsula. The project is a joint venture between Andromeda (75 per cent) and fellow SA company Minotaur (25 per cent).

Andromeda says the project would require a maximum cash injection of $28 million to get the site operating to the point where revenues could begin flowing in through the direct shipping of ore, which it says could begin next year.

Uranium prices are also tipped to rise on the back of increasing demand and reduced stockpiles.

Boss Energy is looking to become Australia’s next uranium producer by resuming production at the Honeymoon Uranium mine on the South Australian side of Broken Hill. It says works to resume production could be completed within a 12-month timeframe at a cost of about $81 million. It is finalising an Enhanced Feasibility Study on the project, which it expects will coincide with a rising uranium price.

The state’s oil and gas sector contributed about $1.65 billion to the state’s resources production in 2019, led by the state’s biggest company and InDaily‘s South Australian Business Index leader, Santos.

Plummeting oil and gas prices in 2020 resulted in big losses for the sector last year but confidence is returning.

In March, Santos approved its $4.7 billion Barossa project northwest of Darwin, which it says represents the biggest investment in Australia’s oil and gas sector since 2012.

The announcement capped a challenging 12 months for the oil and gas giant after its share price bottomed out at $2.75 on March 23, 2020, as world oil prices plummeted in the early part of the coronavirus pandemic.

The company recovered alongside improving oil and gas prices in the second half of the year but still posted a $460 million loss for 2020.

The state government is set to release mineral resource production statistics for the six months to December 2020 in the coming days, which are expected to show a big increase in production value for 2020 from the $6.9 billion in the 2019 calendar year.

Commodity prices on the rise

Following a sluggish performance from the oil and gas sector in 2020, copper and gold are expected to be the driving force behind the SA industry’s performance.

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Copper typically has accounted for about 35 per cent of the state’s mining sector value, contributing $2.45 billion in 2019.

Copper prices jumped by 24 per cent in the second half of 2020 despite the increase in the value of the Australian dollar compared to the US dollar.

Gold prices surged to record highs during the coronavirus pandemic and have remained well above $2000 per ounce this year.

The copper price has surged a further 17 per cent in the first four months of 2021 to more than $12,000 per metric tonne in April.

This period has coincided with a 25 per cent increase in copper production at BHP’s Olympic Dam for the nine months to March 2021.

The state’s largest copper mine produced 100,000 tonnes of copper in the second half of 2020 and a further 55,000 tonnes in the March quarter this year, the highest quarterly production at Olympic Dam in the past five years.

The state’s second-largest copper producer, Oz Minerals, also reported significant increases in copper production for the second half of 2020 at its South Australian mines at Prominent Hill and Carrapateena.

This was mainly due to the ramping up of production at Carrapateena, which began commercial operation in late 2019.

The mine, about 160km north of Port Augusta, produced 18,000 tonnes of copper in the second half of 2020 compared to 9600 tonnes in the first six months of the year.

Gold production at Carrapateena was also up significantly from 19,500 ounces in H1 to 33,700oz in the six months to December.

Copper production at Prominent Hill was steady at about 30,000 tonnes per half while gold production actually fell away slightly in the second half of the year to 96,000oz from 101,000 in the first six months.

The company’s overall copper production was up again in the first quarter of 2021 to 26,842 tonnes for the three months to March 31 compared to the same period last year on the back of further production increases at Carrapateena.

Sector resilience

According to figures from the SA Chamber of Mining and Energy (SACOME), the state government received $311 million in mining royalties for the 2019/20 financial year, up from $299 million the previous financial year and $207 million in 2015/16.

SACOME last year commissioned an Economic Contribution Study to analyse the expenditure patterns of 12 major operating member companies throughout 2019/20 to determine their contribution to the South Australian economy.

The study found that these companies contributed $5.9 billion in direct and indirect spending to South Australia, equivalent to 5.3 per cent of Gross State Product, or one dollar in every $20.

SACOME CEO Rebecca Knol said the 12 companies paid $435.8 million to the state government in 2019/20, including royalties, stamp duty, payroll and land tax.

She said although exports were down in 2019-20, the latest South Australian export commodities figures showed increases in the 12 months to Feb 2021 including iron ore concentrates up 91 per cent and lead up 36 per cent.

“During 2020, the resources sector demonstrated both its resilience as a sector and its importance to the state’s economy,” Knol said.

“The sector has a whole of state impact with economic benefits significantly benefitting metropolitan Adelaide as well as the regions.  The sector continues to provide highly paid jobs and career opportunities for graduates, school leavers and apprentices.

“Commodities in our state are powering the technological revolution … today copper and other critical minerals are enabling us to push the boundaries of science.”

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