Column-Can royalties help lift Australia’s critical minerals?: Russell

by Clyde Russell

LAUNCESTON, Australia (Reuters) – A persistent paradox in Australia’s mining sector is that there is a desperate need to develop new mines to provide the raw materials for the energy transition, but it is difficult to find the capital to do so.

The relatively easy part is getting exploration permits, doing some initial drilling, and proving the resource.

Then the hard part is to raise finance to develop the mine from exploration to production.

Despite expected strong demand for critical minerals such as lithium, cobalt and rare earths, junior mining companies are struggling under the traditional model of raising equity and debt financing.

There are several reasons for this, including the high cost of borrowing given the sharp rise in interest rates in recent years, and although rates may have peaked, they are not expected to fall sharply in the coming years.

Equity financing is also difficult, as potential investors generally want relatively quick returns and are really looking for mines that are close to production, not mines that are still far from first shipment.

Another issue is that both debt and equity investors generally require some certainty of returns, and this means having some idea of ​​the future price of the commodities involved.

The problem is that futures pricing is often not viable for certain metals, and the prices that exist are largely driven by developments in China, the world’s largest commodity buyer and processor.

Australian government data goes one way to illustrate the problem, with the Resources and Energy Major Projects Report released in December by the Department of Industry, Science and Resources showing a decline in the value of committed and completed projects in 2023.

Value 86…

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