Resurgence of the Junior Miners for Key Metals
As the industrial pivot to renewables and electrification continues at pace, it has created a focus on the supply side for key metals
As the industrial pivot to renewables and electrification continues at pace, it has created a focus on the supply side for key metals
Renewables have a key role to play. “Renewables have been a very important factor in achieving climate goals over the past 20 years in the European Union and now they're becoming probably even more central,” Alberto Gandolfi, head of European Utilities Research Team, Goldman Sachs Research.
The reshaping of global energy supply markets remains critically in focus, and whilst it will take time for the ultimate reformation to take shape, the force for change has put renewed vigour into the role for renewables and for industrial sectors pivoting to electrification, creating a significant squeeze on the supply side of key industrial metals, already undergoing a significant price change as economies emerge from the pandemic.
This ‘perfect storm’ has ultimately renewed investment decisions across the extractive sector for key metals such as nickel, cobalt, manganese, lithium, copper, rare earth metals and tin. In each of the metal markets we have witnessed significant price inflation with copper leading the charge from its doldrums up until 2019, then going into a resurgence, and other key metals have since followed suit. With tin most recently, the decision by Cornish Metals (listed in Toronto and London) to re-open the once prolific South Crofty tin mine, shuttered in 1998, is now targeted to be one of the largest tin producing mines globally – an investment decision prompted by the price surge in tin and the key role it has to play in electrification.
There are an increasing number of examples around the globe as asset owners and operators and senior funders look to secure future supply. The role for the junior mining community is no less important, strategically positioned to identify and appraise potential new and existing mining assets, often formally deemed uneconomic, now very much back in play.
Alex Stanbury, CEO of Technology Minerals plc, comments:
“Junior miners have always had an important role to play, identifying assets that won’t necessarily catch the eye of the majors, at least not initially. Our role therefore is to identify and appraise, packaging a valuable resource for the next stage –development with a senior funding and operational partner that can take it through to production. Our job is to create that early-stage value that can provide the platform for the development phase.”
Globally, there are over 3000 junior mining companies listed on exchanges and fewer than 50 major miners. Most junior minors either aim to develop a successful project and eventually build a portfolio of assets attractive enough for a senior funding partner – often a major miner to acquire or partner on the development of the asset.
There are typically five phases across the value curve of a mine from exploration through to production and a junior miner’s activity is generally concerned with exploration, pre-development and valuation:
Exploration Phase
The first step of opening a mine is to find something worth mining. Companies hire geologists to survey land sites to establish the presence of resources. To open a mine, a company first needs to find a site with an economically viable mineral deposit.
The geologist maps out the site to determine the locations and quantities of valuable minerals using aerial photographs, field maps and geophysical surveys. When exploration geologists find resources, sampling and drilling begins.
The samples are studied to determine the grade of the mineral/ore. Extensive care in sampling size and weighting must be taken to ensure that a representative sample is collected, and accurate results captured. Otherwise, one may erroneously believe there is no value mining a site that is abundant in resources or invest heavily in developing a site that will never make a profit.
Lifecycle of a Mine
Once exploration is complete, a preliminary outline of the potential size of the deposits found is drilled to estimate the total amount of resources available for extraction and given an indication of the total possible revenue that the mine could generate.
Discovery/Pre-development Phase
The discovery phase is when design and planning of the mine begins. The company will create multiple scenarios with different variables to determine the most viable plan with which to proceed.
Some of the criteria that will be considered include:
· Safety – To ensure that employees, contractors and local communities are not subject to undue risks to their wellbeing.
· Environment – The plan needs to keep damage to the environment to a minimum through lower impact techniques, responsible disposal of waste and restoring the land after the mine closes.
· Economics – A series of assessments and studies are completed as the project progresses with ever more economic and technical detail culminating in a definitive feasibility study. The results of that survey inform the final decision on whether to proceed with the mining plans and is crucial to obtaining financing.
· Social factors – Mines are an important part of any local community, often employing local people and funding infrastructure like power, roads, and water. It’s important to keep the local community on board with plans and to see the benefits of developing the mine.
Development Phase
At this point the mine itself is built along with the supporting infrastructure, which could include roads, railways, water, sewage and power. It may also involve building accommodation for employees and accompanying infrastructure including health and education and leisure facilities; but this depends on how remote the proposed mining site is from established communities.
Production Phase
The production phase - the mine starts operating and generating revenues. Minerals are extracted and processed to separate the valuable parts from the undesirable waste. The extracted material is then either refined on-site or transported for sale.
Reclamation Stage
The reclamation stage must be planned from the very beginning for the government to provide approval to build it. It’s important that the plan ensures that public health and safety is protected, waste and hazards are removed, the land is restored, water quality is maintained and any effect to the environment is generally minimised.
Key Stages of De-risking
The main risks that a junior miner can face are:
· Asset Viability – acquiring available data on an existing, pre-mined asset and appraising the geological data that is available and potentially ground sampling studies, locality of neighbouring assets, often can be producing assets or development assets which have already undergone the preliminary appraisal stages. The success of each stage should increase the value of the mine and make it possible to continue borrowing or receiving investment.
· Permits and Licences – working with the governing authority, local communities and local partners to assess viability, potential for job creation, sustainability areas of interest will grant the necessary permits and licences to continue, and it is impossible to proceed without them.
· Management – any mining project requires a range of skill sets to take the project through to the development stage including geological, engineering, legal, community and sustainability members of the management and consulting team.
· Financing – prudent deployment of capital in the early stages where the management team builds the data set to provide a platform of value for the asset development proposition to be taken to senior funding partners, and potentially a senior funding and development partner.
The Market Cycle
The resurgence of global metal prices are propelling many more potential new mining projects and prompting the re-opening of existing assets. The price of the commodity directly impacts the profitability of a potential mining project and across all of the key metals the investment threshold – the point at which a financial decision is taken to develop an asset – is well and truly back in prominence.
For example, copper was trading at $1,378 per metric tonne in March 1999 and over $10,000 per metric tonne in May 2021 – an increase of over 700%. Commodity prices can swing wildly and so there is a huge range at which different sites may be profitable and loss making. The difficulty is compounded by the fact that it can take many years to establish a mine and prices may be very different when the mine is being planned and when it begins operating.
The good news for miners is that the strength of commodity prices are clear to see and many financial analysts believe we may be at the start of a new commodity supercycle. A supercycle is heavily influenced by supply and demand factors: as demand increases, so do prices. As a result, more mining projects become profitable, and miners increase supply.
Commenting further, Alex Stanbury at Technology Minerals, said:
“Across the likes of lithium, cobalt, nickel and rare earth metals, we are clearly seeing a significant supply side threat, to the extent that governments are increasingly preoccupied with securing future supply. We are seeing a growing focus on developing in-country assets, supply stability, re-opening and reformation of once redundant mining resources. These will all be key to making sure that the challenges of electrification across so many industrial sectors can be met.
“We have strategically assembled a portfolio of assets in Europe and North America, and also have a twin-track strategy of recycling Li-ion batteries on an industrial-scale in the UK market, forming the other side of our model to create a circular economy for the re-use of the key battery metals.”
