Last year might have been full of uncertainty for Australia, but analysts think the Australia mining outlook for 2021 could be brighter.
Click here to read the previous Australia mining outlook.
Uncertainty dominated the Australian mining space in 2020 as the coronavirus hit the world.
Prices for gold and iron ore supported resource exports in the country, and even though tensions with trading partner China escalated, many are optimistic about what 2021 could bring for mining.
Here, the Investing News Network (INN) looks at the Australia mining outlook for the coming year.
Australia mining outlook: Developing local partnerships
Following a chaotic 2020 that proved how resilient the resource industry is, Paola Rojas of Synergy Resource Capital told INN that the current bull market could last until sometime in mid-2021.
“Companies listed locally, but holding mining projects in other countries, resorted to adding local assets to their portfolio,” she said, noting that this was logical given that many company executives have been locked out of their target countries due to pandemic-related restrictions. “That has been a very sensible approach and we applaud the flexibility. I think this will continue.”
Another mining trend Rojas sees into 2021 is a greater reliance on local networks and partnerships.
“If you can’t travel, you depend even more on local teams, partners and advisors,” she said. “Relationships become even more valuable and critical to success.”
For Rojas, Australia is also ideally positioned to take a central role as the electrification trend continues to gain steam, not only regionally, but globally.
“We have the resources, technology, capital and the business savvy, and I hope we can have the strategic foresight,” she said, adding that some players are already in place, such as Lithium Australia (ASX:LIT).
“Electric vehicles (EVs) are at the heart of the transition towards a cleaner future, and if we support this fully, it could revolutionise the country and beyond,” she said. “We still need to do a lot more locally, including at the government level — infrastructure, as well as increasing EVs sold.”
Some of Synergy Resource Capital’s private company holdings in this space, such as Chilean Lithium Salars, are gaining momentum, and Rojas thinks the arena is going to get hotter. Many Canadian companies are rocking the boat as well, Rojas added, including Millennial Lithium (TSXV:ML,OTCQX:MLNLF) and Global Energy Metals (TSXV:GEMC,OTC Pink:GBLEF).
“More partnerships with TSXV-listed companies could certainly pop up considering travel restrictions,” Rojas said. “The perspective of Australian Canadians and Australians is so different — while working in the same business, there could be some great ‘nuggets’ to be found.”
Australia mining outlook: Trading relationship with China
As the new year begins, annual resource and energy exports from Australia are forecast to remain at over a quarter of a trillion dollars in 2021 — at AU$279 billion in 2020/2021 and AU$264 billion in 2021/2022, according to the country’s Office of the Chief Economist (OCE).
But the OCE also highlights that one downside risk is for substantial delays in the successful rollout of COVID-19 vaccines to a large number of the world’s working population; another downside risk is the extent of further disruptions to Australian trade with China.
Tensions between the two began early in 2020, after Canberra backed calls for an international investigation into the spread of the COVID-19 pandemic from China.
The Asian country imports 60 percent of iron ore from Australia, which is the world’s top producer. Coal exports to China could also suffer, while other products, including barley, sugar, red wine, timber and potentially copper, are being caught up in the disputes.
“It is definitely worrying to see how everything escalated so quickly, and how two countries that have relied on each other as extensively can become alienated,” Rojas said.
“It definitely makes things harder for Australia as a supplier, but I do believe having a new occupant at the White House will help assuage the tensions.”
The Synergy Resource Capital founder said she expects to see improvements in the relationship soon.
“But at the same time, this highlights the need to have a plan B, not to replace but to complement the China-Australia trade,” Rojas said. “I have been saying for awhile that Australia needs to diversify by strengthening links with other regions.”
For Rojas, the obvious alternative is Latin America, and she said that 2021 could bring a great opportunity for this connection to develop.
Australia mining outlook: Commodities and factors to watch
When asked about what commodities could have the biggest upside in 2021, Rojas said gold will remain strong given the ongoing global uncertainty.
“Although I don’t think we will see a significant spike, dancing around US$2,000 (per ounce) … every time it climbs, investors quickly get some gains, pulling the price back down,” she said. “We still remain bullish on gold, copper — which will in my view have a brilliant year — silver, plus everything needed for batteries, from lithium to cobalt and nickel.”
Aside from resources, Rojas added that another asset class to be aware of is cryptocurrencies and other aspects of the tech world. “Mining companies have been traditionally (been) roughly about 30 percent of listed companies locally. I expect this trend to continue, but there seems to be quite a push from tech and health (part of which is health tech),” she explained.
Rojas continued, “Both sectors are winners with the current pandemic, since A) we rely even more on technology to conduct our daily lives, and B) high numbers of people falling sick, regardless of what ails them, mean obviously more patients.”
Another trend that investors should keep in mind is the use of technology in mining.
“More companies are combining mining and technology in ways that provide them avenues to reach cash flow on their own for at least part of their capital requirements,” Rojas said. “If this continues, we may be seeing less dilution and stronger firms, which would be nice to see.”
She mentioned Sensore, which is seeking a listing later this year, as worth keeping an eye on.
“Junior mining should be less about blind luck and more about business sense. Producing cash flow should be at the top of the list,” Rojas said. “Don’t be surprised if we see a generation of new companies who are more pragmatic about how they start and how they raise money.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.