The changing discourse around the role of ESG for institutional investors has forced a rethink of portfolio management, particularly those tied to the mining and resource sector.
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The changing discourse around the role of ESG for institutional investors has forced a rethink of portfolio management, particularly those tied to the mining and resource sector. However, senior investment analysists predict that Australia’s traditional mining and resource sector will be vital to the global transition towards decarbonisation and warn against disinvestment.
Australia’s commitment to sustainability, rule of law and efficient infrastructure make it an attractive proposition for investment in the mining and resources sector. The interwoven challenges between decarbonisation and good investment strategies are to be debated at the International Mining and Resources Conference (IMARC) in Sydney this November.
A major focus for investors right now is the mass-decarbonisation across the entire mining value chain, but global hurdles are slowing efforts down and putting an emphasis back on providing cost-effective, quickly sourced energy forms to help nations struggling with power generation.
CEO and Director of Queen’s Road Capital Investment, Warren Gilman, says “There’s no question that there’s a global trend towards decarbonisation. Even though we’re suffering some extraordinary bumps in that road at the moment, that’s the inevitable trend. And that opens up different pockets of opportunity. Divestment in the carbon industry whether it’s gas or coal or natural gas, means there is more investment in alternative fuel sources like uranium.
“Decarbonisation generally tends to also mean electrification, and that obviously has an impact on demand for battery metals, but necessity often trumps trends like this and we’re seeing a short-term necessity for the re-investment in carbon-based energy forms around the world to fill what is hopefully a short-term requirement.
A major reason for that requirement is Russia’s invasion of Ukraine, which is disrupting energy sources within Europe and beyond, with a flow-on effect reaching around the world.
Blayney Morgan, an energy & resources specialist and Partner at SW Accountants and Advisors and says “Russia is of course a significant exporter of coal, but also an importer – mostly from Ukraine. When you stop the imports, and you stop the exports, the entire market gets affected.”
The impact of Russia’s actions has also highlighted the global susceptibility of relying on foreign resources which is forcing many countries to rethink the role of globalisation within their own economy. However, while domestic self-sufficiencies might seem like an attractive proposition, it is not necessarily an achievable prospect.
Mr Gilman says “there’s certainly a much greater awareness of the idea of the security of supply chains and domestic production due to the impacts of COVID, the invasion of Ukraine and the polarization of global politics generally. Countries have realised that you are putting your populace at heightened risk by not having a domestic supply chain and a domestic source of inputs, so there’s an increased realisation of that risk.
“I wouldn’t say there’s a trend towards mitigating that risk yet but people have been talking about it more and making some movements in that regard. For example there’s been an increase in the global discussion about domestic sourcing of what are viewed as critical minerals for chips and semi-conductors.
“This isn’t new. That risk didn’t happen overnight, just awareness has increased. I think there’s always been some awareness but it’s been combined with complacency and at the end of the day economics has tended to trump the risk.
“The incentive is just not there to prioritise domestic resource security and the government has had other priorities. They’ve been all about efficiency and cost reduction, not about security, so I’m not sure that’s going to change.”
And until domestic supply chains becomes more of a priority in places like the United States, Australia, along with Canada, is providing the best investment opportunity.
“Australia is top of the heap. It’s in a wonderful, wonderful position. Along with Canada the two countries are the best to invest in when it comes to mining,” says Mr. Gilman.
“You have access to courts that are viewed as fair and reliable and that is the biggest advantage that any country can have. After that, you need the resources in the ground and obviously Australia has a tonne of those. I think you’ve got a population that has, for lack of a better description, mining in their blood. They have a history of mining; they have a significant part of the population that makes its living from mining and a mentality that responsible mining creates wealth and opportunity with minimal damage. As long as you’ve got that mindset, you’ve got an opportunity to develop those resources.
“Australia also has very sophisticated capital markets. Because of that history it’s used to financing mining opportunities and obviously you need that because you can have all of the above but if you don’t have the money, you’re not going to go anywhere. Not many other places in the world have all of those things, one might argue that nowhere else in the world has all of those things to the degree that Canada and Australia have them”.
Blayney Morgan agrees, saying “my personal view is that Australia is such an easy place to do business. You see it in project valuations, with the lower cost of capital. That’s because Australia has good infrastructure, the right legal system, well trained people and it is the lucky country – because we have less development across our outback areas – which gives us the opportunity to find great deposits.”
IMARC is a forum where these rich investment opportunities can be explored with mining heavyweights and exciting newcomers to the industry.
“A key role of IMARC is to highlight challenges facing the sector, locally and globally, and provide a positive and productive forum where people can talk about them. Discussions started at IMARC often lead to positive solutions!” says Mr. Morgan.
Warren Gilman describes it as a great chance to take the temperatures of other investors and corporates in terms of the flow of what they are seeing.
“I’m looking forward to finding out who’s doing well, who’s struggling, what commodities are in vogue, which ones aren’t, what areas of the country are continuing to support mining and what areas are experiencing more of a push back. All of those things more broadly defined as taking the temperature and specifically getting a feel for how funds are flowing within the country,” he says.
For more information, please visit https://imarcglobal.com/
