Vaccine news changes calculations

Pfizer’s reported COVID-19 vaccine breakthrough is another reminder that the outlook for business and investment next year is moving rapidly from barely hopeful to extremely optimistic.

Pent-up consumer demand is one reason 2021 could be a boom year, with household savings in Australia at a near-record high after months of families squirreling away spare cash and avoiding big-ticket purchases.

But a successful vaccine, whether it’s from Pfizer or any of the other research projects under way around the world, will do more than anything else to turn the global economy around.

For business in Western Australia, that means it might be time to revisit some of the emerging success stories sidelined by COVID-19 and investor uncertainty.

For one of the pandemic success stories, however, the news may not be so good.

Gold, which reclaimed its role as a key WA mining sector, might be under pressure if there is a whiff of economic normality in the air, and there’s little doubt the boom of the past 12 months is coming to an end.

Investors with heavy gold exposure don’t want to hear anything negative about their favourite commodity, but a few numbers provide a wake-up call.

The first red flag is the gold price: $US1,488 an ounce a year ago ahead of an all-time high of $US2,067/oz on August 6.

And while it might rebound, the immediate drop to $1,861/oz after the Pfizer vaccine news should be seen as a warning that investors are shifting their sights back to a time when US political uncertainty and COVID-19 were not the dominant issues.

Looked at over a 10-year period, the mid-point for gold is around $US1,500/oz; still a handsome price for most gold producers but a potential problem for high-cost miners of low-grade ore, and certainly not a happy price for explorers seeking to raise funds.

If gold is going to be the problem child of 2021, then an early look at potential winners includes the commodities that were doing well until a few years ago.

In what’s undoubtedly good news for WA, battery metals – a broad group that includes obvious members such as lithium and graphite but also copper and nickel – are poised to restart their interrupted rise.

The driving force behind the family of battery metals and more exotic commodities such as rare earths is the electrification of the world, as governments react to voter demands for more renewable energy and less fossil fuels.

The recovery in lithium (and other tech-metals) can already be seen in share prices of once-troubled producers such as Pilbara Minerals, which has doubled from 25 cents to 50 cents since the middle of year, aided by steady demand and the closure of a neighbouring lithium miner, Altura Mining.

European and Chinese demand for electric vehicles has been erratic during the pandemic, but there will be a fresh burst of interest in all forms of electric-powered transport as mobility restrictions are eased and it becomes easier to travel.

China expects EV sales to account for 20 per cent of new cars sold by 2025.

That means a significant demand for battery metals, which WA is well placed to supply (assuming a fading of the intensity in the China-Australia trade dispute).

But the big win for WA could come if research into making a battery precursor ‘cocktail’ of metals proves successful.

While not well known outside the companies involved, a project under way could combine BHP nickel with locally produced lithium and cobalt to make a value-added product for export to battery makers.

In terms of value creation, the plan to make battery precursor powder could be a first step to local battery production.

However, even if that last step fails to materialise, it will mean at least a five-fold increase in the value of metals currently exported in their non-combined state.

The shift of focus back to battery and other tech metals has also produced two low-profile winners among smaller miners, and is reported to have revitalised interest in the sector at Wesfarmers.

Both emerging winners have WA roots but are doing their best work overseas.

Talga Group, a graphite explorer with ambitions to be a player in the European battery industry, has recently signed a number of company-changing deals based on its high-grade graphite deposits in northern Sweden.

The most important deal is the creation of a joint venture with Sweden’s biggest mining company, LKAB, and Japan’s Mitsui, to develop a Swedish battery anode project.

Investors have embraced Talga’s plan, with strong buying interest more than doubling its share price in a month, from 75 cents in early October to $1.55.

The other WA success story with international and interstate connections is Australian Strategic Minerals, a company spun-out of Burswood-based Alkane Resources, with ownership of the Dubbo rare earth and zirconia deposit in NSW.

Putting the Dubbo project into a purpose-designed company has worked wonders.

In conjunction with South Korean scientists, ASM has developed a process for extracting rare earths and other valuable minerals, such as niobium and hafnium, from Dubbo ore.

ASM has been a remarkable success on the market, rising by more than 250 per cent, from 86 cents to $3.22 since early August.

With next year looking much brighter for tech metal demand, it is no surprise to see reports of Wesfarmers jockeying for a fresh entry point after two less-than-successful early moves.

Plans to build a lithium processing plant at Kwinana with Chile’s lithium leader, SQM, are moving slowly as a global lithium glut is absorbed, while a move to enter the rare earth industry – thwarted by the rejection of a takeover proposal put to Lynas Corporation – might have been renewed through an interest in VHM, a Victoria-focused rare earth and zircon project developer.