✦ Noel Ong, CEO of Samso wipes clean his crystal ball and takes a hard look at what to expect in 2022.
The Year of the Tiger is looking bright and Noel is excited to be part of our century's new Industrial Revolution.
The end of the year is when thought leaders across industries look back on trends and developments and make predictions about what is to come. It's not about having the answers or certainty to the future, though it does help give a sense of comfort and stability to try to build some sort of narrative based on experience, facts, developments and logic.
Noel Ong, CEO of Samso shares his thoughts about what to expect for 2022 in the mineral resource industry. And he is most interested in two key issues - Green Energy and No Emissions.
Today's blog brings Brilliant readers Noel's expectations of the coming year and he also gives a clear breakdown of the most important components of growth in 2022.
Market Expectations for 2022
We are likely to continue to see volatility, but Noel is hopeful the next year would be a better one. There is going to be a large amount of surplus funds in 2022, looking at how nearly AUD$400M was raised in the second half of 2020 and with over AUD$700M raised in 2021.
What this means is, the capital market is going to either burst out in 2022 and create a bubble for investors to be concerned about, or it will just carry on to 2023.
Noel is veering towards the second option simply because of all that is happening around, plus the fact that two key narratives are set to drive how things will run in 2022 - one is the No Emission movement and the other is the uncertainty of the changing landscape of the post-pandemic scene.
We are likely to see a race in the industry to be in the right place at the right time because asset allocation is trying to find a balance back to normality.
Figure 3: (Source: E& MJ)
Figure 3 from E&MJ - Engineering and Mining Journal is a clear example about the restarting of projects globally. Looking at the delayed projects, capital requirement will rise just for that portion of the market.
What happened in 2020 was, to conserve cash, most mining firms deferred capital expenditures and halted or slowed project activity. GDP growth, an important leading indicator for capital spending in the mining industry, is estimated by the International Monetary Fund (IMF) to have declined by about 4.9% in 2020.
As of the end of 2020, the number of metals and mining industry projects impacted by the pandemic exceeded 1,600, representing $212 billion, according to surveys conducted by Industrial Info. About 66% of that is for mining projects, with the remainder being for downstream processing and smelting sectors.
The good news is that most of these projects are merely being delayed as opposed to cancelled. Most delays range from three to 18 months, with a lot of project development being pushed into 2021-2022 timeframe (Source: E&MJ).
What we are now seeing in the mineral sector is a renewed interest and an increased opportunistic interest in the sector, and this will push the current "bull" run for a longer period. Should the general curve of interest run smooth, Noel thinks this will be a three to five-year run. We may well be looking at the next super cycle.
Noel is optimistic about the path ahead and his confidence in this optimistic narrative is entirely based on the EV-No Emission Revolution. This is the Industrial Revolution of our current times.
Another key point of interest is the impending lithium run. If you look at Figure 4, the sentiment toward lithium was still going down and was actually at its all time low in September 2021 but then it took off like a greyhound chasing a rabbit on the racecourse.
That has changed the entire dynamic of the No Emission narrative. There was already a movement for Green-EV-Reduced / No Emission but as the sharp price movement happened, it is as if the world woke up suddenly and decided this was the way to go.
And this movement is now going at break-neck speed.
Figure 4: The 5 year chart for Lithium Carbonate. (Source: Trading Economics)
Four Main Components of Growth in 2022
Lithium may be the apple of everyone's eye, but it is wiser to hold one's horses and take a look at its other siblings. Lithium is not the be all and end all of it.
Figure 5 below is from an Insights Noel wrote back in June 2021 - The Mystical Journey of the Commodity Price - Will it Continue?
Figure 5: The elements that are required to have a renewable industry. (Source: www.elements.visualcapitalist.com)
What Figure 5 shows is there are a lot of other metals that are required and are even more in demand now than in the previous industrial community. Sure, adore lithium all you want, and it's also well worth checking out these other components.
Molybdenum is the neglected child of the family but it is now gaining strength and taking its rightful place in the spotlight. Molybdenum is a component of stainless steel and its strong selling point is it makes stainless steel anti-corrosive.
Figure 6 shows a renewed interest and there is a correlation of increasing demand for lithium and molybdenum. This resurgence is another reason why Noel feels there are plenty of real reasons for the metal demands to last a lot longer than we are used to in the past. It is not entirely clear why there is a resurgence in pricing, apart from the correlation to the rise of the oil and gas industry. The increased need for structures that are not corrosive is a factor but if you look at Figure 5, the increasing use of renewable energy source could be driving up the pricing as well.
Figure 6: 25 year chart for Molybdenum. (Source: Trading Economics)
Noel is seeing a better future for this metal because the EV industry is always seeking for better and more cost effective components. People are commenting how the industry is actively looking at Nickel Solid State batteries. If this is going to be the future, then the demand for the metal will far exceed existing supply. There is going to be a struggle to find reliable sources of nickel sulphides and if they go towards the Green space, that market will be even tighter.
Finding the source and then mining it is going to pose a challenge. For those who may not be familiar with the industry, the mining process takes time and that is going to cause an even greater strain on demand.
Figure 7: 5 year chart for Nickel. (Source: Trading Economics)
Copper is the main stay of our civilisation and there have been countless commentaries on the need for more of it. The supply of copper is good so it is unlikely we will see a sky-rocketing price surge. What this means is, we can get to a source more easily as the price will get to a point where it allows the not so economical projects to become viable.
Supply will kick in and that will stabilise the price rise. Unlike cobalt and in some case nickel (at some point in the future), there is a supply issue and the price will get to a point where it is uneconomical to use as a component.
There is indeed a need for more copper but the shortage will not be so severe.
Figure 8: 5 year chart for Copper. (Source: Trading Economics)
And now on to the hot favourite in the industry. There is little left to be said. Lithium has a well-known story but the latest price surge is pretty vertical. Noel expects there is going to be a coming back to reality at some point.
In late 2019, Noel spoke to an associate who was trading in spodumene and he was told that the turning of lithium is close. Noel was most surprised by the rate at which it turned.
For Noel, the projects that are near to the market will be beneficial. With these last two years of shifting economics, shifting logistics, shifting politics, there is a balanced shift of reliance on world supply to one of domestic supply.
Noel's position on lithium is no longer that of whether the price will rise or if there is a demand, but rather one of location of the project. If one has a project that is in the right jurisdiction, one will be closer to a safe zone.
What is clear is, the critical nature of lithium is going to play a big role in the coming years, maybe even extending for decades. This will shape political and economical boundaries which will become the balancing powers.
Figure 9: 5 year chart for Lithium. (Source: Trading Economics)
Noel has been in the mineral exploration industry for over thirty years. And he admits he has never before seen such a state of euphoria than that the industry is experiencing now.
Geologists are much sought after and offered excellent compensation. This is a rare occurrence.
Remember that there was nearly AUD$750M raised in 2021 and about AUD$400M to AUD$500M raised in 2020. It is a sign that exploration activities will continue to be strong. This plus the fact that the EV / No Emission narrative is totally driving every aspect of the resource industry means the outlook for the metals is going strong.
Noel has not covered the ESG requirements and participation factor, but it is clear that Environmental, Social and Governance is going to drive the industry as companies look to bring their businesses in line with the ESG bracket. The emergence of a strong ESG requirement is also creating more opportunities and allowing more capital to be allocated.
For Noel, the Year of the Tiger heralds new beginnings. We are not going back to how things were, and this has nothing to do with the pandemic. It is simply the next natural process of a new Industrial Revolution. And how exciting it is that we are here to witness the evolution of this process.
This article is sponsored content.
ASX companies engage Samso and Brilliant-Online to share their commentary on the progress of their companies and projects. The author, owners of Samso and Brilliant-Online and associated entities may or may not hold shares of these companies.
The information or opinions provided herein do not constitute investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not take into consideration, nor have any regard to your specific investment objectives, financial situation, risk profile, tax position and particular, or unique needs and constraints. Read full Disclaimer. - Samso
About the Author
Noel Ong, CEO of Samso tells compelling stories by engaging business leaders to reveal insights beneficial to the investment community.
Samso helps executives tell ASX stories to pique investor interest.
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