Warren, could you please tell us a few words about the Association's history?
The Association of Mining and Exploration Companies, known as AMEC, started just over 40 years ago in Western Australia. It was initially formed by about 40 member companies who were concerned that small explorers were not getting a voice in the legislative process for the mining industry, which was dominated by larger players. These smaller companies united to provide a tailored perspective to the government on the needs of mineral exploration, funding for small companies, and the transition from exploration to project development and mining. Over the years, AMEC has grown, representing small and mid-tier companies in state, territory, and Commonwealth governments.
What are the main mining sectors in Australia?
Australia has a significant history and presence in the mining industry, dating back to the gold booms of the 1800s, which drove mass migration and wealth creation. Today, Australia is well-known for its production of iron ore, coal, and LNG (liquefied natural gas), with the majority of these exports going to Asia, particularly China, Korea, and Japan. Australia is also a leading producer of gold and has become a major player in the lithium market, with about half of the world's lithium coming from Western Australia. Additionally, Australia has a long history with bauxite and aluminum production and a strong nickel industry, although it faces challenges due to competition from Indonesia.
Australia is also emerging as a critical minerals powerhouse, with significant exploration and new projects in this sector. However, the high regulatory environment and the uncertainty of demand for these minerals pose challenges for attracting investment. While long-term demand projections are positive, the timing of these demand spikes remains uncertain, making it a guessing game for companies and investors. Despite these challenges, Australia continues to be a significant player in the global mining industry.
Can you elaborate on Australia's lithium production and the challenges related to processing it domestically?
Australia is indeed a significant producer of lithium, accounting for about half of the global supply. While most of the world's lithium is processed in China, efforts are underway to increase domestic processing. Two lithium hydroxide processing plants have been built in Western Australia, one by Albemarle from the United States and the other by Tianqi, a Chinese chemicals company. These plants aim to add value to Australia's lithium resources and secure raw materials for their supply chains.
The strategic competition between the United States and China complicates the situation. Australia is trying to leverage its critical minerals supply to attract investment in downstream processing and diversify its customer base. This strategic shift aims to build a chemical processing industry in Australia and reduce reliance on raw material exports to China. However, the competitive global environment and the need for government incentives to level the playing field remain significant challenges.
In that respect, you have been very active on pushing for the Critical Minerals Production Tax Incentive. Can you tell us about it?
The Australian government committed to a $7 billion program over 10 years in the May budget, providing a 10% production tax credit for the downstream processing of critical minerals. This initiative mirrors the United States' Inflation Reduction Act, aiming to incentivize investment in the critical minerals sector. However, there is resistance from the opposition party, which is not surprising given the upcoming election. Despite this, we believe there is a pathway for the bill to pass through both houses of parliament.
The program has a delayed start date, beginning in 2027, with the goal of driving investment forward. Projects reaching final investment decisions between 2027 and 2030 will benefit from the full 10 years of the production tax credit. This timeline is designed to attract early investment and encourage companies to advance their projects in the latter half of the decade.
Indonesian competition has significantly affected Australian nickel production. What can Australia do to counter this?
Australia has two choices: reinvest in new technologies to produce higher quality nickel products or wait for market conditions to improve. The demand for nickel is expected to rise in the next three to five years, and Indonesia may not be able to meet all of this increased demand. However, without significant investment in our nickel industry, Australia will struggle to compete with Indonesia's low-cost production, which is heavily supported by Chinese investment.
Australia has a long history of nickel mining, but our mines are no longer of the high grades they once were, placing us higher on the cost curve. To remain competitive, we need to attract similar levels of investment to what Indonesia has secured. Although we expect market conditions to improve and projects to restart, our companies must focus on investing in technologies and processes to maintain their place in the global supply chain.
Other than high production costs, what are the main challenges for mining in Australia?
The primary challenge is indeed the increasing cost of production. Additionally, we face significant issues with skills and labor shortages across all industries in Australia, not just mining. Attracting skilled workers is difficult due to a restricted housing supply and limited capacity to accommodate more people. This situation requires careful management at the Commonwealth level to balance skilled migration with the needs of the population.
Another major challenge is the high level of regulatory burden. Australia has stringent environmental and social governance standards, which, while necessary, put us at a competitive disadvantage compared to nations with less stringent regulations. We need to find ways to be more efficient without compromising these protections. An emerging ESG premium, recognizing the high standards of countries like Australia, could help offset these costs, but currently, it does not exist, leaving us to carry the extra costs without recovering them through the supply chain.
What are your key priorities at AMEC for the next three to five years?
Our primary focus is on managing costs, especially in an inflationary environment. We are particularly concerned with land access issues in Australia, which has a complex history with First Nations people and significant native title laws. These laws require extensive engagement with poorly resourced bodies, leading to long and challenging processes before we can begin exploration. We need to find ways to streamline these processes and make mineral exploration more attractive for investment.
Australia has vast underexplored regions with tremendous potential for new mineral discoveries. However, to unlock this potential, we must address the high costs and regulatory challenges associated with exploration. By making mineral exploration more appealing to investors, we can ensure a pipeline of new projects that major companies can develop. Our goal is to concentrate on the core issues affecting land access, exploration costs, and investor attraction to secure Australia's mining prosperity for the next 50 years.
