A Multi-Decade Tailwind for ASX Listed Miners

Last update - 22 June 2023 By James Woods

The ongoing global shift towards clean energy represents a monumental transformation in the industrial landscape, presenting substantial investment opportunities in ASX-listed material stocks.

At the crux of this transition lies the escalating demand for key resources and rare earth elements, which are essential for the development of renewable energy technologies and electric vehicles (EVs). Australia, blessed with abundant mineral resources, enjoys a strategic advantage in the burgeoning clean energy market. The country boasts rich deposits of resources such as lithium, nickel, cobalt, and rare earth elements, all of which play pivotal roles in renewable energy technologies and the EV revolution. Despite short-term volatility, the significant global demand for these resources presents compelling long-term opportunities, fuelled by the robust multi-decade tailwind generated by Australia’s rich resource deposits.

BloombergNEF’s annual report underpins the scale and pace of the clean energy transition. In 2022, global investment in energy transition technologies soared to an unprecedented $1.1 trillion, reflecting a remarkable 31% surge compared to the previous year. Renewables secured the lion’s share, with $495 billion invested in new projects, closely followed by electrified transport, particularly EVs and charging infrastructure, which attracted $466 billion, a 54% annual increase.

The electrified transport sector, propelled predominantly by the surging adoption of EVs, is projected to sustain its explosive growth as global efforts to reduce greenhouse gas emissions intensify. This growth translates into an amplified demand for key battery components, namely lithium, nickel, and cobalt. These elements are all critical in the production of rechargeable lithium-ion batteries, widely used in EVs and energy storage systems.

Rare earth elements, including neodymium, dysprosium, and praseodymium, hold unique significance in the clean energy sector. These elements have special properties that make them crucial for various high-tech applications and are essential for manufacturing powerful magnets used in wind turbines and EV motors, contributing to the generation of clean energy.

To comprehend the sheer scale of future growth, one must consider the investment required to achieve global net-zero targets. BloombergNEF’s New Energy Outlook projects an annual average investment of a staggering $4.55 trillion between 2023 and 2030 to stay on course for the Net Zero Scenario. By the 2030s, this figure is anticipated to escalate to $6.88 trillion, and by the 2040s, the total annual investment requirement for energy transition is estimated at $7.87 trillion, nearly six times the 2022 levels. Such enormous investments will drive the demand for key resources and rare earth elements, creating substantial opportunities for ASX-listed miners in the clean energy sector.

The Australian government has exhibited a clear commitment to bolstering the country’s position in global battery and rare earths supply chains, as evident from its ‘Resources Technology and Critical Minerals Processing’ roadmap. Furthermore, the global policy environment is increasingly supportive of clean energy commitments aligned with the goals of the Paris Agreement. These factors enhance the attractiveness of ASX-listed material stocks for investors, providing a favourable landscape for long-term growth and stability in the clean energy transition.

While there is a significant number of ASX-listed mining companies that stand to benefit from this tailwind, we prioritize more established companies characterized by financial stability, lower share price volatility, and reduced speculation. Notable names in this regard include BHP which has substantial presence in iron ore and copper as well as increasing exposure to nickel and lithium. Rio Tinto, holds significant exposure to several commodities integral to clean energy technologies including copper and aluminium. Primarily known for its iron ore operations, Fortescue Metals is actively investing in renewable energy and hydrogen technologies through its subsidiary Fortescue Future Industries. Lynas is an integrated extractor and processor of rare earth minerals and holds the distinction of being the largest producer of rare earth elements outside China, conferring it a strategic advantage in the global supply chain. Finally, Pilbara Minerals is an Australian producer of lithium and tantalum. Boasting one of the largest lithium ore deposits worldwide, as well as having secured stable off-take agreements with key players in the lithium supply chain.

While the tailwinds supporting ASX-listed mining companies in the clean energy transition are promising, it is crucial to consider associated risks, including price volatility, regulatory and environmental factors, technological advancements, geopolitical risks, and market timing. Nevertheless, the overall outlook remains favourable as the global shift towards clean energy and electrified transport continues unabated.

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