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Will mining keep booming?

Chris Forrest- Senior Partner and Principal Adviser

Sovereign Wealth Partners

We’ve all been hearing about global supply chain pressures and the impact this is having on the cost of goods and inflation. We should all note, however, that this goes all the way back to raw inputs – not just finished goods.

By all accounts, raw mining products feed into many of the goods we use and consume as well as infrastructure construction.

Recently, we attended a presentation by Ausbil at which slides were presented which neatly captures why commodities will be supported for quite some time to come.

It might also come as a surprise that it’s not pandemic or war related supply shocks which will support commodity prices. Decarbonisation is a major metals consumer and so it comes at a significant financial cost (which may also support inflation for years to come). That’s not an argument against decarbonisation – it’s something to be aware of which we have to accept for the longer-term benefits.

The slides below caught our interest.

  1. Decarbonisation is more metal intensive than fossil fuels

2. Electric Vehicles are more metal intensive than internal combustion engines

3. Structural underinvestment in mining has constrained supply

4. Inventories have been significantly reduced in key commodities

5. The supply deficit is worsening

6. The size of the gap is staggering

These statistics make it pretty clear that it’s a hard job for supply to catch up to accelerating demand. By some reports, it’ll take 4-12 years to open an ore deposit for production.

That said, this should not be taken as a guarantee that anything you buy in the mining sector will go up, so, before you rush out to buy the next lithium mining hopeful, you should seek advice. After all, everything has a price.

Disclosure Statement: This communication has been approved and issued by Sovereign Wealth Partners Pty Ltd ABN 18 607 071 367 Corporate Authorised Representative (No. 001233909) of Sovereign Capital Pty Ltd ABN 44 164 127 833, AFSL 456235.

General Advice Warning: Any advice included in this article and associated links is general in nature and does not take into account your objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. We do not endorse any information from research providers that we provide to you, unless we specifically say so.


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