Recently, BDO was a networking sponsor of the Energy Mines and Money event in Brisbane, providing a platform to discuss investment strategies, future commodity trends and energy policy with leaders in the sector.
Over the two-day conference, there were two themes that the event highlighted for us.
A two-speed industry
Operating miners have performed really well over the past few years whereas the risk appetite towards explorers and juniors has declined heavily.
As has been consistent with our experience at BDO, brownfield expansion by established miners is progressing well as they reinvest profits from favourable commodity prices back into their existing projects.
Things have not been as favourable for those finding the projects of the future.
Hedley Widdup, Executive Director at Lion Selection Group, delivered a thought provoking presentation on exploration activity and risk appetite at the event. Hedley highlighted in a powerful way how this phenomenon is playing out, with a graph starkly illustrating the plight of those funding greenfield exploration.
The plight of exploration today will play into the commodity prices of the future, likely to the benefit of those producing at that time from a smaller number of projects.
Thermal coal markets
Thermal coal volumes are currently at a record high, indicating that this is far from being a dying commodity at this time.
Australia currently has a dominant market position, with strong Asian demand showing no signs of slowing. These high volumes and solid market prices raise doubts that coal can be eliminated as a power source, particularly as energy demands continue to rise across the globe.
Rapidly growing developing nations and populous countries are driving increasing energy demands, raising concerns around the feasibility of renewable energy to be the source of filling this gap between existing and new demand. Although renewables are slowly rising, without the introduction of game changing technologies, there is uncertainty as to whether this energy source will be adequate in fulfilling the base level demand the power consumers of the future will likely require.
Mark Gresswell, Director at Commodity Insights, delivered a presentation on thermal coal that brought this front of mind.
Increased use of renewables may ultimately mean that the percentage of coal in the energy mix declines, but may not mean the consumption of coal does, particularly as electricity providers remain uncertain as to when they will be able to provide an alternative to coal as the provider of base load power. Regulatory frameworks, or lack in the certainty thereof, have not assisted with knowing the direction of energy markets here in Australia, or elsewhere.
Without technology breakthroughs in the near future, it seems to us that coal consumption will continue to increase to meet rapidly growing energy rate demands unless people are prepared to pay a premium for electricity.
BDO’s Natural Resources team has deep industry experience in all of the world’s renewable energy, mining and oil and gas centres to help you navigate complex landscapes both at home and abroad. For more information regarding the natural resources sector, please don’t hesitate to contact one of our advisers.