Shift in demand for ‘exotic’ minerals resources could provide opportunities for Papua New Guinea

A shift in the resources industry is expected, with demand for more ‘exotic’ minerals increasing. But Justin Smirk, Senior Economist at Westpac Institutional Bank tells Business Advantage PNG that industry players must apply a long-term approach to reap the benefits.

Demand for minerals, including lithium, cobalt and nickel used to develop batteries, electric cars and other electronics, is likely to grow, says Westpac’s Justin Smirk.

He describes the change as an evolution rather than an unexpected surge.

‘This is a demand that is growing in relation to known factors, such as changing technology and incomes,’ he says.

‘Bulk commodities, such as iron ore and coal, will remain in demand.’

Smirk adds that while there may be some excitement around the increased demand for these smaller commodities, the likelihood is that the excitement will be short-lived.

He says bulk commodities, such as iron ore and coal, will remain in demand and be a key part of the commodity cycle.

Opportunity

The shift in the industry may be subtle, but Smirk explains that it provides an opportunity for Papua New Guinea to start thinking about its mines and whether it can position itself to benefit from the changes.

‘Looking at Papua New Guinea over the next decade, commodities are going to introduce opportunities, but whether those opportunities are going to be met will depend on a lot more than prices.

‘Regulatory, labour, social and environmental issues all play a role in whether Papua New Guinea is positioned to benefit from this shift.’

‘‘Ok Tedi is being managed from a local point of view.’

Smirk highlights the changes in the management of Ok Tedi mine and at Bougainville, which he sees as encouraging examples of Papua New Guinea is positioning itself for future opportunities.

‘Ok Tedi is being managed from a local point of view, where people are much more in tune with the community and environment. It’s much more responsive.’

Smirk believes Papua New Guinea is also attempting to create a positive environment for Bougainville.

‘It’s not perfect and has a long way to go, but this gives a flavour for how things can work in Papua New Guinea.

‘Small, niche operators are more likely to break the frontier.’

‘This will put the country in a better position to adapt to a shift in the broader industry.’

Niche operators

With some of the big miners taking a more conservative approach, Smirk says small, niche operators are more likely to break the frontier. The larger companies will then follow.

Nautilus’ Mike Johnston Source: Nautilus

‘Smaller companies have an opportunity to get in at the grass roots level and are often willing to absorb more risk.

‘Nickel, cobalt and lithium are the minerals of the future.’

‘The environment in Papua New Guinea is a little different in that the risks are quite high. It would be the very specialised frontier-breakers developing projects in the region.’

One such company is Nautilus Minerals, which is moving forward on developing Solwara 1, a unique seafloor mining project off the coast of Papua New Guinea. Chief Executive Officer, Mike Johnston says the company is well placed to take advantage of a shift in demand.

‘Nickel, cobalt and lithium are the minerals of the future, and these commodities will be dominated by the mid-tier and junior market,’ he says.

Johnston acknowledges there are many hurdles in developing the first seafloor-mining project, but he believes the big miners will follow when they have seen its success.

Testing of the project’s tools is ongoing and production expected in the first half of 2019.

‘Companies that follow will have to overcome a range of Intellectual Property barriers to be successful in seafloor mining.’

Changes

Johnston says significant changes in the resources industry will be seen in the next five-to-10 years, especially in the role taken by the majors.

Smirk emphasises the importance of taking a long-term approach to ensure sustainability.

‘Ultimately what delivers returns is being able to produce profits over a long period of time, rather than a boom and bust cycle.’

Justin Smirk will deliver a presentation titled ‘Global Economic Outlook & Effect on the Resources Sector & Pacific’ on 17 November in Port Moresby at the CPA PNG & CPA Australia PNG Branch Annual Conference.

Copyright © 2017 Business Advantage International.

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