If there was any doubt Australia is being gripped by a minerals exploration boom, then this week delivered two key exhibits that support the anecdotal evidence that drill rigs are hard to come by.
Firstly, the Minerals Council of Australia released its Commodity Demand Outlook 2030 report, which highlighted the urgent need for new production of commodities such as nickel, neodymium, lithium and copper to meet growing global demand.
“As the world economy recovers from the impacts of the COVID-19 pandemic, the global trends that have driven growth in mineral and energy commodity demand through the last 20 years will not only continue but accelerate,” MCA chief executive Tania Constable said.
At the same time, Euroz Hartleys initiated its research coverage of DDH1 (ASX: DDH), Australia’s premier specialist minerals drilling company, with a $1.54 price target.
“Demand for (DDH1’s) rigs is supported by strong prices over a range of commodities combined with depleting reserves while supply is limited by industry underinvestment in rig manufacturing capacity over the last number of years and rapidly increasing lead times in accessing new rigs,” analyst Gavin Allen told clients this week.
Euroz Hartleys’ note is the first independent research on DDH1 since the Perth company hit the ASX boards in March, following a $150 million IPO that was priced at $1.10 a share. DDH1 did not enjoy a positive market debut, falling sharply upon listing as the register reorganised itself.
Three months into listed life and DDH1 is hitting its ASX straps. The stock closed at a record yesterday of $1.13 to vindicate the smart money and underscore the potential of DDH1’s quality business – about 100 high-end rigs spread among the DDH1 Drilling, Strike Drilling and Ranger Drilling units.
“The services provided (by DDH1) are in high demand, fuelled by strong underlying commodity prices, combined with broadly depleting resources and supportive equity markets,” Euroz Hartleys’ Allen said.
“While labour shortages have and will likely continue to impact productivity on some sites, in general, we are looking for rig rate rises over the medium term and, with it, a period of sustained growth.
“(DDH1’s) historical return generated in relation to capital deployed is an investment highlight. In the meantime, companies servicing resource owners are trading at historical lows as a consequence of the labour shortage concerns. A period of differentiation is ahead in our view and we look to DDH1 growing strongly in 2022, to which the share price should respond.”
DDH1’s full-year results and intended dividend declaration in late August will be eagerly anticipated, given the company used its IPO prospectus to forecast a pro-forma net profit of $30 million.
And based on the MCA’s macro-outlook for the resources sector, the future is as bright for well-funded exploration and near-term development companies such as Hastings Technology Metals, Core Lithium, Artemis Resources, St George Mining, Zenith Minerals (ASX: ZNC) and VRX Silica (ASX: VRX) as for companies like DDH1 that assist with unearthing quality orebodies.
The $300 million-valued Core (ASX: CXO), which will be Australia’s next lithium producer, said this week it had kicked off the company’s “most extensive lithium exploration and resource expansion drilling campaign” at its flagship Finniss project on the outskirts of Darwin.
“We are confident that through this program we will be able to significantly upscale the lithium resource and mine life at Finniss, making Australia’s next lithium mine an even more attractive investment opportunity,” managing director Stephen Biggins said.
Pilbara-focused Artemis (ASX: ARV), meanwhile, completed a delayed $7 million capital raising to fund further drilling at its Paterson Central project, next to Newcrest Mining and Greatland Gold’s world-class Havieron gold-copper discovery, and the advanced Carlow Castle copper-gold asset.
As St George (ASX: SGQ) highlighted to the Paydirt Battery Minerals conference in Perth this week, it is busy drilling its high-grade Mt Alexander nickel-copper sulphide project in WA’s Goldfields as well as advancing drilling plans at its Paterson region tenements.
And $300 million rare earths play Hastings (ASX: HAS) is working towards a September-quarter final investment decision for its world-class Yangibana neodymium-praseodymium project in the Gascoyne region.
The fact these companies are attracting increased investor interest is underscored by the MCA’s outlook report, which delivered the following predictions:
- Zinc: World zinc consumption to rise gradually from 13.7Mt in 2019 to 15.3Mt in 2030
- Copper: Global demand for refined copper to rise steadily from 23.5Mt in 2019 to 31.1Mt in 2030
- Nickel: Nickel demand to rise sharply by 67 per cent from 2.4Mt in 2019 to 3.9Mt in 2030
- Rare earth elements: Demand for neodymium to rise from 31 kilotonnes (kt) in 2020 to between 54kt and 66kt in 2030
- Lithium: Demand to rise rapidly, from 313kt of lithium carbonate equivalent in 2019 to 1,465kt by 2030
The emerging challenge will be to deliver on market expectations of a speedy yet disciplined approach to exploration and mine development to capture some very favourable market conditions.