Australian mining companies flock to Asia as higher commodity prices and improved relations fuel interest

High commodity prices, improved working conditions, and better government relations, are attracting Australian mining companies back to Asia with a number of success stories helping repair past damage.

Nickel Industries (ASX: NIC) is the star of the show, teaming up with one of China’s biggest steel makers to produce nickel for its stainless steel operations in Indonesia.

By investing in a series of furnaces at the Morowali industrial park on the island of Sulawesi the once small Sydney-based company has grown into a $3.2 billion business and a place in the Australian Stock Exchange’s top 150

Emerald Resources (ASX: EMR) is the Australian doing best so far in the Asian gold sector rising by 340% over the past three years, from $0.32 to $1.43 thanks to the development of the low-cost Okvau mine in Cambodia – once a no-go country for Australians.

Kingsgate’s Thailand revival

But the company which best demonstrates the revival of Asia as an exploration and mining destination for Australian companies is Kingsgate Consolidated (ASX: KCN) – a high-flyer a decade ago until it was damaged by government action that forced the closure of its flagship Chatree mine in Thailand.

From a share price of more than $10 in 2010, Kingsgate crashed to $0.15 four years ago thanks to the loss of Chatree production in 2016, a status which was reversed after successful negotiations under the Thailand Australia Free Trade Agreement (TAFTA).

Kingsgate said last week that refurbishment of Chatree is complete, with final plant inspections underway before operations restart – a development which a handful of investors have noticed, bidding Kingsgate’s share price up by 970% from that 2019 low to $1.58 valuing the company around $350 million.

Of equal importance to the restart of Chatree is a flow of exploration news, which includes last week’s announcement of significant drilling intercepts 20km south of the mine, with best hits of 26m at 3.02 grams per tonne of gold, and 7m at 5.77g/t.

Mounting interest in Asia

Interest in Australian companies working in Asia has grown as countries in the region encourage local production of essential minerals and metals.

Members of the battery family such as copper and nickel are leading the way, while a lithium project of Pan Asia Metals (ASX: PAM) is an interesting case study.

Pan Asia’s project is located in Thailand, which is the largest auto producer in South East Asia and the fourth largest in Asia. Mercedes is already producing its flagship EQS electric vehicle (EV) in Thailand and just about every dual cab ute on Australian roads is also produced there.

Work on a pre-feasibility study has started at Pan Asia’s Reung Kiet lithium project, which is 30 minutes from Phuket – aided by a fresh $4.5 million in capital raised earlier this month at a premium and placed to Thai based institutional investors.

Pan Asia is also about to send its drill rigs 8km to the north of Reung Kiet, to the Bang I Tum lithium project, where it plans to move its drill supported exploration target of 8-14Mt into a JORC mineral resource.

A recent field work program, which produced an average grade of 1.56% lithium from 44 out of 64 rock chips and channel samples, with 12 samples exceeding 2% and a high of 2.62% lithium.

This increased the original exploration target zone by 200%.

Free trade agreements protect miners and investors

For some investors the appeal of Thailand has been soured by Kingsgate’s earlier troubles – sparking an exchange of views between a Small Caps reader and Pan Asia’s managing director Paul Lock.

The reader dismissed Thailand as an attractive location.

Mr Lock replied with an explanation of how successful negotiations had been under the arbitration provisions of TAFTA and how that agreement protected Australian companies working in Thailand and other countries with free trade agreements.

“Investors often link the Kingsgate issue with political risk in Thailand,” Mr Lock noted. “We ask investors, which jurisdiction in Africa and South America does Australia have a free trade agreement with, and if a free trade agreement doesn’t exist, what protections do foreign companies have?” Mr Lock answered “one”, which is Chile, and without an FTA there were “little if any protections”.

In Thailand, Mr Lock said, the Kingsgate experience proved that free trade agreements worked in protecting companies and their shareholders.

Exciting geology attracts explorers to Asia

The primary attraction of Asia for Australian explorers is the geology and its proven track record of hosting big and rich mineralised systems that range from the laterite clays that are world-class sources of bauxite, tin and nickel to major hard-rock systems such as the giant Grasberg gold and copper project in in Irian Jaya (West Papua).

Another important copper and gold mine with historic Australian ties is Sepon in Laos.

I was reminded of Sepon this week when I retrieved from a dusty drawer a disk of pure copper struck during a site visit to mark the pouring of first metal in March 2005.

Back then, Sepon was co-owned by Oxiana Ltd, a company which merged with Zinifex to create OZ Minerals (ASX: OZL).

OZ Minerals is now the target of an almost $10 billion takeover offer from BHP (ASX: BHP), but a business which can trace its roots back to copper in Laos.

Australian explorers in Asia

For investors there is a broad mixture of Asian countries hosting Australian explorers and mine developers including:

• In Indonesia, Far East Gold (ASX: FEG) is making solid progress with its Woyla epithermal vein project in Aceh province which was a target of gold giant Barrick in the 1990s. Recent drilling includes high grade gold and silver hits such as 13m at 4.9g/t gold and 68.6g/t silver;
• Again, in Thailand is Pan Asia, which has started feasibility work on its Reung Kiet lithium project and plans to develop an integrated operation that produces lithium carbonate or lithium hydroxide;
• Over in Malaysia Besra Gold (ASX: BEZ) is exploring the historically important Bau gold deposit in the country’s east;
• In Vietnam, Blackstone Minerals (ASX: BSX) is developing the Ta Khoa nickel mining and processing project in the north of the country, including a recently completed pilot program to produce battery grade nickel and cobalt sulphates;
• To the east, in the Philippines, Ten Sixty Four (ASX: X64) is mining the historical Co-O mine which yielded 19,965oz of gold in the December quarter;
• Over in Papua New Guinea, multiple assets involving Australian companies are operational or under development, ranging from the giant Lihir project of Newcrest (ASX: NCM) to the potential Misima development of Kingston Resources (ASX: KSN); and
• Further afield is Korea where Southern Gold (ASX: SAU) is preparing to drill the promising Deokon gold and silver asset and the Goseong copper, gold and silver project.