Australia’s big banks eyeing investments in critical minerals

As Australia’s bankers cast a concerned eye over the nation’s mortgage market in the face of the Reserve Bank’s ever rising interest rate strategy, there appears to be a turnaround in their feelings about backing the country’s mining industry – and critical minerals in particular.

Australia’s bankers have been singled out over the past year on a perceived lack of funding support for the nation’s world leading critical minerals industry.

Most notably that criticism was levelled by Nolans Rare Earths Project developer, Arafura Rare Earths (ASX: ARU).

The company’s managing director, Gavin Lockyer, is reported as saying that Australian banks were reluctant to provide local critical minerals developments and that the company needed to look overseas for financial institution backing.

Big 4 having a closer look

However, since that issue was raised, a number of the “Big 4” banks have suggested that they are taking a closer look at the potential to invest in the country’s booming battery metals and EV supply chain.

Both the National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) have been quoted as suggesting they are keeping a close eye on potential local investments in minerals such as lithium and rare earths which have been deemed by the Australia government for one, to be keys to the global clean energy transition.

Currently the majority of Australia’s critical minerals and clean energy developments are receiving a large portion of their funding from Federal and state government support.

In May, the Federal Government announced capital support for 13 local critical minerals projects over the next 3 years.

That capital injection will support activities such as feasibility studies, engineering design work and the building of pilot or demonstration facilities.

Federal and state governments have poured hundreds of millions in funding across the nation in recent years, which is assisting everyone from junior explorers to rare earth exporters to exploit the country’s critical mineral riches.

Billions more needed

However, those backing a clean energy future, say there may be billions more needed to reach global targets.

The International Energy Agency (IEA) says critical minerals are essential components in many of today’s rapidly growing clean energy technologies – from wind turbines and electricity networks to electric vehicles. Demand for these minerals will grow quickly as clean energy transitions gather pace.

It suggests that Australia’s growing critical minerals list highlights the country’s priority critical minerals based on global technology needs, particularly around electrification, advanced manufacturing and defence.

New sources of funding is critical

Global financial consultancy PWC says accessing new sources of capital will be critical to a clean energy future and that it is not only banks and government that need to be putting their hands in their pockets.

“There is a role for capital providers beyond traditional sources of mining finance, with opportunities for superannuation and infrastructure funds, governments, international capital, and debt and equity capital markets,” the firm stated.

“Large superannuation funds have emerged over the past 30 years, and a huge volume of private capital has accumulated over more than a decade of quantitative easing and subdued interest rates. There is an increasing desire for large-scale capital deployment just as a notable shift in investor mentality has occurred, with a growing focus on purpose-driven investing over long-term horizons.”

However, PWC says miners also need to change their ways.

“In order to attract more investment, those seeking to develop critical minerals mining operations must improve the way in which they communicate with, and educate, the broader investing market. This will give the market confidence that projects will get developed and generate the cash flows that underpin investment returns.”

Under-investment in critical minerals across the board

Meanwhile, Rob Gray a chief commodity strategist at international investment firm Resource Capital Funds, says there is under-investment in all critical metals.

“They’re all under-invested as a result of where capital is flowing, has flowed into various sectors over the last 10 years or so. A step change in the level of capital applications in our sector is going to be priced incentivised in short order.”

Mr Gray said Resource Capital Fund’s portfolio has a range of existing holdings which are more earlier stage development opportunities, which slot into how the international company sees the market increasing.

Zinc one to watch

Interestingly, Mr Gray, a keynote speaker at a critical minerals conference in Sydney last month, highlighted zinc as a metal that his investment firm is following.

“Zinc is what I consider to be the hidden infrastructure metal that’s going to support everything that’s happening in decarbonisation.

“The amount of zinc that goes into solar installations, the amount of zinc that goes into wind turbines, the galvanisation, particularly the offshore, where you’re worried about corrosion. Zinc is a solid contributor.”