How Australia is perfectly poised to benefit from the net zero carbon emissions bonanza

Australian share market investors are perfectly positioned to benefit from the transition to net zero carbon emissions despite the nation being a major coal exporter to China.

The International Monetary Fund said the surging demand for renewable energy in the coming decades would be good for Australia because it had plentiful supplies of lithium, cobalt and nickel.

The minerals are particularly important for battery storage power, that will underpin the success of solar and wind energy eventually replacing coal-fired power stations.

In a new report on the World Economic Outlook, the IMF singled out Australia for special mention along with Chile, and to a lesser extent Peru, Russia, Indonesia, and South Africa.

‘Countries that stand out in production and reserves include Australia for lithium, cobalt, and nickel,’ it said.

Australia is perfectly positioned to benefit from the transition to net zero carbon emissions despite being a major exporter of coal to China. The International Monetary Fund said the surging demand for renewable energy in the coming decades would be good for Australia because it had plentiful supplies of lithium, cobalt and nickel (pictured is a wind farm at Bungendore near Canberra)

Australian companies set to benefit

Pilbara Minerals: Australia’s biggest lithium miner owns all of the Pilgangoora Project and Operation, 120km from Port Hedland

Orocobre: A $4billion merger with Galaxy Resources in April created the world’s fifth largest lithium chemicals producer

Lake Resources: One of the world’s lowest-cost producers of lithium chemical producers 

IGO: The nickel miner owns 100 per cent of the Nova nickel-copper-cobalt mine in Western Australia’s Fraser Range region

Mincor Resources:  In March it opened the Cassini nickel mine, near historic mining town of Kambalda in Western Australia

Poseidon Nickel: Owns three high-quality nickel sulphide assets in Western Australia

Nickel Mines: Mines from Indonesia  nickel pig iron, a semi-refined product and a cheaper alternative to pure nickel metal, in making stainless steel

Panoramic Resources: Operates a nickel sulphide mine and processing plant in the East Kimberley region of WA, the Savannah nickel project

Source: Bell Direct, NAB 

‘The supply of metals is quite concentrated, implying that a few top producers may stand to benefit.’

New York-based investment bank Goldman Sachs last year estimated clean energy investment during the next decade would be worth $US16trillion ($A21billion).

Prime Minister Scott Morrison is also expected to announce within weeks plans for net zero carbon emission by 2050, putting Australia in line with the US, UK, South Korea, Japan and the European Union. 

Bell Direct senior market analyst Jessica Amir said now was the time to invest in lithium miners before more governments around the world, including Australia, introduced more substantial electric vehicle subsidies.

‘This is a huge investment opportunity and this will be the hot investment opportunity for the next decade,’ she told Daily Mail Australia.

‘Thirty per cent of an EV car is the battery and there’s a huge lack of supply of lithium and then you’ve got the world pivoting and pushing to being carbon neutral.

‘Clean energy must have a place in investors’ portfolios because we’re going to see a huge amount of government stimulus going to it, we’re going to see a huge uptick in consumer demand.

‘You have to remember the basics of investing: a company is based on its future earnings potential, this means that companies that are in this area, they’re going to see future earnings growth and share price growth.’ 

The mineral producers on the Australian Securities Exchange, set to benefit from the renewables energy boom, aren’t just diversified mining giants BHP and Rio Tinto, which are geared more towards coal and iron ore.

Western Australia’s Pilbara region is best known for having the world’s largest supply of iron ore, the commodity used to make steel which is also Australia’s biggest export.

‘Our richest province of lithium is in the Pilbara,’ Ms Amir said. 

Now is the time to invest in lithium miners before more governments around the world, including Australia, introduced more substantial electric vehicle subsidies (pictured is a Tesla Model 3 being recharged)

Now is the time to invest in lithium miners before more governments around the world, including Australia, introduced more substantial electric vehicle subsidies (pictured is a Tesla Model 3 being recharged)

Bell Direct senior market analyst Jessica Amir said lithium miners would be the big winner from government stimulus programs to encourage renewable energy

Bell Direct senior market analyst Jessica Amir said lithium miners would be the big winner from government stimulus programs to encourage renewable energy

Pilbara Minerals, Australia’s biggest lithium miner, in 2019 signed a deal with Chinese car maker Great Wall Motor to supply spodumene concentrate, a key mineral for electric vehicles.

‘They’re already making money and their offtake is already being purchased, it’s already battery grade,’ Ms Amir said. 

‘You’d expect a lot more companies really to step up.’

The $4billion merger of Orocobre and Galaxy Resources created the world’s fifth largest lithium chemicals producer, which sources a lot of its high-grade lithium from Argentina.

Lake Resources, a lithium miner with headquarters in Sydney, is also a major miner of the mineral in Argentina.

‘They’re one of the world’s lowest-cost lithium chemical producers,’ Ms Amir said. 

‘Companies like this are really going to gain a lot more traction.’

Those who want exposure to both iron ore and lithium can invest in Mineral Resources. 

BHP spin-off South32 is a major nickel supplier, along with silver, lead, zinc. 

Perth-based exploration company Corazon Mining, which has interests in Australian and Canadian nickel, copper and cobalt projects. 

ASX-listed miners IGO, Mincor Resource, Poseidon Nickel and Panoramic Resources operate nickel mines in Western Australia while Nickel Mines extracts from Indonesia nickel pig iron, a cheaper semi-refined product used for making stainless steel.

BetaShares also has exchange traded funds with exposure to both traditional miners and lithium producers. 

The mineral producers on the Australian Securities Exchange (pictured), set to benefit from the renewables energy boom, aren't just diversified mining giants BHP and Rio Tinto, which are geared more towards coal and iron ore

The mineral producers on the Australian Securities Exchange (pictured), set to benefit from the renewables energy boom, aren’t just diversified mining giants BHP and Rio Tinto, which are geared more towards coal and iron ore

Until renewable technology improves, Australia is a major exporter of thermal coal, used for electricity generation. 

Electricity shortages in China and India, the world’s two most populous nations, have caused the spot price of coal to hit an all-time high of $US269 a tonne. 

Natural gas is also in demand with prices at a 13-year high.

The IMF noted Australia had a particular short-term advantage with coal, which is linked to climate change, but this was unlikely to last.

‘High natural gas prices sustained the power sector’s demand for coal, although surging coal prices – caused in part by supply disruptions and China’s restrictions on Australian coal imports – and higher carbon prices narrowed coal’s cost advantage,’ it said.

Until renewable technology improves, Australia is a major exporter of thermal coal, used for electricity generation (pictured is a freight train transporting coal from Kooragang in Newcastle)

Until renewable technology improves, Australia is a major exporter of thermal coal, used for electricity generation (pictured is a freight train transporting coal from Kooragang in Newcastle)

‘Over the long term, phaseout plans and rising emission costs may negatively weigh on the demand outlook for coal, possibly benefiting natural gas demand in the coming years as the capacity for renewables ramps up.’

China’s drive to meet 2060 net zero carbon emissions targets have this year seen dramatic cutbacks in steel production.

Since the end of July the spot price of iron ore, Australia’s biggest export, has subsequently plunged from near record highs above $US200 a tonne to less than $US100 a tonne in late September.

Evergrande, China’s second biggest property developer, on Tuesday night missed a third deadline to pay annual interest payments to bondholders.

It owes more than $400billion to creditors, and bondholders in the third round of interest payments were owed $US150million ($A204million) worth of bond coupon payments.

Electricity shortages in China (pictured is a Shenygang blackout in September 2021) and India, the world's two most populous nations, have caused the spot price of coal to hit an all-time high of $US269 a tonne

Electricity shortages in China (pictured is a Shenygang blackout in September 2021) and India, the world’s two most populous nations, have caused the spot price of coal to hit an all-time high of $US269 a tonne

There are fears the Chinese Communist Party government will let Evergrande fail, with China having enough empty apartments to house 90million people in a nation that is home to 1.4billion.

CommSec senior economist Ryan Felsman said many investors had likened Evergrande to the 2008 collapse of American investment and financial services giant Lehman Brothers during the Global Financial Crisis.

‘The crisis at property giant China Evergrande Group is front-of-mind for investors with some concerned about a Lehman-style collapse with the potential for global spillovers,’ he said.

‘Of course, the risk of contagion – particularly to China’s banking system and property developers and to western investors – remains high with policy missteps potentially leading to a systematic meltdown.’

CommSec senior economist Ryan Felsman said many investors had likened Evergrande to the 2008 collapse of American investment and financial services giant Lehman Brothers during the Global Financial Crisis (pictured is the Evergrande Centre in Shanghai)

CommSec senior economist Ryan Felsman said many investors had likened Evergrande to the 2008 collapse of American investment and financial services giant Lehman Brothers during the Global Financial Crisis (pictured is the Evergrande Centre in Shanghai)

The IMF is expecting growth in China, Australia’s biggest trading partner, to slow to 5.6 per cent in 2022, down from 8 per cent in 2021. 

When it came to steelmaking, Australia is by far the world’s biggest producer of iron ore, well ahead of Brazil which suffered from the 2019 Vale tailings dam collapse.

Australia doesn’t command quite the same market share with minerals needed for renewable energy.

The Democratic Republic of the Congo has 70 percent of global cobalt output and 50 percent of reserves, the IMF noted. 

Even as renewable energy demand surges, Ms Amir said there would still be demand for coal and iron ore, for now, before hydrogen could be cheaply used to make steel.

‘Iron ore is not going to go away any time soon but it will be at a reduced capacity,’ she said.

‘There’s going to be a transition away from coal.’ 

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