Australia’s Paydirt, Issue 332
The November issue of Paydirt is usually dedicated to a full review of the Australian Nickel Conference but the eagle-eyed among our readers will notice this year’s coverage only extends to eight pages
This is not because we are getting lazy, but rather the dire state of the Australian nickel sector meant there was neither the appetite nor enthusiasm to hold a full conference this year. So, with some disappointment given we have hosted the conference every year throughout our 30-year history, Paydirt decided to truncate the event into a single lunch forum. We felt it was important to continue with the tradition, particularly as nickel has consistently proven down the years the old adage “the night being darkest just before dawn”.
There is little doubt it is particularly dark out there currently. Indonesia’s emergence as a low-cost, high-volume producer has upended the market, sending most of Australia’s deep-level, high-cost mines below economic margins. The slowing of the EV revolution has had its own impact on the demand side and the combination has propelled sentiment downwards despite the fact that at around $US18,000/t, the price itself is relatively strong by historical standards.
Anyone who has followed the Australian nickel industry knows we have been here before. It is a sector which has been defined by boom and bust throughout its 60-year existence – euphoria, followed by depression, with long periods of ennui in between.
The nickel space is not alone in this sea of uncertainty and the chances of juniors exploring for any commodity feel remote in the current market.
Given this edition reaches readers at the height of Australia’s spring racing carnival, it is almost impossible to avoid drawing comparisons between the difficulties of finding success on the junior exploration sector and on the courses of Flemington, Randwick or Ascot.
The two industries have numerous analogies, which is probably why so many individuals play in both spaces.
The statistical chances of finding success in the junior marketplace are about the same as picking up an asset at the yearling sales. Many will never even make the starting gate in a city race meeting, and less than 50% of those will ever win a race. The likelihood of a yearling ever winning a graded race is less than 1%.
The odds are similar in exploration. Of the approximately 800 listed resources companies on the ASX, less than 10% are currently mining and of the remainder, it is highly doubtful that more than 5% will ever become miners and perhaps less than 10% will make a discovery which can be turned into a mine.
According to research by Richard Schodde of MinEx Consulting, there is an average of 73 significant discoveries per year, which equates to a 1-in-137 chance of success given there are around 10,000 currently active projects across the world. The road from discovery to development is just as hard with less than half of all discoveries made since 1950 put into production, as Schodde notes.
The similarities go deeper. For the breeders, it is not necessarily about breeding champions, only breeding horses that look like they “may be” champions or could spawn champions.
For the shareholders of juniors, the goal is the same. Not every discovery must reach production to create value, it need only raise interest in the company and deliver a return on investment. Success is not measured by development, only what value your shareholders have extracted.
And, even when you do get a “good un”, there are still many elements out of your control which could define success. In racing, weather, track conditions, illness or injury are all out of the trainer’s control but could still decide a horse’s fate.
In exploration, no matter who adept management is, they cannot control macroeconomic changes, commodity prices, market sentiment or political shifts.
All of which makes you wonder just why the world bothers with exploration at all. But the facts are, the world needs more exploration success if humanity is to continue progressing and the energy transition is to be realised. And, long-term participants in the sector know, it only takes one drill hit to turn any 100-1 shot’s fortunes around.