The last year has been a turbulent one for the resources sector. Commodity prices and equities have been struggling to find a clear direction, pulled between persistent inflation, higher interest rates, geopolitical tensions and a softening global demand outlook. We have summarised some of the key themes below.

Explorers and developers starved

Equity markets remain extremely bearish, presenting an increasing challenge to any explorer or developer needing to raise capital. Those who raised capital early in the downturn, and those who raised capital in opportune windows are being judicious about deployment of their limited funds.

Battery metals crash

Most commodities are holding up against a strengthened US dollar, except the battery metals complex, which is experiencing a severe hangover from bubble like conditions in 2021-23. The shortage narrative has quickly shifted to a glut narrative. This dramatic downturn has shuttered marginal operations and shelved new projects, which we expect to sow the seeds of recovery in the new year.

Greenfields on hold

While the extreme Capex and Opex inflation of the last few years has now subsided, commodity prices have not increased commensurately to incentivise greenfield development. While developed nations have suffered some of the worst cost-blow outs, projects in developing nations have become very difficult to finance at all.

M&A increasing

Many producers have enjoyed windfall profits and are poised for M&A. After several years of extreme Capex inflation, “buy rather than build” seems to be the order of the day. Gold seems to be first into the M&A cycle, with the Newmont/Newcrest takeover a harbinger of deals to come. We do expect other commodities to follow suit, particularly if BHP and AngloAmerican come back into play. As this M&A activity continues, we expect to see more Joint Ventures and Farm-Ins emerge to meet a funding gap among the juniors.

Sovereign risk rising

Predictably, commodity prices have proved too tempting for politicians the world over. Australia and Canada join a dubious list of African and South American countries imposing new royalties and retrospective tax grabs, and in some cases outright expropriation.

Energy transition continues

The transition away from fossil fuels towards renewables continues at pace despite turning political tides. Some reality around cost and reliability of baseload power has entered the agenda, leading to more robust debate around future energy mix, including nuclear.

Executive availability

A combination of reduced greenfield projects and mergers and acquisition activity is consolidating executive ranks. Many displaced executives are late career and will join consulting and board ranks, however this cycle we have noticed more high-quality mid-career executives than previous cycles. Unless they are accommodated soon, many will need to move their families interstate or offshore, or move sectors.

Expatriate trend

Many international operations lost expats who repatriated during Covid. We are now starting to see this trend reverse as the world opens up again. Executives are once again seeing the value of an international adventure, and offshore operations are recognising the value of a global talent pool.

Remuneration moderating

These trends are coalescing to moderate pressure on executive remuneration. The year gone has seen a marked decline in the number of remuneration reviews. Where increases have been granted, they have generally risen in line with CPI of 3-5%.

A recovery underway

Conversations with many boards and leadership teams, fund managers, and other industry commentators across the globe lead us to surmise that we are at the early stages of recovery across most commodities, setting the scene for a new mineral investment boom.

Now is an opportune time to recast strategy and consider the capability of your leadership team, to capitalise on the opportunities ahead. As always, we stand ready to assist.

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