MarketOpen(ed) Issue #8

JUNE 18 2023

EXPLORATION UNCERTAINTY

BAFFLED MINERS FEAR THE WORST

The Lizard King

GIVES AN ODE TO THE KING

Robot Pizza

INVESTORS STUCK ON AUTOMATED MADNESS

MANSOOR’S RADAR

GEOPOLITICAL TENSIONS ADD TO THE DEMISE OF THE AUSTRALIAN COAL INDUSTRY

OpeN(ED) Shorts

UPDATES FROM DREADNOUGHT RESOURCES, ALTECH BATTERIES, ECOGRAF, AND KINGSLAND MINERALS

Market news, views & Interviews from ASX companies

Make your news count

Like many retail punters, I was hopeful that things might be looking up for lagging stocks at the beginning of the week following positive developments for the US economy as inflation appeared to be decreasing due to low US rates. Experts suggested the doldrums could be in retreat because inflation seemed to have cooled, easing the pressure on the Federal Reserve to continue raising interest rates. It was also a great start to the week for Western Australian lithium hunters Liontown Resources as their shares nearly doubled to $2.86. This was due to Albemarle, a US giant, offering to buy the company for $5 billion. However, Twiggy’s Fortescue Future Industries, a green energy company, matched a return to the slump, at least for the miners, on Tuesday following an accusation of covering an ammonia leak at its Solomon Hub in the Pilbara. Is it just me, or has Twiggy’s star dimmed even more recently? Meanwhile, on Wednesday, the oil sector faced challenges due to persistent inflation, resulting in their lowest levels in three months. But despite Wednesday’s return to the gloom, we still got to welcome home one of our own, with Rio Tinto executive Ivan Vella returning to his home station to fill the shoes of the late Peter Bradford to become the CEO. As things started to warm up on the ASX by Thursday, Gina Hancock applied nitro-glycerine, announcing a new lithium venture with India, preparing for a drilling effort over WA’s Yilgarn minerals belt.

Rueben Hale

Dreadnought Managing Director Dean Tuck

UNCERTAINTY REIGNS FOR EXPLORERS

Greenfields explorers are concerned that new Indigenous heritage laws in Western Australia may hinder greenfield exploration, which is critical for the state’s mining development. The laws enacted in response to the destruction of the Juukan Gorge rock shelters by Rio Tinto in 2020 will take effect on July 1, causing uncertainty for many explorers.

Dreadnought Resources managing director Dean Tuck warns that greenfields exploration companies will face high upfront costs to secure traditional owners’ tenements over 1100 square metres, potentially impeding the search for valuable minerals and commodities. The agreement requires miners to pay 7 per cent of their exploration expenses and $150 per

square kilometers to traditional owners.

The transition to the new process has exploration companies worried that it might slow down their progress, according to Association of Mining & Exploration Companies chief executive Warren Pearce. Mr Tuck, who wished to point out that he agrees with the intent and principles behind the Aboriginal Cultural Heritage Act 2021, saying that change and modernisation were required, believes the state’s hurried execution is highly concerning.

The shortened consultation period, impacted by COVID, and the rushed implementation without having a transition period (like we have had with the WHS Act) or even functioning critical structures in place

(LACHS) is alarming and irresponsible by the state,” Mr Tuck said.

Dreadnought focuses on exploring greenfield areas in the state that are often underexplored and subject to native title and environmental considerations. Mr Tuck suggests that companies that have established relationships with Prescribed Body Corporates and conducted proper consultations and surveys should face a minimal impact on their short-term plans. However, for the remaining 90 per cent of companies, there is a significant risk of delayed approvals or breaching the Act.

“Rushed consultations and lack of development contribute to this risk, not just the ACHA 2021 or stake-

WORDS| RUEBEN HALE

holder desires,” he said. Immediate implementation without a trial transition period also adds to the uncertainty. As Yamatji Marlpa Aboriginal Corporation has stated, ‘This is a once in a-50-year opportunity to reform the protection of ACH in Western Australia’ –Why rush the regulations and guidelines that are so essential to the operation of the ACH Act?”

As the implementation date looms closer, it is evident that many individuals are experiencing anxiety and uncertainty regarding the future. While some may choose to take a passive approach and block it, others have been known to exaggerate its impact on small caps exploration. One thing is sure: the pipeline of new projects across the state will undoubtedly ex-

With new indigenous heritage laws set to come into effect in Western Australia next month, greenfields explorers fear the worst.

perience delays.

Across the state, there will likely be delays to the pipeline of new projects. Mr Tuck also warns us to expect that different parts of the state can implement the required systems within different time frames.

“There are Native Title Groups with well-established PBCs, the systems in place and a history of working with exploration and mining companies,” he said.

“However, many critical metals are being explored in frontier areas without that history, and some of these areas may take more time to implement the required changes. So there will be a mixed bag of delays across the state. If it hasn’t been already, risk should be in companies’ minds.”

The combination of high-interest rates and a global economic slowdown has made it more difficult for smaller companies and prospectors to navigate and finance new projects. This has raised concerns that implementing new regulations will become more complex. As a result, approval costs and timelines may increase, potentially keeping investors away.

Additionally, there has been an increased interest in environmental, social, and corporate governance and community support considerations during financing discussions. This will significantly increase those interests. How the new regulations are rolled out will impact the ability to generate shareholder returns in the market.

Mr Tuck said it is rare to see Native Title Groups with Pastoralists and Explorers on the same page.

“Although one of the previous Act’s most contentious issues has been given a 10-year holiday, there needs to be a transition for radical changes to the system,” he concluded. “The required and widely welcomed change to cultural heritage protection legislation has become a significant risk and blown opportunity for the state.”

Meanwhile, Aboriginal Affairs Minister Tony Buti has been captured on record accusing critics of the new regime as “scaremongering”.

“The shortened consultation period, impacted by COVID, and the rushed implementation without having a transition period (like we have had with the WHS Act) or even functioning critical structures in place (LACHS) is alarming and irresponsible by the state,” – Dean Tuck”

PIZZA ROBOT

While the dream of robots cooking your delicious pizza pie en route to your door remains bizarre for would-be deliverers Zume Pizza, the tech industry still needs to end its costly pursuit of fully automated pizza delivery.

Zume, currently selling off its assets amid a significant loss, was once valued at almost $500 million. The startup had secured a substantial investment of $375 million from SoftBank, with the shared vision of delivering hot pizza straight to customers’ doors via company trucks equipped with robot chefs in busy metropolitan areas.

But if you think robots cooking pizzas in a moving truck sound simple enough, you would be wrong, and the cheese tended to go flying whenever it hit so much as a speed bump. And if you think humans pouring more money into another automated pizza delivery service seems

ridiculous given the experiences so far, your logic would be sound but likely defied.

Automated hopefuls

While not hitting the early investor highs of Zume, Stellar Pizza has gone through a US$16.5 million Series A financing round, with a group of former Space-X engineers and Jay-Z’s venture capital firm backing in another try at the apparently immense and unlocked value of robot-pizza. Picnic Works, Nala Robotics and Pietro Pods are all trying their hand at automated kitchens, en-

visioning a broadened market scope that includes chips, nuggets, and other beige concoctions favoured by the developmentally arrested.

AI’s Pizza

It is not only robotic hands companies that are looking to get involved in the Margherita Market; Dominos uses artificially intelligent eyes to check the distribution of pizza toppings, and Pizza Hut has rolled out an AI-powered mood detector at select locations – though I’m unsure what pizza it would recommend for alleviating severe unease.

Slice of the market

While the investment into Zume was elaborate, the fact remains that the global pizza market is worth about US$128 billion; Dominos alone sell one and a half million pizzas daily and increasing the margins on staffing and quality control could reap a windfall.

Voltaic move to metallurgy Kingsland confident in quarry

Voltaic Strategic Resources can turn its attention to metallurgy after putting away any lingering doubts on an extensive clay-hosted rare earth system at the Neo Prospect. Multiple intercepts up to 80 metres long might be some of the widest recorded in Australia, and with mineralisation lying open in a largely untested area, Voltaic see heightened potential for a near-surface, open-pittable rare earth resource of substantial scale.

Theemerging graphite company quickly set an ambitious exploration target after marking discovery at Leliyn, and early results have done nothing to dim its confidence. The first two holes returned with intersections of 45m @ 9.0 %, 28m @ 11.1 %, and 25m @ 10.1 %, confirming high grade graphite in the schist and validating Kingsland Minerals’ conviction it is the proud owner of a tier-one asset in a tierone Northern Territory location.

EcoGraf’s purity patent

EcoGraf’s “Method of Producing Purified Graphite” patent is going through in the US. The company developed the alternative purification method for battery anode materials back in 2017, and diligent international refining, analysis, and testing has led to a breakthrough towards commercialisation.

The vertically integrated battery business has set its sights on value up and down the supply chain, and its subsidiary Innogy has been set up as the largest nickel exploration landholder in the emerging Tanzanian frontier.

Altech’s battery breakthrough

Altech Batteries see a breakthrough into the battery market after revealing the chemical compositions of its Cerenegy batteries, new technology which could provide reliable, weather-resistant baseload power into a fast-moving energy storage market. The bright sparks at Altech can now turn their minds to potential off-take partners and sales, seeing countries reliant on weather-dependent renewables reaching their limitations, requiring grid storage maximising renewable sources to keep the lights on at home.

Hotoff a rare earth discovery at the Yin Ironstones, Dreadnought Resources continue to grow the scope of its Mangaroon resources, expanding Yin by a kilometre amid the reveal of new ironstone discoveries slated to keep growing a trove of critical metals. Managing Director Dean Tuck said the dam had finally burst on assays, and with strong metallurgy results, upcoming resource upgrades could be the foundations of a new rare earth powerhouse in the Gascoyne.

Dreadnought dig in at Yin

MANSOOR’S RADAR

The geopolitical tensions between Australia and China have significantly impacted the coal industry

China’s unofficial ban on Australian coal imports in 2019 slowed down the supply to a great extent, intending to boost domestic coal production and put pressure on Australian producers. This ban coinciding with the COVID-19 pandemic has worsened the situation in 2020, limiting global coal supply and causing a 300 per cent increase in metallurgical coal prices. The yucky fallout has seen the physical unit basis of Queensland’s coal export decrease by approximately 27 million tonnes from levels recorded

at the beginning of the pandemic, equivalent to twice the production capacity of the Blackwater mine.

Regrettably, the reduction did not provide any economic advantage to the state or the country. Nevertheless, the increased prices helped counteract most of the impact, which is now being reversed.

The lifting of the ban on Australian coal imports has come too late, as the world is now shifting towards renewable energy sources. This has

caused a decrease in demand and production of low-energy coal, resulting in lower prices. Though the cost of metallurgical coal stabilises, the global market for energy coal remains weak. Policies promoting renewable and non-fossil fuel power generation will continue to pressure energy coal prices.

The ASX-listed coal companies’ share prices are also reflecting the overall sector. Whitehaven Coal (ASX: WHC) has experienced significant share price appreciation over the last few years, primarily due to a robust seaborne coal market and a substantial share purchase plan. With coal prices stabilising and forming its base on fundamentals of cost curve, we believe WHC’s price has bottomed. Upside can come from Whitehaven’s share purchase plan, which still has a long way to go before completion.

THE KING LIZARD

The week began with a “Long Live the King” from myself, and others tied to the ASX, celebrating Chuck’s November birthday a little early after missing out on the WA day public holiday. It’s a long ride to Christmas before the next one, but the ASX finished in the black on Tuesday to bring a little cheer to a shortened week under a new monarch.

If it’s slight gains you like, a crypto trading bot received a flash loan for $200 million to secure an arbitrage play for a neat three-dollar profit, making me wonder what cost an AI trader would sell out human life for, but our human CEOs seem to manage that just fine already. A Chinese stimulus package helped commodity prices, providing a little bit of sugar to a market desperate for some more construction and EV sales and miners led the way as the ASX rose three days on the trot.

Lithium shares saw some love, and majors snooping around undervalued assets means they might not stay that way for long, and Hancock Prospecting appears ready to enter the lithium space in a new accord with India.

The Federal Reserve pulled a classic psych out and tricked traders into thinking it would lift interests again before pulling back, a play out of my older brothers’ handbook of falsely offering a turn on the Nintendo. Maybe the Fed will start asking traders to stop hitting themselves next.

The Chinese stimulus kept the ASX rising on Thursday, despite new rake hike expectations, giving the iron ore minors some love while the gold sector felt some pressure. But the golden boys bounced back on Friday, the ASX All Ords Gold moving up alongside the ASX, and all sectors but healthcare ended the week in the black - and the upcoming end of financial year lunches are sure put some more strain on the Australian health system.