Why Western Australia wants to do this boom differently
Backed by $11 billion of mining royalties (mostly iron ore) in the last financial year, with another $7.9 billion conservatively estimated for 2023-34, Premier Mark McGowan says his state is “walking tall”.
Cook said WA was, however, also at an important juncture. Government and business believe an emerging critical minerals sector provides the state with an opportunity to become more than a quarry for Asia by developing its own downstream processing capacity.
“This isn’t our first rodeo … what we should do this time is make sure that we don’t miss the boat when it comes to downstream processing,” Cook said.
“What we tend to do is get into a comfort zone, and that is we know how to produce product, and we know how to ship it.
“We can make a perfectly good living by exporting iron ore and other raw materials, [but] we have to challenge ourselves now to not just benefit from that mineral endowment. We have to build value on top of that.”
Boasting rich lithium reserves and other critical minerals essential to the production of batteries, WA is well positioned to capitalise on another resources boom. This time, however, the state has access to more affordable renewable energy to process the minerals onshore, diversify its economy, and possibly escape the boom-bust cycle.
“The really big difference this time is the role that renewable power will play, either in the form of direct grid connection or renewable hydrogen for power or chemical feedstock,” Cook said. “We do have the ability to move up that value chain and downstream process these minerals, so we can actually crack that nut once and for all.”
And while China is likely to remain the giant of rare earth processing, Western Australia could emerge as an important producer of “premium” products for electric vehicles, wind turbine motors as well as electronics, says the boss of Hasting Technology Metals, Alwyn Vorster.
Looking beyond Asia, a premium Australian product could be just what the United States is looking for, the country’s consul general to WA, Siriana Kvalvik Nair, believes. She says Australia could become the supplier of choice for critical minerals to the US.
Like Vorster, Nair believes the country can cash in on a premium brand built off solid environmental standards, and quality social governance. Just as important as producing the cobalt, lithium, nickel, graphite and other critical minerals was processing them responsibly, she said this week at the summit.
However, even in a room full of miners in the middle of a mining boom, not everyone is as bullish about the manufacturing piece of the battery minerals pie.
Ken Brinsden, who watched iron ore price fluctuations while at Atlas Iron, and a lithium bubble burst that led to consolidation while at Pilbara Minerals, told the room that even though WA should absolutely aim to produce battery chemicals onshore, trying to manufacture batteries was a “fool’s errand”.
“It’s like having the pot of gold at the end of the rainbow. It misrepresents, I think, where the value really lies,” he said.
“I would argue you can capture a lot of value in the battery raw material supply chain by creating value-added chemicals. You don’t really need to manufacture a battery.
“In fact, I’d go as far as saying you’d almost be crazy to invest your capital there and try and compete with North Asia.”
Brinsden, now the chairman of Patriot Battery Metals, told the Mining Summit that tax breaks and other incentives were a relatively small price to pay to help foster more critical minerals mining and processing in WA.
From approving a gas-fuelled ammonia plant in the Pilbara to developing big batteries south of Perth, the WA government is intent on forging ahead with a diversification of the state’s economy while still enjoying strong revenue from the traditional iron ore sector.
In the days after handing down his sixth consecutive budget surplus, McGowan said that even though he wouldn’t categorise it as “picking winners”, his government was keen to support industries it believed had viable futures.
He believed the production and processing of critical minerals, including a battery industry, could be achieved in his adopted state of WA.
But seven years after losing office at the back end of a sharp local economic downturn, Barnett remains sceptical about whether the critical minerals sector can smooth the peaks and troughs of WA’s economy.
Barnett, who presided over a mining boom that ended abruptly during his time as premier from 2008 to 2017, says critical minerals can become a key plank of the WA economy but doubts the state can ever make it all the way downstream to manufacturing as part of efforts to diversify.
The state will always be exposed to mining booms and downturns as commodity prices fluctuate, Barnett says.
“WA will always be cyclical. The state produces about 45 per cent of Australian exports and at times up to 50 per cent of exports,” he says. “It is always going to be a bumpy ride in this state. It is a high-growth state, but it is a volatile growth rate.”
Lithium has come from nowhere in WA’s budget papers since 2017 – when the McGowan government came to power – to figure prominently in the state’s royalty forecasts.
The WA government reaped $910 million in lithium royalties in 2022-23, up from $261 million in 2021-22. This is forecast to grow to $928 million in 2023-24. In comparison, it’s still dwarfed by iron ore, which had royalties of $9.28 billion in 2022-23.
Barnett believes critical minerals can emerge as the third-biggest industry behind iron ore and LNG, but says it is important to be realistic about diversifying into manufacturing batteries for electric vehicles or energy storage.
“I don’t think it [critical minerals] will rival iron ore and natural gas, but it is going to be at least as big as gold,” he says. “WA is a very prosperous state. I think a lot of people on the east coast don’t understand how prosperous WA is, but it is going to be volatile. That is the nature of high growth.”