28 Mar 2023
The world is moving, inexorably, towards de-carbonisation – although of course the details of how that will transpire continue to be debated.
One thing is certain however: replacing fossil fuel-based energy systems will require new technology and that new technology will require different inputs – most significantly different, “critical”, minerals. Minerals like copper, zinc, nickel, lithium and cobalt – resources that already feature in the batteries of electric vehicles.
“The growth of the critical minerals industry in Queensland will likely require investment of tens of billions of dollars over the next decade.”
As Adept Economics outlines in our forthcoming report, Queensland: Future State, Queensland should have a bright future as a producer of critical minerals, giving the state a major role to play in the transition to net zero. According to the Queensland Government, “Queensland has some of the world’s richest endowments of critical minerals needed to build a decarbonised future.”
The state’s production of bauxite, copper and zinc is substantial and will likely continue. And while Western Australia has well known deposits of lithium there has been exploration in north west Queensland and there is the potential for lithium mining to occur there in the future.
The International Energy Agency estimates demand for critical minerals will increase between three and six times as efforts increase to achieve net zero outcomes. To an extent, this growth will be supported by policies favourable towards electric vehicles and the transition to net zero via sustainable technologies.
Already there are Queensland businesses well positioned to benefit from this transition.
RDO Equipment is a major supplier of John Deere and Vermeer machinery, including harvesters, tractors, excavators, dozers, drill rigs, trenchers and dump trucks, to multiple industry sectors including resources, agriculture and construction in Queensland and all eastern and central states. Across Australia the company employs around 1,000 people across 29 dealer locations and has a turnover in the order of $1 billion annually. The bulk of its business is in Queensland.
The company is a major player in Queensland’s resources sector and – like the state at present – its business is largely oil and gas related. Over the next decade, it is expected this business will remain strong as there is still a large global demand for oil and gas.
But longer-term, critical minerals will be more prominent in Queensland and should generate demand for equipment and repair services supplied by businesses such as RDO Equipment. Furthermore, RDO expects its equipment will be deployed for the development of large-scale renewable energy projects.
RDO is well versed in the opportunities on offer within the state. Queensland’s highly developed mining sector, established supply chains and world leading mining equipment technology and services sector put it in a prime position to effectively capitalise on critical mineral reserves. In 2020, the Queensland Government released a strategic plan to guide research and development. Recent Queensland legislation has allowed for the deferral of rents on certain critical mineral projects in the state.
Furthermore, with critical minerals demand soaring due to demand for EVs and other goods associated with the net zero transition, there is an opportunity to value-add to critical minerals, a large amount of which currently occurs in China.
RDO Equipment expects it will support projects which will require equipment for site levelling, directional drilling and the digging of trenches for underground cables, among other things.
Of course, like all business transformations, this will involve adaptation.
The largest long-term challenge facing Queensland’s resources sector is falling demand for coal and gas as the world moves to net zero. Queensland’s specialisation in metallurgical coal will provide some protection, particularly over the next decade or so, but in the long-term the IEA expects metallurgical coal demand will also decline substantially, particularly if the world acts aggressively to cut GHG emissions. It is unclear at this stage to what extent the growth of critical minerals mining in Queensland will offset declining coal demand in future decades.
RDO Equipment is well positioned to benefit from decarbonisation as a major supplier of hybrid electrified equipment. These are the machines industry will increasingly demand. The trend will be towards electrification of traditional mechanical and hydraulic components where equipment is converted to diesel-electric transmission but still requires a diesel motor. A good example of this is the John Deere 944K Hybrid Wheel Loader. Designed for handling rock fragments from a quarry blast, the hybrid-electric 944K helps maximize productivity and efficiency at a lower daily operating cost.
Eventually, however, it is expected machinery will be powered by renewable energy. That is, the equipment will be electrified to enable flexible fuel sources such as batteries, hydrogen or bio-diesel.
Large-scale capital investment will likely be required in the resources sector to seize the opportunities provided by soaring demand for critical minerals.
The total value of the Queensland mining industry’s capital stock is over $200 billion and the bulk of that is related to coal mining. The growth of the critical minerals industry in Queensland will likely require investment of tens of billions of dollars over the next decade. Some businesses like RDO Equipment are ready to help make that transition.
Gene Tunny, Director Adept Economics
Source: Adept Economics consultation with RDO Equipment.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
28 Mar 2023
28 Mar 2023