The End For Exploration.

Summary

The Federal Budget has dropped a bombshell on the mining and exploration sector. Proposed CGT changes could leave a …

Transcript

The federal budget sort of hit like an earthquake in the industry and probably across the economy. There's a lot that's not been expected there, but the changes to the capital gains tax arrangements really are problematic, particularly when you're getting our projects up. JD, we're joined by none other than Warren Pierce, Neil Van Drenan. We are delighted the two of you represent Amech, um, which will be incredibly well known by our listenership. The reason we've invited you to talk with us, A, I mean, you're ripping BS. be JD and I have been internally incredibly frustrated pulling our hair out at some of the um yeah more nuanced policy directions that impact in a really substantial way investors into the resource industry um you know companies in the resources industry and there's no better interface between bridging you know the the understanding of policy to mining than uh than you guys who live and breathe it every single day. So we're absolutely delighted that you can be here. Oh, great to be here. But also, um, we're going to explain what it all means, but I can't promise you won't be tearing your hair out anyway. >> You might be bored by this certain certainly. I am I was balding before this, but really costsaving measure won't have to go to the barber. If we think about some of the the framing to what has come out, particularly starting with the the budget in recent times, you got people from Tim Goyer, Bill Beam, Mark Bennett have been very vocal in their criticism of what this means for >> investors, people backing young companies, exploration companies, the you know original startups in in Australia. So why don't we start with like the high level overview of what you guys made of the recent changes we've seen in the last week or so. >> Yeah. Yeah. So, the federal budgets sort of hit like an earthquake in the industry and probably across the economy. There's a lot that's not been expected there, but the changes to the capital gains tax arrangements really um really are problematic, particularly when you're getting our projects up. So, um you know, uh Tim Goer, Bill Bean, um Mark Bennett, all proud members, they know what it takes to get a project, a mineral exploration project off the ground and what it takes to make a discovery and try and turn that into something that creates real real value. Um, what this really means is at the early stage when you're getting a project together and you're trying to make your initial public offering, the reality is you rely on retail investors. And retail investors mean moms and dads. Um, in order to make your spread uh to meet the ASX listing rules, you need something a minimum of 300 individuals um, investing more than $2,000. The reality is those retail investors are more than 50% of most of those floats um, putting in maybe 10 or 20,000. And if you come to the investor briefings, you spend time at the investor conferences, the reality is, you know, these people aren't um highwealth individuals. Um they're people who are taking a chance in a speculative quite high risk environment. They're particularly the IPO stage. They got to hang around a while to see if that investment is going to um turn into something uh something profitable for them. And to remove that discount um is taking away a very substantial price of the um part of the reward that's potentially on offer for them. And we're really concerned that'll make a a big impact on our ability to get new IPOs off the ground, create new min exploration companies and keep the min exploration effort um across Australia um that ultimately makes the discoveries that builds our new minds um and ultimately underpins the economy of this country >> and really it's really coming after us before we have the intos come into it. So it's at the beginning it's just the retail guys and they're the small guys that really help us get up. though without that that early start >> the the the word they used was um take risk right and the industry is built on risk capital in fact the best business success stories of Australia's history recent like enduring long-term they have all been um they've all been phenomenal successes but be because the environment was such that it encouraged risk capital and um I think the thing that like just just incinerates me is the the thought that um the thought that risk risk capital is being discouraged like where's the where's the the long-term tangible And the irony is like so the government seems focused on having some sort of carve out for tech companies like well what level of of of this you know um contribution to our economy they make right now they represent 3% of the ASX middle exploration companies around 30% of it. If you look at the number of IPOs they literally are the vast majority are in middle exploration and mining. They're not in tech. Um so if you're going to be going to punish um uh parts of the industry, parts of the risk capital investment and parts of the industry that really are underpinning our success, then you're really taking a pretty big chance about your future economy. And I think that's the bit that's sort of starting to come home a week or two after the budget's been announced is you're starting to see more and more potential problems here uh in terms of the way in which investment comes into Australia and the way in which people try and realize some value. And uh the Australian government's really got to recognize um that there's a lot of value they're putting at risk here. >> You you think about the the three names we mentioned before and they've all had outstanding success in their career and they've all had failures in their in their own right as well and they've been shown through and they've had the you know the courage to to get themsel up and go and there's been the incentive for them to to do so. If we dive in deeper you've got the mining companies that you guys represent as well as the exploration companies. Now some people put forward the case that your blue chip dividend paying companies they might see uh more attraction in capital more capital going toward them given this kind of framing. What do you make of that statement? >> Well I'm not sure they need it like and this is sort of the sort of conversation which is the reality is they're always going to be investors in into blue chip stocks. Um uh and I don't think that's a quite different conversation looking at the BHPs or indeed any mid-size mining company. The reality is they've got their own capital to invest and not the ability to go and raise money. Um if you're a small exploration company um trying to develop a project. The reality is you've got to work pretty hard to get that investment together just to get that initial IPO together to build a project you're going to be somewhat limited about the scale of the project you can build. You know the Andrew Forest of the world with Fordsq are the absolute exception. It's very difficult for a small mineral exploration company to get a bulk commodity up. Um you just can't raise the type of money you need. um for a gold project or precious metals where it might be three or $400 million. Pulling that together is achievable. Um but really for the mining companies, they're in a much better place. They've got um uh known capability, known capacity and ability to raise. I'm not concerned about that component and I'm not hearing that from members. But also, when I look at what government's doing, you're thinking like, okay, well, you're trying to push investment out of investment into housing. Okay. Are people investing in housing going to invest in min expiration? Yeah, >> that's a pretty big difference in risk um uh risk profile. You're going from safest houses to high risk, high reward. That's not where that money is going to go. It's going to find other places will probably find its way into into blue chip stocks. Maybe that's not a bad thing, but it'll hurt us in middle expiration. >> The other thing with the blue stocks is the blue stocks are sitting or blue chips, sorry, are sitting within an ecosystem of smaller middle exploration companies that they may pick up in the future. So our small players and our junior explorers are looking and finding the making and making the discoveries that then get bought out by the blue chips in the future. >> Yeah, there's less of an incentive for them as well to invest in in bigger projects because we're in a higher tax environment. The the cost of capital goes up. Capital is driven overseas and these sorts of things as well. So there's the downstream effects of this >> cost of capital is is like that that's the huristic I'd look at the industry through like you know c capital will go where it's welcome and if you have disproportionately punitive taxing regime on on on high-risisk capital which by the way that >> you know the nature of high-risisk capital is you have a small number of incredibly large outsized winners that and um and and there's a low probability of success. This is expiration. Now, that dynamic can only work when you've got like some symmetry as well with your taxing regime between your winners and your losers. And like one of the one of the biggest like gut punches with what has been put on the table so far is that lack of symmetry. Your losses your losses struggle to offset your your winners. >> Preposterous. >> And what you'll find most retail investors is they're trying to let's call it diversify. they place their their bet so to speak across a range of middle exploration companies or a range of mining companies um with the hope that you know the uh the profits take care of the losses and maybe if they're lucky they get that extraordinary value creation moment with a big discovery um but the reality works for now is um it's hard environment um so uh I think you'll see a lot of retail investors reconsidering what they're doing and we need to keep them because let's be honest that pool of retail investors is pretty narrow um it's the same people that tend to be aging out in a lot of ways. Often they come from the industry previously. Um, moms and dads sort of playing the penny dreadfuls. Um, you know, like it takes a lot of people being prepared to take quite a lot of risk to really underpin our industry. You wouldn't think that from the outside. You look at all the big companies, big operations, it looks like there's money pouring in left, right, and center. But at the start at early stage where there's no certainty of where or predictability about whether that will return um return a reward um it's a very small number of people who really make a very big difference in a lot of ways they're the people who build our economy the ones prepare to take that risk um uh and ultimately we all benefit from the from the reward. >> But before we all set our hair on fire this this is still a live issue. It hasn't been forced through. So, how do you guys weigh up the the chances that this all gets pushed through that's happening as we kind of speak and the carve out with the the startup and so on? >> Well, the rumor is that it's going to go into parliament this Thursday. So, that will be the framing legislation um that'll start set up the car the capital gains tax and start spelling out where the um exemptions will be. We're hopeful, but like hopeful that there will be an exemption under the startups provision, which there's been a fair degree of talk about with Treasury. We're meeting with Treasury later this week um to talk to that end specifically. >> By the time we share this, this this might have sort of played out in the in the next few days a lot. >> They're moving real fast. >> Well, I'm not sure this issue is going to be going to be um finalized anytime soon. And I think the reality is that the government's budget's been presented with an awful lot of opposition. Um uh and not just from the places you might expect it. Um so I think um there's going to be a long way to run on this about whether these changes actually come in and whether they're able to be be sustained particularly as we start to see the impacts across the economy. Um for our end, we're trying to make a strong evidence case. Um uh so we were I was in CRA um the day after budget to meet with the treasur's office uh and uh and the minister's office and talk through our concerns and it was pretty clear at the time that the way they had presented their budget the expectation there would be um detailed treasury consultation on how these various measures would impact on the economy. What's happened with the sort of political storm that's um enveloped the budget and the proposals is they seem now to be trying to move more quickly. So um we're you know we're can we know um that the evidence on our side now we've got to try best to convince treasury uh and the treasurer and hopefully we can find that carve out middle exploration. Do you guys live at the Yeah. You know, the the interface of industry and policy and and I to be honest like I don't don't know very much about what the what the uh you know the function looks like for things to become policy for things to become so entrenched that they're actually you know unchangeable in in the future and and like as an individual as an investor um you know someone that cares about the industry like >> realistically like on some probabilistic weighted you know framework how do you actually see this in the long run playing out? Do you see it's more likely than not that this is this is the new regime? I know that's a defeatist mentality, but >> first thing it's got to get to parliament. >> The government can announce it, but the reality is they've got to pass it. Um now budget bills traditionally are not opposed. That said, some of these proposals are going to be um the opposition's been very clear they'll oppose um these changes. They've got their own uh uh proposals. Um and then we'll see how it hits the the various crossbenches. Um whether they are independent deals, um One Nation, um Jackie Lambi um the Greens um right now we don't know. Um and indeed the Greens are saying they don't think the proposals go far enough and you've certainly seen um legislation fall over because although you'd think a certain party would support it, they don't feel it goes far enough to meet their supporters um views of the world. So they've got to battle against the parl in the first place. Um and indeed that's going to be a contested environment. Um if that happens then obviously these changes will become law and we'll be living with them um until either there's a change of government or a change of view from the government. >> The week after that so next week is budget estimates. So it's an opportunity for everyone to ask questions of the departments. So we'll be ensuring questions have asked of the various departments around where the capital gains tax idea came from and why did they expand it beyond housing to us. if yeah, it is it's a it's a tough equation. I mean, there's been some really interesting tools that have flo floated around the last few weeks like you're you've got uh you're trying to balance budget. There's, you know, a really healthy spending ledger. You got to offset it somewhere. You pull these dials and all of a sudden, oh, we've got to we've got to drag this one across in order to make it all all >> balance. You've got 15 odd billion on the fuel part of the equation that wouldn't have been factored in just >> 10 weeks ago. I guess that that's found its way in there as well, right? >> Well, that's right. and not to mention increased defense spending and a whole range of other things. Um so there's been >> there's been some been some big reforms around NDIS which is supposedly will bring some you know budget restraint around those programs but that that is the the fundamental challenge of government. There's a thousand priorities or more and trying to find a way of balancing the needs of of of your community. Um now equally how do you set an environment that brings in the right level of revenue without um pushing away potential investment uh and uh and risk capital in your country? Um so it's a difficult balance. Um but I think in this instance they've got it wrong. Um certainly I just you know I I cannot understand why you would want to make it harder to get a min expiration min expiration going in this country given how much of our economy and how much of our tax revenue is based on it being successful. Um uh you know I don't have a problem with investments and and supporting other industries to develop those develop those industries diversifying our economy. They're all good but let's not throw away the foundation stones of what have made us prosperous. >> To round out on some of the other parts that came out with this budget half a billion dollars being put towards more efficient uh uh proposals getting um >> environmental approvals >> avoiding duplication and so on. Can you speak to that for a moment and see if there's like actual substance there? >> So that's been really good. Um Neil's been leading our uh our work on the federal EPBC work. Um but I think we're pretty positive about those changes. >> Yeah, we are. Yeah, sure. So there's the government passed in November um amendments to the environmental protection biodiversity conservation act which is the federal environmental legislation. So there's both state and commonwealth legislation. Um the amendments will we hope um lead to reduce reductions in time frames um particularly as we see the states working through bilaterals. So we're expecting a Western Australian and Commonwealth bilat by the end of the year and that will have the assessment time frames and an assessment time frame is where most of your time is spent. So that'll be good news. Um but the bad news for me is that at the moment the standards which are below the regulations and they actually define what you're going to be assessed against, they're getting consulted on right now and we've got like there's a deadline next this Friday for example. So we got to get submissions in. Um, we've got our environment water committee that are sending us in lots and lots of feedback. So, we've got a submission in on that. So, >> so I guess for your listeners who maybe don't don't understand how it works, you have to go through a state environmental approval system. Then, if you're pulled into the national legislation, you have to then go through their approval system. By having a bilateral with the state, you hand the assessment over to the state government that assesses against both at the same time, >> which is sensible, right? >> That's where the time saving. So you don't reduce the environmental protections but you speed up the the assessment and the time to get an approval. Um so we get those bilaterals in place. The federal government's put money aside at their end. The state governments need to put some money aside at their end to resource it. Um in WA um the agreement between the state and federal governments been to have a bilateral an assessment bilateral in place by the end of the year. Um so that would be a big step forward for industry. Um and certainly another one of those um steps forward in making our system more efficient and things that investors looking at in our country around um approvals risk and see no we're actually going in the right directions and starting to make things um easier to easier to do and easier and less cost of doing in business. So, so Amech, Amech advocates for it on behalf of its um its member companies and those members like right now front of mind is issue is issue number one on their mind. CGT would that be >> uh absolutely I think this week definitely >> I think that's certainly um the front of their mind. >> What are they what what are they or can they do about it? Like are you seeing capital flight as like a you know >> Well, right now um right now they're receiving calls from investors and trying to say look just wait and see. We're campaigning against this. You can see the associations out there. A lot of our members are stepping forward to provide public comment and really try and sheet home the reality of how this will affect the industry. Um but equally, we're asking our investors. We're letting our investors know what's going on. Um they're the ones putting money in who see value in the industry they're investing in and they don't want to see it change. So we're asking them to join the fight, too. >> Yeah. Um and then so CGT issue number one. What's like like you know issue number two that that that you're often cultural heritage. Absolutely. >> Let's let's talk about this this concern the concern that your member companies have about this. >> So cultural heritage is um one of these with these challenging issues. So first point is to to recognize that cultural heritage is an important uh important part of of Western Australian Australian history and indeed um the Aboriginal story that's gone on for 60,000 years um long before um people like us had the opportunity to take um the benefits of living here in Australia. Um however the process itself has become a major barrier to getting on ground for companies. So once you uh let's say you take money off an investor you raise money for an exploration program then it's 12 to 18 months while you go through a native title agreement process a heritage process surveying the area before you can really go and grant doing that work. Um now we have no problem with taking responsibility protect heritage and working with traditional owners. That's something we value. Um, traditional owners are our most important stakeholder, but we need the process to come to agreement and how we go about protecting our heritage to be as efficient as possible and as um and as inexpensive as possible. And right now um since um the cold herd legislation a few years ago and the destruction of Duke and Gorge we've unsettled a um a normalized process about how that went about that where fair and reasonable agreements were made and expectations amongst groups and the cost that companies are facing to get on ground has risen exponentially to a point where exploration companies now can't necessarily afford to move forward. >> Talk us through that that history. You have Duke and Gorge in in 2020 and then you have the act in 23 that gets repealed after >> gets finished in 22 comes in 23 >> comes in. Okay. Yeah. And what like how materially from the outside it's hard to kind of see what it's like but how materially has the environment changed for companies over those years? >> The step before that is that the consultation on the heritage act had actually started before Juke and Gorge and that really accelerated the process. So there was the act was open and under consultation. it was sort of moving along slowly and then speed >> boom it just really accelerated >> and and what in in >> so give me a tal example so we've we've um we've done a a cost survey um with our members last year and what it tells you since 2023 our costs have risen by more than 50%. And co cost comes in multiple ways like like sure cost is like just the the dollar number expense you have to experience but the the reality is time value of money is enormously like important incredibly erosive for a for a small cap who has who has fixed costs they have to keep paying in order to be a listed company >> and that's right. So even when you're doing nothing it costs money. The reality is you hold a tenement you got to pay the state government tenant rental fees. Um you've got to pay local government rates on the tenement. Um you've got to pay your staff. Um, so there's still cost going on even though you're not able to get to the point where you start doing the work that actually potentially creates the value. Um, so if it takes 18 months to get on ground, that's 18 months of cost you have to endure before you get to the work where money goes into the ground and might actually realize some value. And that's the bit that you know we we want fair agreements. We need good relationship owners. Um but right now um government needs to step back into this space and provide a bit clearer framework about how this process is supposed to work to make sure that heritage is being protected but also there's a processes reasonably affordable um for companies to continue doing their work. Otherwise the benefits that come from discoveries and mining operations um simply evaporate before they get started. >> What what are the lowhanging fruit here? Because look, I've I'm I'm I'm by no means an expert, but I've heard I've heard parts of the reason why this is um you know, this is a frustrating process to endure and and and every single every single cultural heritage agreement or every single um you know, survey that is done, they're subject to confidentiality agreement. So the next the next person who owns those tenants, next company, they have to redo all of the same work again. >> But there are lots of these examples where you'd think you there pretty simple answers. um like you know there's a heritage register the state holds where essentially if you discover um a heritage site or um something is identified as important codal heritage then it's supposed to be reported to the state government put on a register and then mapped that's a way in which you can start to you know hold on to all the survey work that's being done. The reality is that traditional owner groups don't like that. Um they've got a quite reasonable fear that if all these sites are sacred sites are known publicly that some individuals might go out and desecrate sites. Now um okay so what happens is the company respects that and then doesn't report um those sites onto the register. Surely there's some kind of halfway or compromise agreement where that information can be provided to government but it's not accessible by all the public. It's only accessible by those who hold land rights over the area. A pastoral lease, a mining lease, an expiration lease. Um there are ways we can do these things without having to consistently reservey the same areas to essentially find the same thing at exponential cost. Um that doesn't need to happen. that shouldn't have to happen to protect heritage, but we just need better ways of doing this. And that does involve some role of government saying, "No, this is how we think this should work." And we want to make sure agreement making between project proponents and traditional owners is fair and reasonable. But we want to sort of set what we think a reasonable standard should be. And that's can be a starting place for industry and for T groups when we get together around the table to start to start from something that's already a bit developed rather than starting with a blank piece of paper every time. And >> where's that conversation at right now? >> Well, good question. So question uh after a lot of AMC advocacy following um uh following the uh the previous cultural head of legislation um the state government through the premier agreed to undertake review the west government um engaged the national native title tribunal and one of the tribunal members Glenn Kelly to undertake a review of um the cold heritage framework in WA as well as his interaction with native title future acts process um Glenn Kelly Glenn has spent six months um meeting with um stakeholders from industry from digital owner groups from anyone involved in this process written up a detailed report and handed to government in February this year. Um but that that hasn't been made public and uh and indeed under questions in parliament the government said it's under active consideration um and we'll let you know once we've um we've reached decision about what if anything we're going to do and so we are waiting um somewhat impatiently um to find out what the state government intends to do to try and write this ship. >> There is no timeline on this process then. No, >> quickly mate, underlying theme of a lot of this conversation with Warren and Neil, it it's really addressing stuff that we we think maybe gets in the way of Australia's competitiveness in big industry. This is true. And when you think of Australian industry competitiveness, I can think of one industrial player in Australia that is very competitive. You know why? Because they're the absolute best at producing ground support. That is Sanvic ground support. >> That's right, mate. We have seen their facilities on either end of the continent. Doesn't matter which cables you want, which bolts you want, they have got you sorted. >> Sanvic ground support. All the ground support needs you could ever want produced in manufacturing facilities. They're in Australia. They're they're also all across the world. They're also It's true. >> There's also warehouse facilities all across the world for fast, expedient distribution to mine sites all across the globe. >> Get your ground support order in today with Sanvic ground support. >> Back to Warren and Neil. I think I think of like the systems design part of it a bit because it's like, you know, you show me the incentives, I'll show you the outcome. And I I do completely agree that like extractive industries you have to respect the the heritage as to the extent that that heritage is is like you know it is the real heritage in place and and and the the the structure you describe at the moment. It seems to me like this there might even be an incentive to overstate what the real heritage dynamics are because each time there might be you know some some benefit to some you know marginal incremental negotiation power if if you you know >> you could make that >> I think that's fair right but I also think you don't often see that from digital owners so what you see on a ser survey is there'll be a consultant or an anthropologist archaeologist um and and then monitors from the group the monitors pretty much um tell it as they see it um if they know there's the heritage has been passed down as part of uh um a part of oral history or um uh on that undercover sites. They pretty much say this heritage or this isn't particularly important to us. Um what you get though is a range of people who are let's say well-intentioned um but motivated by the fact that they have a well- definfined heritage and you know making justifying their role in that role. the lawyers themselves well-intentioned um wanting to get the best agreement um uh for the traditional owners but equally that seems to somehow mean 18 months of work um for them. Ultimately the money's going the wrong place. Our industry would much rather see um that money um going towards traditional owners and their communities and actually making a difference on country. And that's the thing with middle expiration. The reality is the money that's going to middle expiration isn't, you know, going to change isn't going to be a generational change. But the money from a mining operation can be and that's why you need middle exploration to keep going. Um it's low impact. It can be done without damaging heritage to get to a point where you know resources are and then there's real revenue to talk about how that gets shared and how that benefits traditional owners in their communities. And that's what we and look we see to wanting those economic opportunities. The problem is we got a cottage industry in between us um making it hard um to uncover those opportunities >> and we're one of the only industries that are out in regional Australia. So for a lot of those groups, the discovery of a mine would be huge. It's not like you're going to have Google, one of the IT companies moving out north of Warbert. It's not going to happen. You might find some Nubium out there, though. >> We've got to talk about Fordscue then, like big name in in the news lately, the $150 million compensation award that came up I think a couple weeks ago. That was running for years and years and years and years. What do you guys make of it? >> Well, it might be still running. Um, so I think right now waiting for the full judgment to get better context on it. So clearly there's been a decision around compensation. Um the indie asked for 1.5 billion for um land and cultural loss. The court said 150 million. Most of that's for cultural loss. Um we'll wait and see if the indie after some um consideration decide to appeal that. Um looks as if Ford's um prepared to to leave it at that. Um but we'll wait and see. But the judgment is really important because there's a range of things that have been considered in that case that hopefully the court will give some guidance on how these things would be measured or thought about um by the court and that will then indicate that to industry uh and traditional owner groups about what the expectations of what compensation looks like. Um and in that case the WA government's put forward a model, the indie put forward a model and Fordsky put forward a model. We need some guidance from the court because a lot of native title law, native title compensation really is being um that law is being made by the courts. It's not being made in the parliaments. And so we're waiting for court case after court case to try and determine new precedents and set new standards. And so everyone's watching that pretty closely, but we've sort of got to wait for the full judgment to really understand how the court reaches decisions and if there are any other um principles that are going to become um significant and which we all build around in future agreements and negotiations. >> It's meant to be 350 pages. So there'll be a bit of juicy stuff in there. So >> is is forsc member? >> Is a proud AIC member. Um and look >> since the beginning >> since the beginning that's one of those things like we're we're fortunate to have in our membership some very big companies that started as very small companies uh they've stayed with us through the journey as we've helped them with um through project development and supported them as they've gone into operation and really proud to be associated with them. If if you so so issue one at the moment CG issue two cultural heritage issue three >> environment EPC >> environment probably EPC you know I think >> probably approvals timelines that >> and making sure those standards land properly >> right and what's the risk there they won't >> there's always risk that they won't I suppose but yeah we'll see >> I think can you frame it quickly for people that don't know what it is just >> so think about it like this So what's happening with federal environment legislation is they're going okay we're going to set a national standard that you must reach and so those standards are going to be higher than the ones that exist currently or in the legislation currently and the state will assess against them. So that will set those up. The thing is when you're writing national standards for um the environment across a a continent um the reality is it impacts differently in different places. Um and so how that's interpreted by the departments how that impacts operation on the ground you have to really wait and see. And so if we get that right, we provide the right level of flexibility, the department administrates in the right way, um then it'll work. If um if we get it wrong, it's going to cause some problems that require rework and and can create difficulty. Our major goal here is to get rid of duplication. We don't need a situation where the federal government, the state government are basically spending time and money doing the same thing. And what we want to do is make sure the national standards set it out. they create a situation where the duplication can disappear and the states can work through the state system and the national standards um to give an assessment and ultimately see it signed off by state and federal governments. It's all about getting rid of duplication and so anything that and that's one of the problems with federation. You hand responsibility to the states but you don't feel they're doing enough or um some there's some pressure politically to the federal government to step in. you end up suddenly with um two governments trying to make decisions over an industry whether it's ours or others um that really isn't that helpful. >> The other bit is that each state and territory does it differently. So that's going to be really quite interesting to see how we work through like there's one matter of national environmental significance standard which are the the plants and the animals that the federal government um have identified should be protected and each state has a different environmental legislation that deals with matters slightly differently. So, >> and this this this um you know the the the floor and fauna that >> I I secondhand I've heard a fair bit of like some some issues relating to certain floor and fauna which seem just kind of weird at face value that it's like holding up a you know a billion dollar like infrastructure project like >> so I mean and Neil spends a lot of time with this with our environment committee um but I One of the things you got to think about is so a lot of the scientific knowledge we have about our environment actually comes from mining companies who actually go and do these floor and fauna surveys in remote and regional parts of Australia but they only really do that in the footprint of the area um that they're going to be building their project and where their project might have impacts. So, you might then find something um that is a native vegetation or um a particular species um that isn't known or isn't well known to be in that area, but you don't have a regional mapping of the area to actually realize no, this species isn't threatened or under uh under under extinction threat. Um that actually the impacts are going to be quite manageable. And so, um essentially everything gets treated as if um uh um they're endangered. And so I mean that's a probably a bit of a a bit of a a bit of a mansplanning of it. But I think um um that's one of the challenges that hopefully with regional planning one of the proposals we can actually get a regional landscape mapping around for fall and fauna suras for flora and fauna surveys that the government undertakes that gives us a baseline about the entire area and we can start working on programs for environmental protection improvement that actually are regional um or species level that really have a much better impact than really just talking about the footprint of your project. um which tends to be isolated and um not necessarily leaving the environmental legacy we'd like. >> And is the largest portion of this work done when you want to get that mining permit? I understand you're doing bits on either side, but yeah. >> Yeah, absolutely. So, one of the good things is that this occurs post exploration. You have to have made a discovery and then you put in a proposal to to mine and that generally is what will trigger the EPBC act. So at that point then the positive is that you've got a discovery. Hopefully it's an economic discovery and you're hoping to proceed with it and then you've got funding to undergo the one or two year process of getting your assessment together, doing the necessary surveys, getting the data together and then getting your approval through. >> Are they protected species that like like how many how many times have you heard a black cockatu holding up an approval process for example? and they're all over the state and it's like >> how does that make sense? >> Well, yeah. >> I mean, >> um, >> is one that makes us, but >> one of the things that I I find frustrating is is is and I I I guess you got to try and see it from both perspectives is, you know, remnant vegetation. You go through the wheat belt, the entire wheat belt's been cleared for farming. Um, meanwhile, um, it happens that what's left of this little paddic of, um, of of natural bush land happens to sit near a resource and suddenly it can't be touched. You think, well, what value does a does a does there's three paddics of of of native remnant vegetation actually have when frankly it looks like it's less um significant than the bushes in my backyard? Um but the reality for the black cockatos that's a point of migration point for them where they can stop and they move through. It's part of their um their natural um population movement and so it becomes important and you have to realize and have to accept that the reason these bulls have been put down has been for protection. Now, at some point, you'd like to see as we build in all these programs, you build back the population of black uh black cockatos that ultimately they come off the list. >> And the reality is things go on the list, but nothing ever seems to come off. And it's not because um they're becoming more threatened. It's often because we just don't have enough information to know actually they're not in that situation anymore. They've never been in that situation. So, we got to see them both ways and remember that actually having a strong environmental protection act um and regulatory reforms um uh regulatory um rules around our industry is a good thing. It means we operate to a high standard. It means the community can trust when government says no, this is going to be acceptable environmental impact. They know we've gone through a very detailed process of surveys and assessment um to ensure that we're doing things sensitively. Um and that's something that helps our industry sustain the long term. It does mean some, you know, some um short-term pain sometimes. Um but equally, um you know, we value the our environmental record and we want not to make the mistakes that perhaps our industry's made in the past. >> Can I ask about like a a few um more high-profile, you know, instances where it it seems like a a a regulatory decision or delay in regulatory decision has has been incredibly kind of costly to to uh to a company or um an industry. So, South 32 and Alcoa were Yeah. But, you know, both in long long enduring, you know, disagreements. >> Agreements. >> Yeah. So, what what what actually happened there with their inability to to to mine part of their their their inventory that they thought would produce the highest grade and be more suitable to the refineries and the inability to actually get an outcome in a timely manner. >> State agreements are complicated things. >> They are a contract between a company and the parliament and they sit outside of the legislative framework. So that creates within it a series of time frames that are different to like other processes and they are old generally old documents. So they were done in a different era with a different set of expectations and as a consequence and because they are so hard to change they're usually only get changed at key junctures and then at that point there's a lot of conversation around a whole lot of things. that you want to amend the state agreement either from the government end or the state government both parties have to agree and then they enter a negotiation process. So I think I mean one of the realities for our coral is they sit in the southwest forest. Um and you think the the the community views and perhaps the the political attitudes around um activity in the southwest forest, whether that's being the timber industry or the mining industry, exploration or other things has changed quite a lot. And so expectations around that um you know often centered on on on players who are are there um and consequently has meant there's not been a lot of opportunity for explorers to enter the southwest forest and look for what's expected to be quite a lot of critical minerals under there. So expectations change and companies move with those expectations. Ultimately, Alco has kept operating through those um through those negotiations. They've come to a re an understanding with government that'll enable those projects to keep going and indeed they've been supported by both the state and federal government uh to develop a gallium project which is um critical to our national need and our strategic allies. So, you know, see Alak being a um a good corporate citizen, one that'll be hopefully um be in Western Australia a long time. reducing carbon emissions is is a core part of a lot of these discussions going forward and obviously a big topic at the the parliament level. If we like hone in on that example that the Trav gave and we just spoke to, it was put forward to us that the net outcome of one ton of aluminium coming out from that part of the world in in the southwest is half of what it would be for the mine that mines that bite and so on and makes the aluminium in a place like Indonesia. But that is where the supply has has moved to. Is this framing of the discussion coming up at all in parliament? >> Oh, it is um I think perhaps not with the um >> not with the not with the the priority we'd like to see it. I think I look at the nickel industry and think, you know, we had, you know, six or 7,000 people employed in the nickel industry and we watched our nickel industry essentially created um by investment in Indonesia's nickel industry um that is doing things with little of any environmental standards. um and and you see some of the reporting about what's happening with tailings being pushed out in the sea. It's horrifying. It's um very danger um damaging to their biodiversity and their environment. Not to mention the emissions profile and the way they're doing things. So um but we faced these with things like the forest industry. The reality is we've shut down our logging industry in Western Australia. We haven't stopped our demand for timber. The reality is we've just exported it somewhere else. um place like Indonesia where they cut down the forest because they want the jobs and economy but don't go through the same sustainability practices. So we value having a industry that has high regulatory standards um around environment around um wages and conditions around safety but that does come at a cost. Um what unfortunately is um the international market hasn't necessarily come to the rec real realization that if you want ethically sourced minerals you ultimately going to need to pay some more for it. And simply while people are still or companies um and countries are still looking for the cheapest price then you're going to find other nations that are prepared to do things to move their people out of poverty without having necessarily the regard to the same environmental standards or other standards that we have. So we think about that a lot. That's also true in emissions um as it is to about the general environment um and particularly like value adding like we want to do value adding here. The reality is value adding is energy intensive. um if you want to do that here, you're going to have to um use more energy to do it. Um but surely it's better that it's done here at higher standards um than done overseas where the value is basically passed to other players. So, you know, I think there's a bit of a resettling about some of these things. Um some of the emissions arguments I think are really quite challenging for people. If you want renewables everywhere, um that's great. you know, they're going to give you a clean energy, but also means it can have a pretty big um impact on the natural environment. If you see these massive solar farms, the reality is they've cleared everything underneath it. Um wind farms have a have an impact themselves on on on natural fora. So, um we have to you always have to trade off something. There's no those simple solutions where um you want clean energy, it's it's you know, it doesn't come at a cost somewhere else. Um we're having to make those trade-offs and and governments need to think about those things. You mentioned earlier value ad and this is perhaps the the topic I was most keen or maybe second most keen to talk about the critical mineral strategic reserve ties in with this and we finally seen the I guess the first of its kind Arafura's FID recently but quickly just give us the the background on how the strategic reserve came to be >> um was election commitment um so uh it was discussed for a while is should Australia have a stockpile of critical minerals you know much like we have a fuel reserve that probably in a lot of people's estimations should have been a bit bigger than it turned out to be. >> But um the idea being that and particularly looking at at the the demand for critical minerals and the growth of critical minerals demand into the sort of in the next 20 years um meant a really big opportunity for Australia. The problem is um for a lot of these critical minerals, you're going into a marketplace that is completely unknown with no transparent price andor dominated by China um who is able to um apply um large economies of scale and their own approach to pricing um to make it commercially unviable for anyone to develop anything on a commercial basis which has meant there's had to be government interventions in this space and over the last two US presidencies there's been massive market interventions. the the Joe Biden um inflation reduction act was a trillion dollars of of inter interventions um designed it trying to get all the value adding and supply chain of critical in the United States and domestic processing been followed by Europe there's about500 market inventions by government which has meant really governments have to lean in this otherwise projects aren't commercially viable so what we've been trying to do with the Australian government is find ways to support uh on the supply side of how you would be able to get a to be able to get to be financially supported to build the project and actually start to build um some transparency of price and find customers. Um and so that's what the reserve is designed to do. Step into a space where the market um might be able to uh to support at the moment but with the knowledge um that ultimately as the market grows those um those costs the Australian government might wear up front will ultimately be passed on to to other customers. And that's really how it's going to work. I think you see you know if you look at United States um President Trump's project vault $12 billion to buy critical minerals essentially ultimately the product we produce here in Australia it's be pretty easy decision for the United States to go we need rarest now well Arafur is producing it or Aluca is producing it we're going to grab that um the Australian done a lot to put us at the front of this field um I think we've actually done pretty well on that I think the demand's now starting to to come much more quickly but it does mean Australian government taking risk with taxpayer money as we got to be careful about that. Um but >> the long-term sustainability of that if it you know if uh if if that that turns out to be a you know poor allocation of taxpayer money and then then you kind of have to pick up the pieces on the policy allocation thing and try and try and get somewhere sensible in the long run like >> look I think that's a reasonable a reasonable concern for people to think about when you put this policy together. I think in the rarest space the demand will be there. I don't think anyone's got any lack of confidence around that. How does how do you how do you how do you have such a strong view on that when >> like you have artificial kind of you know >> support for for mass capital buildout globally for for an exchina thesis then we we like and it's not demand justified it's actually just you know brief wanting to build stockpiles and strategic strategic independence it's not real demand it's not >> it's strategic independence and that's the bit that I mean like I think there are >> you achieve that and then at some point no one's buying this you know what I mean like >> well that's that's >> like the tin industry back in the like the stock piles that that's a possibility, right? So, I mean, what's the United States goal here? The goal is to get back to a normal functioning market. The reality is right now they are relying on China and they can't afford to be and so they'll they're paying the price essentially to do this. Australian government's leaning in on their behalf in some ways um to make sure that supply is available for meet that demand. I don't think we're we're putting look, you know, I think yes, the Australian government's taking some risk here. We don't want to turn on a bunch of projects that are going to go out of business in the first months. I don't think that will happen. Um, I think they'll make careful decisions about where they deploy that capital. And the truth is, they're putting about a billion dollars towards them, which doesn't go that far. We're not going to be turning on 50 projects. The reality, this is a component that might help turn on um two or three and help us start build this industry. Um, our furers already secured commercial offtake for about 80%. 80% >> um and this last piece will probably provide the next 10% which gets them to u meet the requirements of their of their borrowers and the equity providers and to make that investment decision and start building. I think that's a good outcome. >> So you've got the the off date the 500 tons of NDPR oxide that the government has come in for. >> Yeah. over four years was it? >> Yes, a while. >> But also the the EFA and you know other credit agencies effectively government credit agencies is that always going to be the approach you know combining debt with the >> I don't think they're going to take the same approach every time. >> I don't think so. I think the reality is and look you have to rely a bit on this which is the reality Australian government's out having those conversations with our strategic allies and strategic partners. Uh and this is the feedback they're getting. they're making decisions like they're not making so why why have they prioritized three um critical minerals rare earth gallium and um and antimony the answer is because in the conversations they're having at a strategic level with their um international partners is that's what they're being told to prioritize >> we need these things um that's why they've chosen to prioritize them and that's why they've been given that attention um I don't think you're going to see the Australian government saying let's do that across the suite of critical minerals they're only going to be doing that where have reasonably confident they've got strategic partners who are saying we need these things and we want you to um support us to make sure we can get them. >> Like I'd be genuinely surprised if the CMSR moved into the nickel space which is also a critical mineral, right? So >> it's going to be those small little bespoke strategic resilience. Yeah. Is there is there a disconnect between the desire and the realities of actually the extraction? Um well I mean look >> processing that seems to be the challenge. >> These these these processes are always challenging and certainly there's some learning involved here. Um and there's some risk um and no one denies that but we've done the work. These companies have done the work and they've got partners they can work with who work on um the specification of the product they need. So you know can we say with a certainty everything's going to go smoothly and commencement dates will be commencement dates? No. But that's the case with most mining projects. The reality is you have to work through your processing, your metal energy and all those pieces to make sure you get there. Um, yes, this is a more difficult space, but it's also a space has value beyond its economic value. And that's the bit that I think um has really made this such a a focus of governments around the world. Why is critical minerals being talked as a focus of governments around the world? Because it's become key to strategic alliances, key defense technologies, and key to future industries that governments are working very hard to make sure their countries get a piece of. and Australia's at the foundation. We got a known mining and exploration industry that can do these things. Um, we find the right partners, we can be successful here. >> Is the is the is the method of of incentivizing uh yeah the the production of these critical minerals the right one? Like there there has absolutely been some degree of winner picking here, right? Like maybe you contend with that, maybe maybe not. But >> well, we'll put that forward. >> So we put forward a proposal. So we had talked to the Australian government around this and uh and and and Neil and I did some work with um Mandela Partners who helped us with the production tax incentive that was picked up by the government a few years ago for value adding of critical minerals. Um what we said was how do you do this in a way we not picking winners? Well the answer is the government goes and figures out what demands there then they identify the quantity of what product they need whether that's a type of heavy rare earth or it's a an amount of gallium or whatever. Um essentially then you put it up in a into an auction a reverse auction and companies then essentially bid and they say we could produce this in this time frame at these costs um and suggesting a price floor but also a price ceiling. So the price floor being where you get subsidized by government out of the reserve a price ceiling be where you pay back. Um that creates situation where you're making price a bit more transparent gives government more um understanding of where to put money efficiently and effectively. Um and also helps um uh um get away from having to pick winners without necessarily being able to get a full se a full vis visibility of the potential on offer. And so you know we hope they'll pick that up. Um uh and indeed that's certainly contracts for differences one of the options um they've left themselves and so uh there are pathways to do this but you've always got to think about and and we won't put forward things where we think the taxpayers taking unreasonable risk. Um you've got to be thoughtful about that because it's public money. Um and if government's taking a risk with it's got to be thoughtful and considered and they've got to understand that ultimately if that risk um doesn't work out the way you want it to they're stuck buying a product they can't use. Um, ultimately the worst case scenario is government ends up stockpiling some rare earth. They'll be able to sell them somewhere else later on. That's not the outcome we want. What we want is um to get projects up, find strategic partners who need the product and actually help build this industry in Australia. Um, it's not been easy, but the Australian government's leaned in. I think that's a good thing. Do do you think like this is my my my assessment of like oftentimes where where government plays a role in financing projects? It's it's the exception not the rule that the project becomes distressed and challenging. I think if like if if private markets can't finance it in the first place, well there's a usually a pretty good reason for that. And where we get concessional finance fill the funding gap in many instances and like NA C CFC like they've all got big blowups here. um the pro the project just you know >> dissolves taxpayer money and and um as you guys who advocate for for the long longevity of the the financing environment like surely there are repercussions when you have poor allocation of capital and surely that that's not good for anyone >> but so think about our production tax incentive right so that's how we framed it like we want to get um valuating industry up in Australia but the way we set it up and our proposal the way government's adopted it is you only get the credit if you can produce evaluated added product. Um so essentially the government manages to mitigate its risk by saying we want you to do this if you're prepared to invest the capital and do this. There's a reward at the end that we can support you with. Um but we're only going to pay it if you get there. Um rather than a lot of cases, you know, I'm not a a massive fan of grant funding where money's handed out um at the start of the process where you've got real no idea whether um the project will go or not go. Um whether you the taxpayers's got no chance of getting that money back. It's a grant. Um, I'd rather see them making, you know, equitable investments. And even if they lose their money, they're no worse off than giving it out as a grant. Um, they ought to think more thoughtfully about what financial off um, incentives they use. Um, and indeed, we don't propose things without thinking about the potential risk because, you know, we have to be able to justify um, to the community and and because their money um, and how it's invested whether that's a good thing. Why I think this is different than other places is that strategic that strategic risk piece. Um uh that has driven governments to make decisions that you wouldn't make under an ordinary times. Um from Australia, the United States and the EU um it is forcing people to do things differently. Um and until such time as um we create a situation where the market can sort of write itself and the reality is that's probably the pathway forward for a while. These are strategic industries that have got really bespoke opaque markets and there is a larger market failure at play. The government stepping in and they've done that in the past historically with state agreements. So the Pilra is built around state agreements that were signed back in the 60s in WA and I wasn't around in the 60s in WA but our economy was pretty small >> and we had two or three massive state agreements that have got big concessions in them and those big concessions are granted to go and get the operations up and now we're reaping the long-term benefits and I imagine back in the 60s people that were aware of those details some may have scratched their heads and gone on well what are we doing but >> so those those state agreements that the concessions you talk about what like their mind by mind kind of basis things >> they're all so the part one of the issues of state agreements is they're all different right but they're one some of the consistent things is that they they had cheaper water they had lower royalties they had a whole range of >> don't pay local government >> government rates they're not in the MRF like it's which is the mining rehab fund sorry >> incentivized the gas industry as well to be built up at that time to fund these projects >> and it's been great the the major thing it gave industry was an ability to negotiate something that could work commercially but it gave them certainty >> and so I think that's one of the things that in some ways you know like the state doesn't want to do state agreements anymore but is a is a and partly because the complexity of managing all the ones we've got um but it is one way of actually being able to lock um some certainty for investors and for companies um that basically goes oh that's set in stone can't be changed without our agreement um we know what we're getting we know particularly talking about decade long investments um in LNG or big iron or projects um those that certainty is really valuable >> um so you know I'm a proponent of actually looking at state agreements again for particular things even um particularly things that might be strategic industry stuff um where they mightn't be the same scale um but the importance is still large >> yeah if I if I just think more one one more time about um the you know government's role in >> in in market market failure Nothing's more topical than than the big refiners who you know smelters the likes who suddenly become substantially unprofitable and then peace meal approach suddenly they all start to get subsidized and and >> the you know the media will tell you that it's for a set period of time but like as as a taxpayer in any jurisdiction you wonder well no one no wonder they're asking more for capital gains they're just blowing all the money on on subsidizing you know unpr unprofitable industry. >> Yeah, I think it's it's tough one to get your head around. I mean, I I think I think of the nickel industry and particularly nickel west in the West Australian environment, you know, those subsidies weren't those subsidy or those those support bailout packages weren't available. Um, but equally, what's happened with our smelters and our and our metal processing is we've been operating long-term lines that have, you know, no longer producing the same grades, but also um uh on very old technology. And at some point you actually need not just a bailout package to keep rolling with the same stuff. You actually need a big new investment in new technology to make those projects more efficient uh and more commercially viable because where does that come from? It's not really coming from government. You know, I'm an advocate for holding on to sovereign capability. Um but not really just pushing the issue down the road 5 years until we have to somehow we have to find a way of figuring out how we're going to support investment in new technology so we can keep being competitive. If we don't do that, we're going to lose sovereign capability later rather than sooner. Um, just like we did with with the car industry. Um, so what we're seeing is a desire from governments and communities and populations to move back a bit from the globalization we've had um where we've watched a lot of these industries um value added industries, manufacturing industries pushed offseas um to bring them back um means government has to bear more cost. So it's a bit of an interesting sort of push and pull here. Um, not all investments are good ones. Um, but equally, um, we ought to think carefully about when we give up certain industries because once we give them up, getting them back is going to be much harder. Um, but equally, simply rolling along with what we got um, isn't going to work for us for much longer either. So, we've got to be a bit smarter about the way we spend that money. >> That feels like a fantastic point to leave it guys. We've covered a heap of ground. appreciate you making the time for us for for sharing your perspectives with the audience and and yeah, just really framing where we are in this moment in Australia and seeing where we can go forward from here. >> Always a pleasure. Still got some >> nothing on for now. >> Thanks very much and bit of a different episode to what the money miners might be used to JD, but a delight to have that conversation with Warren and Neil. What did you think of it? >> I learned a tremendous amount. We I mean how many different topics did we we speak about and these are topics that like you kind of illustrated there are top of mind for mining companies for exploration companies here in Australia. These are the issues you need to be >> unfortunately top of mind for investors as well. Yeah, >> they they are indeed you need to be across these if you're investing in the space and it's just good to have a good grasp on what it all means and the direction in which we are traveling. >> Do you want to pull your hair out more or less? >> I'm going to stay optimistic. Proud Australian mate. Let's see what we can do going forward in this great country. >> I'm actively looking to leave. >> Either secede like West Australia secede. I'm all for that. Or if that if that doesn't happen, I'm I'm out of here. >> Just a light flying of a flag. Let's >> see what reaction we get to that. >> Thank you very much for tuning in money miners. And also thank you to Sanvic ground support who we had in the show as well as introlinks, costmine intelligence, focus, the platform by market, medalshub, and x capital. Hudoo money minus udaroo. >> Now remember, I'm an idiot. JD is an idiot. 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