As Australia’s major resource companies like BHP and Rio Tinto vote with their feet by diverting the great bulk of their multi-billion-dollar capital expenditure anywhere but in Australia (apart from the necessary costly replacement of mined-out Pilbara iron ore deposits and a long-awaited South Australian copper project upgrade), financial advisory firm BDO last week warned that the Australian exploration sector faces unprecedented challenges amidst declining investment. This is a ‘significant downturn with key indicators such as capital raising, exploration expenditure, and company cash reserves all showing marked declines’. This followed a similar, if more muted, message in the latest edition of the government’s Resources and Energy Quarterly of significant declines in resource funding and exploration. While the Albanese government has created  a resource funding environment that is seen as ‘unhelpful’, (despite the economy’s dependence on mineral and energy exports) foreign governments, particularly in the Americas and Africa, are welcoming Australian investment in resource exploration and development.

According to BDO, capital raising efforts by Australian resource companies have dwindled, exploration expenditure has fallen to the lowest total since June 2021 and the average cash balance held by explorers has also decreased, indicating a trend of capital discipline and cautious expenditure. ‘The sharp decline in capital raising and exploration expenditure signals a broader trend of investor caution and market uncertainty. While gold remains resilient, other sectors are struggling. The elimination in the budget of supportive policies like the Junior Minerals Exploration Incentive adds to the difficulties faced by explorers, leaving the outlook for the exploration sector uncertain, with ongoing challenges in capital raising and investment activity.’

The official Resources and Energy Quarterly also reports that apart from iron ore and uranium, annual exploration expenditure across all mineral categories fell last year, with even copper – the government-encouraged ‘strategic’ metal and ‘one of the most indispensable elements in the global energy transition’ – down by 19 per cent. Things are worse in projects underway, with greenfield exploration activity (measured by metres drilled) falling by 40 per cent from a peak in 2021, while brownfield has declined by 22 per cent. This is blamed partly on increased exploration costs as average expenditure per metre drilled has increased in real terms by 31 per cent since 2021.

‘Tightened financial conditions and economic uncertainty have also reduced investment flows into the exploration sector – particularly for junior mineral exploration companies, and greenfield exploration (which is higher risk).’

None of this is good news for Australia, which, while it is number two in the world for copper reserves is only eighth in production, yet ‘sits at the heart of the clean energy revolution’. The International Energy Agency, states that meeting global climate targets will require a doubling of demand for copper, already the third most widely used metal after iron and aluminium, by 2040 – a scale of growth unprecedented in the metal’s production history. So what action will the net-zero obsessed Albanese government take to ensure Australia pulls its weight in supplying climate-saving copper? The government is forecasting that increased production and higher prices will lift this year’s Australian copper exports of an estimated $14.6 billion to reach $18 billion by the end of the decade.

But it is not off to a good start. In a couple of weeks there will be a further (if only temporary) output fall with the closure of Australia’s second-largest copper mine at Mount Isa, with a question mark over the future of its smelter and refinery. This follows the June announcement of Rio Tinto and BHP planning to spend very big on copper – but in the Americas, not Australia. And friendly foreign governments were a big factor.

In what has the potential to be the biggest of BHP’s increasing portfolio of American copper projects and ultimately North America’s largest copper producer, this month the Rio Tinto-BHP (55/45) joint venture at the Resolution mine in the Arizona desert received federal environmental approval after the US Supreme Court rejected an appeal against it. The project, on which more than $US 2 billion has already been invested, had been helped along by being selected by President Trump under an executive order for fast-tracked federal permitting aimed at boosting domestic mineral production and reducing foreign dependence. ‘The Resolution Copper mine is vital to securing America’s energy future, infrastructure needs and national defence’, with the mine containing more than 18 million tonnes of copper, ‘enough to meet up to 25 per cent of future US copper demand, in an orebody more than 2,000 metres below the surface’.

For BHP to take this major step in developing one of the world’s largest undeveloped copper resources, represents returning to the scene of the financial disaster three decades ago of BHP’s  acquisition of the historic Magma copper mine for $3.2 billion, all of which was lost as the mine closed, BHP’s financial status wobbled and BHP’s top heads all rolled. In its joint venture with Rio, ironically BHP once again owns 45 per cent of the Magma mine site which is now controlled by Resolution whose proposed development is within the old Magma footprint. The saga of what might have been three decades ago is being transformed in BHP’s determination to be a copper giant.

This focus on copper, rather than the government-sponsored ‘critical minerals’ of the energy transition, led BHP on a search for ‘tier-one’ copper opportunities with a long lifespan. It prompted last year’s unsuccessful takeover bid for Anglo American with its rich copper portfolio, and has led to a series of acquisitions and joint ventures such as Oz Minerals in Australia two years ago, but focussed this year in the Americas. Mainly in South America, BHP’s existing mines already provide 80 per cent of BHP’s copper revenue of $US18.6 billion – still well below BHP’s iron ore revenue of $28 billion.

But plans are for a further narrowing of this gap, partly by spending $14 billion on BHP’s long-standing Chilean operations, particularly its majority ownership in the Escondida mine – the world’s largest producer of copper concentrates and cathodes – along with its Pampa Norte and Antamina mines. And in January, it spent $4.5 billion acquiring a half-interest in another Chilean copper project Filo del Sol. This also involves a joint venture in the Josemaria prospect in Argentina which, the Australian Financial Review reported last month, is now shown to contain at least five times more copper than was thought and is seen as a potentially major mine. In contrast to the delays of up to 17 years in getting projects off the ground in Australia, particularly through green tape and environmentalist lawfare, BHP’s Ken Henry has acknowledged that his enthusiastic investment in Argentina was influenced by the ‘positive package’ of the Argentinian government which ‘is very focused on its efforts to attract capital investment’.

Meanwhile, the Albanese government spends millions of taxpayers’ money funding activist lawfare against those resource projects that manage to survive the delays and costs of governmental green tape along with industrial relations hurdles. And it wonders why resource exploration and development is in decline.