Business News - WA
Mark My Words October 11 2024
(upbeat music) - All the latest business news from WA. Mark my words, your weekly news briefing. - Welcome to Mark my words. I'm Mark Byer joined by Mark Panel. This week we're discussing Rio Tinto and Arcadium Lithium, niche living, the Perth Convention and Exhibition Centre, Nickel West, Hancock Prospecting, the Outlook for Resource Projects, and some of our big magazine features on residential builders, fund managers, and an intriguing WA tech company. - Yeah, look, there's a nice little one to end on there. We'll get to that in about half an hour. So Mark, Rio is buying Arcadium, almost 10 billion. What does that mean for Lithium? - Yeah, so look, well, I guess for one, one of the biggest deals we've seen in the resource sector for some time, and Rio being very upfront saying this is a counter cyclical move. Now Arcadium was only created at the start of the year. That was from a merger of a couple of other, an Australian Lithium company and a US-based Lithium company, most of its assets in Argentina. They're a company with a large resource base and fairly significant production, but like every other Lithium producer, share price has been smashed over the past year as the Lithium price has collapsed. In fact, Arcadium's probably fallen more than most. Hence, the big opportunity for Rio. They have been endeavoring to build up their own Lithium business bit by bit. They've had some setbacks. They had a very promising project in Serbia. - Serbia, yeah. - Which got blocked. - JDR, JDR project. A lot of community opposition there and blocked by the government. They've got another one in Argentina, the Rincon project, which they've been developing. But with the, at the cost of $10 billion cash, they can just move right in and instantly become a big player in Lithium. - Was there some speculation they might have a crack at Albemarle as well? Was that sort of talked about or not? - Oh, I haven't seen much on that one. - Okay. - No. - 'Cause I think Albemarle's also been a bit, you know, cutting back and we talked about it the last couple of weeks. So, you know, I guess there's lots of things that become in play, don't they, when the market's a bit like this? - Yeah, I guess though, normally the target company will say you're just being opportunistic, you know, lodging a bid at the low point in the market. And they'll try to fend off the takeover offer. In this case, the Arcadian board, which chaired by Perth-based Peter Coleman, former boss at Woodside Energy, they said, look, it's a fair price. And for the shareholders, well, do you want to be a shareholder in a company with an uncertain outlook? Would you just want cold hard cash? - Yep. - And they're saying, just take the cash and move on and leave all the risk and all the challenges to Rio Tinto. - Yes. - And it's shareholders. Now, Rio's view, they achieve executive Jakob Stalshom. He said, look, we've got the scale, we've got the development capability, we've got the financial strength, so we can actually realise that full potential there. And this might be words that might come back to haunt him. We're making the purchase at the right point in the cycle. So here's predicting a shortage of lithium, not until 2040, but that's sort of a long view that they're taking. - So there's no operating assets within this group? - No, no, Arcadium does have some operating lines. Argentina and also in Canada have got some assets, but really it's about the growth potential about developing their assets and building more production capacity. - And then, I guess, thinking back, what does that mean for lithium, Mark? What is it actually telling us? What is the rest of the lithium stocks done on the back of this one? - Look, there was a short term kick to some of the other lithium stocks. It's about saying, well, do you believe all the experts at Rio Tinto and their view that there is this topic we've talked about many times, there'll be this sustained long-term, well, maybe not sustained volatile, but long-term growth in demand for lithium, and that we're gonna need a lot more lithium in 10, 15 years than we're currently producing. - Okay. - So if you're a patient, it should pay off. That's the view. - It doesn't usually get stock markets excited, does it? - Well, that's right. It's a long-term play here. But Rio, they're obviously looking to diversify a bit more, like all the big miners. They've been, iron ore's been good, and incidentally, iron ore prices back up north of a hundred US dollars a ton. - Yeah, I know. - All those predictions that it was gonna collapse and go down to 80 or lower. Bit of China stimulus, it's done wonders for the iron ore price. - Yes. - So that keeps on keeping on, but like BHP and others, they want to diversify. They look at things like lithium, they look at copper, other commodities they want to be into. - And, well, you mentioned iron ore, and it's, you know, that will flow through to the state government, giving it plenty of funds to do things like throw a $40 million lifeline to the customers who have embattled niche living. It's not a bailout for directors, though. - That's right. So, niche living, I guess, best known as a developer of medium-density apartments and townhouses. Been around for quite some time, but been under financial pressure for quite some time as well. The Building Services Board actually axed niche living's registration as a builder back in July. And that was seen as an opportunity. There's about 200 customers out there who've got half-built homes. With the cancellation of their registration, that would have allowed them to go and make a claim under the Building Services indemnity insurance and find someone else to finish their home. Niche living went off to the state administrative tribunal and successfully argued for a stay on the axing of their registration. But the state government sat down with them and has done a deal, and niche living has decided to drop that appeal, which will allow people to go out and lodge a claim. State government is tipping in up to $200,000 per claim, so a significant contribution. So collectively, it could be up to $40 million. - Yeah, yeah. - The penalty for the directors of niche living, so that's Ronnie Michelle El-Harge and Paul Bitdorf. They've been banned from being a registered building contractor for 10 years, but a lot of people are saying, "Is that all?" Michael McGowan, State Director of the Housing Industry Association, he was very critical of the state government stance on this. The HIA are, quote, "extremely disappointed "that the state government has instructed QBE "not to pursue niche living "for the home indemnity insurance costs "that will be provided to consumers." Now, Michael McGowan points out, many other builders out there, they've been working really hard to get through these challenging market conditions. People have been selling houses, other assets, just to keep their business afloat. He said they've got to go through a rigorous process with QBE to get their indemnity insurance, and yet, a business like niche living leaves a lot of people in the lurch. It's been years, this has been dragging on, and it would appear that the two directors can walk away with the only effective penalty being, you can't get back into the building game. - Is that too big to fail kind of attitude, is it, do you think? - Oh, look, I think the government's motive was, they just want to get a deal done for the benefit of the consumers, and presumably, this was part of the, one of the bargaining chips for the directors. Said, "We'll agree to it "as long as you don't come after us." And the government, evidently, agreed with that. - Yeah, and they've got an election coming, I suppose, so maybe that, because it's been, you know, in the media a lot, hasn't it, niche living? - It certainly has been, yeah. - Yeah, yes, and I think this is a hangover, Mark, we didn't really say this, but I mean, hopefully everyone kind of remembers, we've had a lot of other building issues out there, because hangover from COVID, where I think there was a lot of stimulus, especially from the state government, to get building going, to make sure that we didn't have a downturn as a result of the COVID shutdowns and lockdowns, and what that did was actually overstimulated the market, and I think niche living were part of that, they kind of sold double what they would have expected or what people would have expected of them, and then the problem was there wasn't the material, there wasn't the labor to get these buildings done, they're not alone in this, but they seem to have, yeah, I don't know, had a, they didn't seem to have found a way out of it, like some of the other builders, does that be a fair kind of comment? - Well, but also, I think the fact that they appealed against their deregistration as a builder, you know, that certainly surprised me, and surprised a lot of other people, you know, surely at that point, they'd say, okay, the game's over, you know, we clearly don't have the capacity to keep this business going. - Yes. - But they fought tooth and nail to try and keep the business alive, where everyone else had reached the opposite conclusion, that there was no future. - All right, well, we'll see how it all pans out. Now, speaking of state funding, the state government has also promised nearly 17 million as part of a planning, as part of planning, sorry, to upgrade the privately owned Perth Convention and Exhibition Centre. - Yeah, so Premier Roger Cook made this announcement, not surprisingly, while there was a major international tourism conference in Perth, which incidentally was being hosted at Crown, because that was evidently seen as a more attractive venue, when we've got this purpose-built Convention Centre on the doorstep of the city, and they got beaten to the punch for this very prestigious conference by the competitors on the other side of the river. - Yeah. - But there's been talk for a long while now about an upgrade and expansion and improvement at the Convention Centre. Now, leased by Wiley Group and Brookfield Properties, they've got a 40-year lease that runs through until 2039, and the government's tipping in, well, a very substantial amount of money for what they're calling the Project Definition Phase. So $16.6 million to do, I assume, a really detailed analysis of exactly what can we do with the PCAC. There were some very pretty drawings that were released early this year. Things like the Convention Centre reaching out over the river. Lots of people, hospitality venues, that sort of vibrant riverfront precinct. That was the pretty picture. I guess they're now gonna go on and do some really serious work and say, well, can we actually achieve that vision? Roger Cook certainly talked about the potential here. The redevelopment can, quote, showcase King's Park and the Swan River while providing new waterfront facilities, housing, tourism and hospitality venues, and thousands of new jobs. He's set the bar pretty high there for what he's hoping to achieve with this. So it's sort of Elizabeth K Mark II, in a way, is it? You could think about it in that way. Yeah. Look, I guess at a base level, business tourism is seen as a lucrative part of the market. People throw out these numbers that say, business tourists typically spend about five times more than the average tourist. So if you can get these big international or interstate conventions coming to Perth, that's a good thing for the local economy. I don't think anybody would dispute that. But how much more you can sort of build around that. Well, good for the government to sort of do some detailed work here and analyze the opportunity. Yeah, I mean, it's surprising, isn't it, Mark? This is the convention center built. Well, that's, looks like 25 years ago, if we get our numbers right there, you know, and I think all of us would say they probably got a few things wrong in the sense that it doesn't quite take advantage of its position by the river. And then you've got Elizabeth Kees growing up next to it. And yet the two things don't link well. You've got a pretty much a chemozzle of a road system running between those and between Elizabeth K and the rest of the city. It's a bit of a shocker. So I suspect a lot of that planning money must be around trying to re-engineer that whole precinct and the traffic plan there as well. And I think one of the ideas that people have talked about is actually building over the top of the road. So rather than blocking them or replacing them, maybe perhaps sink them a bit, but certainly build over the top of them. And then that would actually, yeah, get a direct link between Elizabeth Key and the Convention Centre and a direct link with the river as well. - Yeah, well, it'd be a big change. And yeah, funny that they didn't think of that back then. Always easy and hindsight, isn't it? But I don't think anyone was astounded by that Convention Centre development. I think it's been, you know, the fact that they're looking at redoing it in 20 within 25 years says they didn't quite get it right to my mind. Now Mark, BHP has started finding jobs for Nickel West workers. - Yep, so look, we've been reporting on a whole bunch of mining and resources projects that have shut down or about to shut down NWA this year. And of something like 9,000 jobs being lost as a result of it, a lot of those shut downs came with, or some of them came with promises that workers would be redeployed. So we've got an interesting case study here about what happens in this case. So BHP is Nickel West Business. Total workforce to about three and a half thousand. That's everything from sort of mines out in the gold fields, shoot away Nickel refinery at Quanana and other processing plants in between. About 30% of the Nickel workforce have taken up redundancy offers. - Right. - So I guess people who've been in that industry for, well, enough money to retire on. - Well, I think we saw some interviews that people had worked at Nickel West for 30 and 40 years that way, I mean, you know, it's been going since the 70s and some people have been there since, you know, they're almost those times. - Yep. So 30% taking redundancy. About 700 have been redeployed in other parts of BHP's business and you would assume primarily the iron ore operations up in the Pilbara and potentially jobs in Perth. They're still keeping about 400 jobs because they've always said, they're gonna keep the operation on care and maintenance. And that's part of the nature of the assets. You know, things like refineries and smelters. If you shut them down and walk away, very hard to restart them. So keeping them on care and maintenance so that in two or three years time, they're gonna review the situation and potentially restart. - Flicker swetching, it all works again. - And it, well, and it worth mentioning, they said they're gonna be spending about $450 million per year just to keep the assets on care and maintenance. - The standing, isn't it? - So that's a very big investment in itself. But also BHP's acknowledged. They've got more work to do to find jobs for everyone that'll be displaced by the Nickel West shutdown. They've actually held, well, I've got a community fund that they're gonna put in place in Calgouli and Lenster. And they're working on putting that in place. They've actually hosted job fairs up in again, Calgouli and Lenster. So saying, look, if we can't get you a job, maybe there's someone else in town that can give you a job. So certainly endeavoring to do the right thing in this scenario. - I think it's worth just reminding listeners about the history there, you know, BHP. Nickel West was that orphan asset that BHP was trying to flog. How long ago was that? Seven or eight, nine, 10 years ago. - When they were setting up South 32. - Yeah, right. - And South 32 didn't want it. - Yep, so there you go. And then they put in some kind of, well, I think it got a spark of very good management who wrestled with the concept of the costs and made it work just as Nickel started to take off as a battery mineral or a critical mineral. And for a while there, it was a bit of the star in the BHP portfolio, but it's waned and it's where it's at now. And you just wonder whether BHP might have been smarter 10 years ago to have got rid of it. - Yeah, look, I remember going to the official opening of the upgraded Nickel refinery at Quanana where they invested in producing a more refined product that was going to suit the battery market. And yeah, that was not all that long ago. So these things can change very dramatically. - No, too right. And then Mark, just sticking with that, the resources sector, Hancock prospecting has scaled back a planned iron ore mine. - Yeah, so General Reinhardt's company, they've got about four to five projects sort of on the go that they're doing studies on, primarily iron ore mines and the related infrastructure. And they're a good case study on some of the challenges that you encounter trying to develop a new project. So one of them is the Mulga Downs iron ore mine up in the Pilbara. This has been earmarked as a 20 million tonne per annum iron ore mine, which in the scheme of things isn't particularly big, but it's very substantial. The WA Environmental Protection Authority published updates during the week where they consented to changes to the project. And most notably, a dramatic sort of scaling down in the scale of what's going to be done there. So output has gone from 20 million tons per year down to 12. And what they've also done is substantially, in fact, halved the amount of land that will be disturbed as part of this development. They've removed two of the proposed mining pits. They've changed the processing approach that they're going to be using there on the tailing storage. So the EPA from their side, say, well, lots of benefits here. Less impact on flora and fauna. Less impact on Aboriginal cultural heritage. Less impact on ground water. But it also means you've got a mining project that's a lot smaller than Hancock had been hoping. And therefore, a lot less jobs as well. Less jobs, less taxes, less revenue for the company. Yeah, so again, as I say, it's one of these good case studies. Gina Reinhart, of course, has been a very vocal critic of the amount of red tape that the company has to go through. She gets very frustrated by all this. The other example, it was only a month or so ago that Hancock got final approval for their McPhee Creek mine. They were waiting three and a half years for the final environmental approval from the federal government. Now, again, that's an even smaller nine, about 10 million tons a year. It was using existing processing infrastructure, existing rail, existing port, not a big impact, but it took three and a half years to get that federal approval. Yeah, it's crazy. All right, and that's all those layers of, well, you said it, green tape, red tape, sitting on top of the company, sort of trying to get things going. And of course, that's when you start missing the boat. And I know we've said iron was recovered, but you don't really want to have that doubt. You want to have your mine up and running when you've got the capital to fund it and when the price is right. Now, Mark, that brings us to next week's magazine and you have an article on the porosity of resources projects. Well, yeah, look, we'd been talking about all these closures, but then at the same time, I was just, you know, normally we see this regular flow of announcements about new projects coming through. And it struck me of, wow, we haven't seen much this year. And in fact, I went back and did a careful look. There's only one major resource project that's been sanctioned in Western Australia this year. That's the Western Ridge Crusher. It's a BHP project, one and a half billion. This is one that's basically a new mining pit to replace one of the old pits that will be exhausted. And that's it, only one. And, you know, in a jurisdiction like Western Australia, that's really unusual. And I then looked at, well, what's the pipeline of future projects? We've already spoken about Hancock prospecting and the issues that they're encountering and several other projects. Rio Tinto, you know, they've been battling away, trying to get approvals for their next phase of mining projects. And they've admitted that some of them, they're battling to hit their deadlines. You might remember, there was a lot of discussion about building a new shipping berth at Port Headland at Southwest Creek. It was three years ago that Hancock and mineral resources got together to form a joint venture. And they won the right to build that new shipping berth. Well, they're still going through the approvals process for that. You know, at the time, people said, you know, they were itching to get ahead with the project. No progress there. I mean, look, there's a couple of big gold projects, you know, degree mining. They've got their big mine proposal up in the Pilbara. There's some salt projects, you know, some of these iron ore ones will come through. But all in all, it's a pretty thin pipeline. It's not what it was. Yeah, yeah. And that obviously flows right through to job opportunities, contracting opportunities and so on. Yeah, okay. I mean, again, there's a theme here, Mark, isn't it? Things are taking too long and they're getting too expensive. And look, they're getting, there are added costs beyond delay. So just, you know, it's not entirely due to government, you know, intervention. But as you said before, it's at a time when commodity prices are a bit more, a bit softer, a bit more volatile. So people want to be able to seize the opportunity when the market is right. Yes, and it's, and because otherwise you're right, once it gets a bit too, people get to be cautious, they'll just delay that process. And it becomes a company decision to delay it, rather than they might blame regulation for that. But it probably some, at some point becomes hard. This is too hard for now. Now, sticking with the magazine, Claire Terrell has a special report on residential builders. Yep, so on the front cover, we've got Anthony Silvestro, Chief Executive of Home Group and Blueprint Homes. They're the number one residential builder in Western Australia. We talked about them just a couple of weeks ago, didn't we, because they emerged sort of all? It feels like out of nowhere. It's not quite, but it feels that way, doesn't it? Yeah, no, look, they've just been quietly building up, privately owned, family owned business. And look, I've never seen Anthony Silvestro profile or interviewed before. So, great that Claire got to have a talk to him. Very substantial business, about 500 employees, about 3,000 subbies. Anthony says, yes, they've grown very substantially over the past couple of years. Here's a couple of good quotes from him, though. At the end of the day, building homes and building companies is about consistency. We've just strived to be consistent with what we're putting down and what we're completing. So, a few other builders should have taken heed of that kind of advice. Claire also caught up with Dale Orcock from ABN Group and Dale Orcock Homes. Yeah, they've had a pretty volatile time as well. But, you know, he's come around, you know, he said, "We're very much selling within our means "and making sure we're well resourced to deliver that outcome." But still says, number one issue, finding skilled staff. Yep. Well, that'll be a good one to read. And then, also, we had a special report on fund management. Yeah, so, look, this is a sector that we've been covering quite in depth for a number of years. And, in fact, you got right into this one yourself, Mark. I did. And talk to people like the folks at Vi Burnham, Marshall Allen and Co. Willie Packer at Packer and Co. Resource Capital Funds. Iberia Capital, 10 Mile. They're some of the names that feature here. That's right. Yeah, look, it's a little fascinating. It's a neglected mix, I think, Mark. It's not a sector that has a lot of scale in WA, I think, would be a fair comment. And, apart from GESP, which, you know, is, I think, can't recall, it's about 3 billion or 4 billion more in management, funds under management this year than it had last year, which is effectively, you know, the difference. That represents 60% of the top 20 fund managers in one go, you know? So, if you take them out of the picture, pretty much, you know, I'd call it sort of a traditional industry fund in a way, although it is a state government one. The rest, there's a good deal of property funds in there. Land developers sit at the top. But then you've got, you know, Willie Packer, you've got resource capital funds that are really into... Well, specialist areas, I think. I mean, Willie takes some unusual stances around a kind of geo-strategic kind of look. And, you know, his investigative trust seems to have bounced back this year. He's got a lot more funds than he had. He's got a couple hundred million more funds than he had last year from recollection. Resource capital funds is actually a bit smaller, but they... I think they, you know, they have those closed-end funds, which they then got to go and raise more money. Interesting couple of points, three funds that do that sort of private equity kind of stuff, like resource capital funds. Vibernum, half of Vibernum is private equity and Iberia, which you mentioned. They all raise their money for those... Well, they're all resources focused and they're all raising their money out of the US. So, you know, that's a... And they're not really, you know, round... Got the hat around in Perth, despite all the funds that are here. So, they're starting to look a bit more at that, especially resource capital funds, I think. So, yeah, pretty fascinating sector. But, you know, apart from Cottoslow, where there all, you know, it seemed to be a lot of them down there, it's not something that I think the rest of Perth has a lot to do with. That's what I would say. Okay. And then, finally, Tom Zahnmaier has a piece on an intriguing WA tech company, G.O. Moby. Yeah, look, this is a company that appears to be getting some real traction after many years of development. So, the founder, Chris Baudier. Effectively, it's a software platform which enables people on mine sites to track the location of everything from a first aid kit to a haul truck or your people. Yes, uses Bluetooth technology rather than Wi-Fi, which sort of suits the circumstance, you know, remote mine sites, underground mine sites. Yes, and I think especially underground, I think that's one of the most important areas. Yeah, and look, just hit a milestone. FMR resources privately held gold miner with operations out near Norseman. They've been operating out there for about a year, built a nice track record and got a long-term contract out there. So, nice little profile there of an up-and-coming tech firm. Yeah, I mean, I met Chris quite a few years ago. And my memory of it was he and his partner, they were backpackers, you know, camp-evanding their way around the country. And he was a bit of a tech guy, but they decided it was very difficult to let people know where they were and to find where other people were in remote WA. So he did a bit of tech playing around to come up with a solution for that. And it's morphed into something for the resources sector. So just the kind of innovation that we like to see that suited specifically for our environment here and also an add-on to the mining sector, which no doubt, you know, well, hopefully for them has some opportunity to take it a lot further. Yeah, good story. And improving safety at the same time, very, very into that. Well, thanks for that, Mark. And to our listeners, thanks for tuning in. I hope you've enjoyed this podcast and have a great weekend. The latest business news, Deliver Daily. Subscribe and rate the show wherever you listen to your podcast. For all the latest business news, visit businessnews.com.au. [MUSIC] [BLANK_AUDIO]