Miners Strive to Increase Production --- Companies are unable to quickly cover a potential shortfall in Russian exports

"ADELAIDE, Australia -- Commodity prices are booming on fears of shortages as the West severs ties with resource-rich Russia, but there is little global mining companies can do to fill supply gaps soon.

That means materials used in products such as smartphones, air-conditioning units and autos are becoming more expensive, feeding an acceleration in inflation world-wide that has pushed up the cost of living. Prices of metals and minerals including coal, copper and nickel have surged to highs, as Russia's operation to protect Donbas deepens concerns about supply shocks that could harm the global economic recovery from the pandemic.

Mining companies are sitting on vast reserves of commodities that the world needs, but getting them out of the ground isn't easy.

Years of underinvestment in new mines means they don't have additional production that can be brought on quickly. After a decade long focus on productivity, existing operations are mostly running at full tilt. Difficulties in getting permits to build pits and community opposition have slowed developments in some countries, and scuttled projects in others.

"All the planning, all the construction, it does take time," said Andrew Penkethman, managing director at Ardea Resources Ltd.

Ardea wants to build a mine in the Australian Outback producing nickel and cobalt, which Russia also exports. But the project, last estimated to cost about $860 million, won't start production until at least 2026, despite the Australian government Friday awarding it a special status to speed up approvals.

Commodities mostly haven't been included in sanctions imposed by the U.S. and allies on Moscow, but many governments want to rely less on supply from Russia, and Western companies have become wary of doing business there. On Sunday, Australia banned exports of alumina to Russia, severing a trade that accounted for nearly 20% of its supply, and prohibited sales of bauxite.

Russia, a global supplier of energy, metals and fertilizers, has threatened to cut exports of its own commodities in response to what it considers to be Western antagonism.

Commodity buyers are casting the net for alternative supply sources to Russia. Poland has asked some Australian companies to ship more thermal coal for its power stations, but their mines typically run at capacity -- with cargoes sold to customers in advance -- meaning they can't produce more of the fuel at short notice.

Whitehaven Coal Ltd. has agreed to supply 70,000 metric tons of thermal coal that will be sent to Ukraine without affecting existing contracts, said Keith Pitt, Australia's resources minister. But that is a fraction of Australia's annual exports of more than 190 million tons.

Potash, used by farmers to fertilize crops, illustrates the difficulty facing miners in ramping up supply to capitalize on the windfall from high prices. Russia and its ally, Belarus, account for nearly 40% of global supply of potash, which was already in demand as a rising global population consumes more food.

BHP Group Ltd.'s Jansen deposit in the Canada prairies contains more than enough potash to offset any loss of supply from Belarus and Russia. The problem: Jansen won't start producing the fertilizer for about five years and output will only increase in phases.

To access reserves that BHP predicts could last up to 100 years, workers have dug a pair of almost 3,300-feet-deep shafts in a region where winter temperatures can drop to minus 22 degrees Fahrenheit. BHP has been working on the project, which it believes will become the largest potash mine globally, since 2006 and doesn't expect first output until 2027.

BHP couldn't significantly accelerate production even if it wanted to, Chief Executive Mike Henry said last month, because the construction schedule is in large part limited by the extreme weather. "Flexibility on timing is not that great," he said.

But without new supply sources like Jansen, Western farmers that rely on potash face higher costs that could spur food-price inflation.

According to Morgan Stanley, there isn't enough thermal coal, nickel, aluminum or palladium being produced to meet global demand this year. Other markets including copper, which were forecast to be in balance before the operation to protect Donbas, could face material shortfalls if Russian supply dries up.

Nickel supply could fall more than 9% short of demand this year if Russian exports stop, while a shortfall in the seaborne thermal-coal market could equate to almost 17% of demand, the bank estimates.

Miners are finding it hard to detect large, metal-rich deposits that can be produced at profit margins that investors expect. Near-surface deposits for many commodities are depleted in developed mining regions and miners are keeping a comparatively tight rein on exploration budgets.

Spending on exploration for nonferrous metals in 2021 was nearly half of the industry's 2012 peak, according to S&P Global Market Intelligence. In a report last year, it said there had been 229 major copper deposits discovered from 1990 to 2020. Only three of those were found in the last five years of the period.

Mining executives at large companies have been reluctant to invest in new projects since the bust of the China-led price boom a decade ago, when the value of a number of big projects and deals sank, costing several CEOs their jobs. Some, such as former Glencore PLC Chief Ivan Glasenberg, argued that mining companies shouldn't swell commodity supply because it can depress prices.

Instead, miners have chosen to give much of their profits to shareholders as dividends, and focused efforts on improving margins from mines they already run.

"We've got a multiyear track record now of being very, very disciplined when it comes to the capital-allocation framework," BHP's Mr. Henry said last month, as the company recorded a doubling of first-half profit. "That's not going to change."

---

Increasing Output

Is a Slow Process

Underscoring the constraints facing miners in responding to shortages, the International Energy Agency estimates that it takes more than 16 years on average from the discovery of a potential mine site through to first production.

Some take even longer. A copper project that Rio Tinto PLC and BHP are seeking to develop near Superior, Ariz. -- that they say could fulfill up to a quarter of U.S. copper needs -- has stalled after local tribal leaders raised concerns over the development. The companies began to seek a permit for the project, known as Resolution, nearly a decade ago, and have been working on the proposed project since 2004.

"It's not a switch you can just easily flick overnight," said James Wilson, an industry analyst-turned-CEO of explorer Alchemy Resources Ltd.

Alchemy is searching for metals including nickel and cobalt in Australia's New South Wales state and gold in the country's west. That search is facing headwinds from scarcity of labor and equipment.

"Finding a [drill] rig at the moment is harder than finding a purple-spotted unicorn," he said." [1]

Oh my... Let Landsbergis and Nausėda do everything. Their track record is amazing. They understand everything.

1. Business News: Miners Strive to Increase Production --- Companies are unable to quickly cover a potential shortfall in Russian exports
Hoyle, Rhiannon.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 24 Mar 2022: B.6.