Bill the builder warns of more cost blowouts, delays as underground skills shortage bites hard

Australia’s underground mining guru Bill Beament has delivered a timely warning that the skills shortage has reached crisis levels.

It’s timely because December quarterly reporting is underway and there could be some nasty surprises on the underground development and production front on top of the yet-to-fully-dissipate inflation front.

Best known for his underground mining days early in his career and then his conversion of Northern Star (NST) from penny dreadful to Australia’s number two gold producer with a $14 billion market cap, Beament now heads up Develop (DVP).

Develop is pursuing a hybrid model of mining services and battery metals project development and was mentioned here last August when it was trading at $2.59. It is now 36% higher at $3.50, so the model is working.

Now it’s obvious that a company with a mining services business would sound the alarm on a skill shortage that it stands to benefit from. But given his guru status, Beament’s crisis warning comes as free advice to investors to be on the alert.

Delays and cost blowouts in underground developments and production shortfalls can give companies an almighty share price whack that can take ages to recover from. So thanks to Beament, we’ve all be warned.

Beament said that there was a chronic shortage of first-class underground mining specialists, with the impact of the shortage yet to be fully recognised.

“I have no doubt that the current quarterly reporting season and beyond will provide an alarming insight into the harsh toll it is taking on costs and schedules of underground projects in both the development and operational stages,” Beament warned in Develop’s December quarterly.

“The situation across the industry has already reached crisis point in respect to costs and timetables and it is hard to see how it won’t get worse.’’

As reflected in Develop’s strong share performance since August when Beament first shone a light on his plans for Develop, the skills shortage is a competitive advantage for the company, not just at its own future mine developments (Woodlawn in NSW and Sulphur Springs in WA), but in work its mining services division does for others.

The first major underground contract pick up for Develop was at Bellevue’s (BGL) namesake gold mine development in WA where first production is due later this year. Development rates at the project are running well ahead of schedule, with Develop pulling in $14.1m in contract revenue in the December quarter, up 55% on the September quarter.

Develop’s stellar performance at Bellevue is as good a recommendation for its mining services business as there could be, and it will no doubt lead to it securing new contracts out there for both development and production work.

None of that happens without the right people. And thanks to Beament’s reputation, securing the right people has not been a problem, much to the chagrin of the companies and contractors he has been raiding to secure the best in manager and operator talent.

“We are now in an extremely enviable position where we have the skills and experience needed to continue advancing Woodlawn and Sulphur Springs as well as being able to offer much-needed specialists to underground assets owned by others,” Beament said.

“We have established an exceptional team who will in turn attract talented people who have worked for them in the past. They will also expertly train new personnel required for the future.

“In the mining industry, generals build armies and armies build mines. We have the generals at a time when demand for these skills is outstripping supply at an unprecedented level.”

More contract wins will seal the deal on all that, remembering that its own developments at Woodlawn and Sulphur Springs look good for eventual annual production of 50,000tpa of copper equivalent, maybe 70,000tpa.

That in itself is interesting stuff for a company with Develop’s market at a time when the ASX is short of new and sizeable base metal opportunities, let alone companies with access to an experienced workforce to make them happen.

Patriot:

Former boss of the $12 billion Pilbara Minerals (PLS), Ken Brinsden, was on the money last month when he told a Resources Rising Stars conference that his new interest in the lithium space, Patriot Battery Metals, was on to a big one at its Corvette project in Quebec.

"It's unbelievably fertile and has serious scale. Corvette is going to be one of the big ones over time,” Brinsden said.

Roll forward a month and the dual-listed Patriot (ASX:PMT, TSX-V:PMET) has just reported the best ever lithium intersections from drilling conducted in 2022 – 156.9m at 2.12% lithium from 176.4m at the CV5 pegmatite, just one of a swarm in the broader project area.

The hole included a 25m intersection grading an off-the-charts 5.04% lithium. As the company put it, it is hard to adequately describe the impressive nature of the result, which will be fed into a maiden resource estimate in the first half of 2023.

The local market responded by sending the ASX-listed CDIs (issued here in December at 60c each) 33.5c or 38% higher to $1.21. The Canadian stock now stands at $C7.92, which is some 35% higher than when Patriot got mentioned here back in August because of a buzz about Corvette at Diggers & Dealers.

Euroz and Macquarie have been following the Patriot story and both issued updates in response to the spectacular drill results which point to Corvette eventually becoming as big as anything in Australia other than Greenbushes.

Euroz has a $1.60 price target on the stock. It said the drill results were a “reminder that investors currently have the opportunity to invest in one of the largest spodumene (a lithium precursor) discoveries globally”.

Macquarie initiated on Patriot on January 10, estimating an initial maiden resource of more than 100Mt at a 1%-plus grade. It set a $1.20 price target at the time, one that has now been overtaken by the market response to the latest drilling results.

It said in its updated note that the latest result presents upside risk to its maiden resource estimate.

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