The scramble for EV battery metals is just getting started

by Stephen Wilmot | Updated December 02, 2021 06:10 am EST

Global miners have an opportunity to sell ESG-friendly natural resources to the automotive and energy industries, but this will require investment

Making the global economy more environmentally sustainable would require a lot of natural resources. It is an irony that the mining industry would need to be both exploited and deregulated.

Electric vehicles highlight a problematic opportunity for miners. Although the Tesla or Porsche Taycan does not have tailpipes and typically generates far less carbon than a conventional car over a multi-year lifespan, its large lithium-ion battery requires more metal than an internal combustion engine. Is. Consulting firm Rystad Energy expects annual lithium demand from EVs and energy storage to increase by more than 20 times by 2030 compared to last year’s levels.

Lithium-ion batteries also contain cobalt, nickel, copper and aluminum. And it’s not just about the batteries: All would require a mass of metal to tie together solar panels, wind turbines, charging stations and grid infrastructure. In astronomical development there is talk of a new “supercycle” with specialist stocks like lithium miner Albemarle Pricing.

But a metals boom driven by decarbonization would be more challenging for the broader mining industry than the supercycle led by the development of Chinese infrastructure that previously fueled commodity markets.

The energy transition, by definition, would require less oil and coal, encouraging diversified resource suppliers to shift their portfolios. BHP, the world’s largest miner by market value, is in the process of selling its interests in both fuels after a major setback in August. This week, Switzerland-based Glencore—the last giant in the sector to maintain a commitment to thermal coal—came under fire from an active investor who wants it to focus solely on growth businesses like cobalt.

BHP and its close aide Rio Tinto still make most of their profits from selling iron ore, which has a major emissions problem as it feeds into the hard-to-decarbonize steel industry. Yet both are trying to increase their exposure to so-called future-facing items. In July, Rio Tinto pledged $2.4 billion for a massive lithium project in Serbia. BHP is looking to acquire Norant Resources, which owns a promising Canadian nickel deposit.

Everyone is looking at the same place. BHP’s July offer for Toronto-listed stock triggered a bidding war with a large Norant shareholder controlled by Australian billionaire Andrew Forrest, who had previously founded another iron ore producer Fortescue Metals Group. Now talks are going on between the two sides.

The scramble for new mining possibilities is likely just beginning. Canada is a particularly attractive destination. In addition to ample resources, it offers proximity to a large US market, favorable geopolitics and good environmental, social and governance credentials. These matter more than ever because today’s supply of battery metals comes with huge ESGs and geopolitical challenges that are hard to reconcile with the environmental problem it is trying to solve, not to mention reducing America’s dependence on China. To mention Washington’s goal to

Cobalt’s association with child labor is best known in the Democratic Republic of the Congo, but much lithium relies on scarce water resources in South American countries that do not always support private mining interests. Indonesia, which generates most of its electricity by burning coal, is on track to dominate the production of battery-grade nickel. Chinese or China-backed companies do exist and often dominate all three sectors.

As EV output accelerates, such problems will become bigger and more visible. The universe of listed mining companies has the opportunity to offer ESG-friendly alternatives to Western car makers and energy companies, but the pitch requires investment. Rio Tinto recently raised its long-term forecasts for capital spending with a focus on transition metals, and announced more ambitious plans to decarbonize its operations. Deutsche Bank research analyst Liam Fitzpatrick expects spending across the sector to increase after years of caution and capital returns.

The wild card in this game is battery innovation, which can thwart today’s demand forecasts. In June the Biden administration published a “National Blueprint for Lithium Batteries” calling for cobalt and nickel to be taken out of the supply chain. Cobalt spot prices have nearly doubled this year and nickel is trading around their highest level in a decade, providing another impetus to replace them. Nissan said Monday that it will introduce cobalt-free EV batteries by 2028, While Tesla is increasingly relying on lithium-iron-phosphate batteries for its Model 3, which contain none of the problematic metals.

The global decarbonization trend should have much to do with miners, but it won’t be a tide that lifts all boats, and some could drown. While experts like Albemarle and prospectors like Norant are early winners, industry giants will have to work hard to strike gold.