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4 min read . Updated: 02 Dec 2021, 07:02 PM IST Global miners have an opportunity to sell ESG-friendly natural resources to the automotive and energy industries, but it will require investment
The Scramble for EV Battery Metals Is Just Beginning
BY STEPHEN WILMOT | UPDATED DEC 02, 2021 06:10 AM EST
Global miners have an opportunity to sell ESG-friendly natural resources to the automotive and energy industries, but it will require investment
Making the global economy more environmentally sustainable will require a lot more natural resources. This is an irony the mining industry will need both to exploit and to defuse.
Electric vehicles highlight the problematic opportunity for miners. Although a Tesla or Porsche Taycan doesn’t have a tailpipe and usually generates much less carbon than a traditional car over a multiyear lifespan, its big lithium-ion battery requires more metal than an internal combustion engine. Consulting firm Rystad Energy expects annual lithium demand from EVs and energy storage to rise by a factor of more than 20 times by 2030 compared with last year’s level.
Lithium-ion batteries also contain cobalt, nickel, copper and aluminum. And this isn’t just about batteries: Solar panels, wind turbines, charging stations and the grid infrastructure to tie them together will all need masses of metal. There is talk of a new “supercycle," with specialist stocks such as lithium miner Albemarle pricing in astronomical growth.
But a metals boom driven by decarbonization will be a more challenging one for the broader mining industry than the supercycle led by Chinese infrastructure growth that previously fueled commodity markets.
The energy transition will by definition 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 offloading its interests in both fuels following a big August shake-up. This week, Switzerland-based Glencore—the last of the sector giants to retain a commitment to thermal coal—came under fire from an activist investor that wants it to focus squarely on growth businesses such as cobalt.
BHP and its close peer Rio Tinto still make most of their profits from selling iron ore, which has a big emissions problem because it feeds into the hard-to-decarbonize steel industry. Yet both are trying to increase their exposure to so-called future-facing commodities. Rio Tinto in July pledged $2.4 billion to a vast lithium project in Serbia. BHP is trying to acquire Noront Resources, which owns a promising Canadian nickel deposit.
Everyone is looking in the same places. BHP’s July offer for the Toronto-listed stock triggered a bidding war with a big Noront shareholder controlled by Australian billionaire Andrew Forrest, who previously founded Fortescue Metals Group, another iron-ore producer. The two sides are now in talks.
The scramble for new mining prospects is likely just getting started. Canada is a particularly appealing destination. In addition to ample resources, it offers proximity to the big U.S. market, favorable geopolitics and good environmental, social and governance credentials. These matter more than ever because today’s supplies of battery metals come with huge ESG and geopolitical challenges that are tough to reconcile with the environmental problem they are supposed to solve, not to mention Washington’s goal of lessening U.S. dependence on China.
Cobalt’s association with child labor in the Democratic Republic of Congo is best known, but much lithium depends on scarce water resources in South American nations that don’t always support private mining interests. Indonesia, which generates most of its power by burning coal, is on track to dominate output of battery-grade nickel. Chinese or China-backed companies are present and often dominant in all three areas.
As EV output ramps up, such problems will become bigger and more visible. The universe of listed mining companies has an 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 expenditure with a focus on transition metals, and announced more ambitious plans to decarbonize its operations. Deutsche Bank research analyst Liam Fitzpatrick expects an increase in spending across the sector after years of caution and capital returns.
The wild card in this game is battery innovation, which could throw off today’s demand forecasts. The Biden administration in June published a “National Blueprint for Lithium Batteries" that called for cobalt and nickel to be engineered out of the supply chain. Cobalt spot prices have almost doubled this year and nickel is trading around its highest levels in a decade, giving another incentive to replace them. Nissan said Monday it would introduce cobalt-free EV batteries by 2028, while Tesla increasingly is relying for its Model 3 on lithium-iron-phosphate batteries, which don’t contain either of the problematic metals.
The global decarbonization trend should give miners plenty to do, but it won’t be a tide that lifts all boats, and some could sink. While specialists like Albemarle and prospectors like Noront are early winners, the giants of the industry will have to work hard to strike gold.
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