The Scramble for EV Battery Metals Is Just Beginning
By Stephen Wilmot, 12/2/21, Wall St. Journal

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
over 20 times by 2030 compared with last year’s level.

Lithium-ion batteries also contain cobalt, nickel, copper &
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
& 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's 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 Aussie 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 &
good environmental, social and governance credentials.
These matter more than ever because today’s supplies of
battery metals come with huge ESG & 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 &
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 admin
in June published a “National Blueprint for Lithium
Batteries” that called for cobalt & 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, & some
could sink. While specialists like Albemarle & prospectors
like Noront are early winners, the giants of the industry
will have to work hard to strike gold.

https://www.wsj.com/articles/the-scramble-for-ev-battery-metals-is-just-beginning-11638443405

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