25 May Battery metals “revolution” – revving up
Electric vehicles and battery-based energy storage are becoming more cost-effective as production grows and governments propel schemes to slash carbon emissions in the wake of the Paris climate change accord. Can battery metals producers rise to the challenge?
The cost of ownership of electric cars should reach parity with traditional combustion engine cars in early 2019, representing an inflection point for demand, an “iPhone moment”, with earlier than expected adoption of battery vehicles by the public, UBS said mid-May. As a result, the investment bank has lifted its global 2025 electric vehicles sales forecast by around 60% to ~15 million vehicles, or 14% of global car sales, with a resulting boom in demand for lithium carbonate equivalent (LCE), driven mainly by China and Europe. Daimler Benz is bringing forward to 2022 from 2025 plans to introduce 10 electric car models; Volkswagen plans that 25% of its sales will be of EVs by 2025. Tesla has meanwhile has reduced the cost of lithium battery storage by 50%, reports SP Angel: all fueling the “green revolution” and important news for miners of battery minerals: more than 50 and possibly as many as 100 junior miners are reportedly now piling into the lithium space.
LCE production is still relatively small, at an estimated 200,000 metric tons/year, of which some 40% goes to batteries: Jeremy Wrathall, whose company Cornish Lithium is exploring for lithium in Cornwall, UK, predicts demand will increase to between 500,000 mt to 700,000 mt/year by 2025, mainly on EV demand. “Still, lithium is never easy…most lithium is in areas without accessible infrastructure, for instance at high altitudes in Chile and Argentina,” Wrathall says. “There needs to be more supply otherwise this could choke off that revolution.”“The rate of demand growth in absolute terms will accelerate significantly between 2020-2025 and new sources of supply will be required,” Liberum analyst Richard Knights said in a December 2016 report, adding that details of China’s 13th Five Year Plan and planned battery factories not only by Tesla and its partner Panasonic, but also China’s BYD and Volkswagen imply “significant upgrades” to its forecasts. Consultancy Roskill said this week it has revised its 2026 Li-ion battery demand more than four-fold to almost 1TWh (980GWh) and lithium demand to 725,000 mt LCE, because “the sentiment and outlook for EVs has changed significantly within the last 12 months. Lithium supply increased substantially in 2016, in response to higher prices, and will match or slightly overshoot demand in the short-term, helping to moderate/reduce the price slightly,” said Roskill’s managing director Robert Baylis. “Longer-term (post-2020), much more investment in capacity is required, and there is a significant opportunity for expansion and new additions; prices could rise further if new capacity is delayed.”
New technology may reduce brine cash costs
According to Wrathall, a new technology for brine-based lithium production, developed by Enirgi Group – which is developing a project in Argentina – may reduce cash costs substantially as this technology treats raw brine without the need for solar evaporation. This process could yield a substantial margin given current prices of $10,000/mt for LCE sold on contracts and around $18,000/mt for smaller quantities on spot trades, representing only around 5% of the market. “I believe that markets such as the LME are grappling with the possibility of quoting a lithium price: however the market needs to be regularized before they can do this,” he said.
Roskill’s Baylis sees there have been further price rises in China recently, after a small correction, meanwhile contract prices in the ROW are likely to peak in 2017 reflecting a lag to China. In Q2 2017, battery-grade lithium carbonate prices averaged $11,000/t ex-China and $13,000/t China, with battery-grade hydroxide (which is seeing increasing demand by battery cathode manufacturers) at $15,000/mt, he said.
Lithium’s big four
Some 80-90% of lithium production is from four big producers: Albemarle, Sociedad Quimica y Minera de Chile (SQM), FMC and Sichuan Tianqi. According to Paul Harris, Latin American editor of Mining Journal, the sector is still the domain of chemical companies because of lithium’s chemical properties. However, this may change: Rio Tinto has the Jadar project in Serbia and many large institutions are getting involved in financing.
“Big money is being invested in the sector and investments are increasing,” Harris says. “For example, earlier this year Lithium Americas announced C$106.5 million in aggregate financings in January and aggregate debt arrangements for US$195 million with (shareholders) China’s Ganfeng and Thailand’s BCP Innovation (BCPI) to finance its 50% share of the first stage of its Cauchari-Olaroz lithium carbonate JV with SQM in Jujuy, Argentina. Capex for brine projects in Latin America seems to be in the US$500 million to $1 billion range so these are big ticket items. A very real limitation is that there are not that many projects that are shovel-ready to invest in and whilst the wider finance sector is eyeing investment in lithium, the majority of the big money being deployed is by the downstream battery manufacturers that need to secure supply lines.”
A recent flurry of lithium carbonate development has focused mainly on the “lithium triangle”, the salt lakes (salares) of Chile, Argentina and Bolivia and with Chinese and Japanese investors or buyers in evidence. To mention just a few: SQM mid-May announced plans to expand to 63,000 mt/year in a $50 million investment; Albemarle opened its $450 million La Negra II plant, boosting capacity in Chile to 45,000 mt/year, and eyeing eventual expansion to 80,000 mt/year; Hong Kong-listed Burwill Holdings’ China project and Bacanora Minerals’ project in Mexico have signed off-take agreements; Enirgi Group is targeting output of 50,000 mt/year of LCE at Argentina’s Salar del Rincon in a $720 million spend; Australian-owned Orocobre in Argentina reported improved margins; Mineral Resources’ Wodgina mine in Australia made first shipments. The Nemaska Lithium project in Canada started shipping lithium hydroxide to Johnson Matthey; while South Korean steelmaker Posco started commercial production of lithium carbonate in Gwangyang, with a 2,500 mt/year capacity plant using proprietary extraction technology that exploits lithium phosphate as feedstock sourced from battery recycling companies, according to Mining Journal.
Q1 revenues have soared at most major miners: “lithium producers are currently enjoying bumper returns on their businesses thanks to the high price environment,” Roskill says. “While this spells good news for investors, producers are also sensibly investing their returns in brownfield and greenfield capacity expansion: welcome news to consumers as strong demand growth continues. Roskill is currently forecasting growth of >15%py to 2026, with >20%py annual growth expected from the early-2020s.”
Infrastructure may impact speed of EV take-up
However, there’s still the question of urban infrastructure for the EVs boom: “EVs appear to be moving very quickly, but there is much yet that is unclear e.g. how autonomous vehicles will influence the evolution and when autonomy could kick in as that could transform the ownership structure of autos if people are willing to embrace them,” says Investec analyst Marc Elliott. “Also grids and generation need to volve sufficiently quickly to ensure that all these EVs can be ‘refuelled’. Government intervention may be required if EV uptake is too strong and local grids start to struggle. Best to limit EVs than have power outages and people left in the dark.”
Ross McCracken, Managing Editor of S&P Global Platts’ monthly Energy Economist, notes that EV still capture only a small share of overall new car sales. “Hybrid electric and all-electric cars made up just 3.6% of new passenger car sales in Western Europe in 2016. But where regulation is heavily weighted in their favor, and environmental consciousness strong, there has been a more profound shift in consumer preferences. Pure electric car sales made up 29% of new sales in Norway in 2016, while hybrid electric cars took another 11.2% of the market,” McCracken said.
Graphite: “unprecedented” demand levels foreseen
Graphite supply concerns hit the headlines again in 2017 when it became clear that the EV revolution would have a faster than expected impact on raw materials, according to Roskill. Despite their name, the lithium-ion batteries that will power this revolution are heavier consumers of graphite than lithium: Tesla CEO Elon Musk has stated they would be better named “nickel-graphite” batteries.
Roskill notes that the Industrial Minerals average monthly price for 94-97% C large flake graphite moved higher for the first time in July 2016 since late 2014. In 2016, the consultancy says, existing world demand for graphite in all batteries was estimated to exceed 136,000 mt: still a small fraction (around 6%) of overall graphite usage, but one that is growing fast. In flake graphite, rapid demand growth of 16-26% per year is now expected from the battery market, expected to lead to “unprecedented demand over the next decade.”
Recent project developments include drilling at Armadale Capital’s Liandu Project in Tanzania, a country where Kibaran Resources’ Epanko Project has already set up graphite offtake agreements with Japanese trader Sojitz and Germany’s ThyssenKrupp. French industrial minerals group Imerys Graphite & Carbon concluded the acquisition of Japan’s Nippon Power Graphite (NPG), with a patented chemical vapor deposition coating technology for the production of lithium-ion battery anode materials, in February 2017. Posco plans to build a factory to produce anode materials for rechargeable batteries. Australia-listed Black Rock Mining is conducting a prefeasibility study into the Mahenge graphite project in Tanzania, which could produce an estimated 167,000 mt/year graphite over 32 years in a capital investment of more than A$150 million.
Cobalt: significant supply-side risks
Cobalt, mostly mined as a by-product of nickel and copper, is viewed as critical to the EV revolution, making up a major part of the lithium-ion battery mix. It’s already benefitting from the hype around this market: its LME price May 24 at $54,750/mt was more than 130% higher than a year ago. Total mine supply was put at 109,000 mt in 2016: refined demand could grow 9% per year to reach 167,000 mt by 2021, possibly accelerating further by 2026, according to Roskill. China is the biggest buyer and refiner, currently accounting for nearly 60% of global supply. Roskill estimates that batteries accounted for 53% of cobalt demand in 2016, up from around 40% in 2012.
“Taking into account the forecast surge in demand, as well as the expected output from existing operations, a significant gap emerges towards the end of the forecast period. As such, additional refined output will be required. This will most likely come from capacity expansions at existing producers. The feedstock for this additional production could be sourced from new projects, artisanal mines, tailings reprocessing, restarted operations, and (new or restarted) nickel mines,” the consultancy says.
In addition to demand from the batteries sector, Platts’ research shows that aerospace and power generation are major drivers of demand for cobalt, which is used in jet engines and also industrial gas turbines: there is currently an order backlog of around seven years for new civil aircraft.
Ivan Glasenberg, CEO of Glencore, the Democratic Republic of the Congo (DRC)’s biggest cobalt producer, this month told Bloomberg the EV revolution is coming more rapidly than expected, while analyst Macquarie was cited in Oilprice.com as expecting a massive cobalt deficit of 5,340 mt in 2020: statements which have reportedly contributed to hedge fund stockpiling of the blue metal.
An estimated 68% of global total cobalt feedstock, or 74,000 mt, came in 2016 from the DRC, where Glencore’s Katanga copper mine, which produces cobalt as a byproduct, remains closed, mainly due to concerns over copper prices. However, observers note that if this mine comes back on stream, it will provide significant cobalt supply, reducing potential deficits. Tenke Fungurume Mining (TFM), majority-owned by China Molybdenum (CMOC), was the DRC’s second-largest cobalt producer last year. Outside the DRC, Australia, the Philippines, Cuba, and Madagascar are the next-largest mine producers.
Potential newcomers in this space include Scientific Metals, quoted on the Toronto Stock Exchange, with a pure play project in the US. Poly-Met, in which Glencore has a large stake, has a major mine in the permitting phase in Minnesota.
Cobalt tailings – increasingly attractive
Tight cobalt markets are turning the reprocessing of tailings into a viable business. Australia’s Cape Lambert has signed a binding term sheet to acquire a 70% interest in the Kitwe cobalt/copper tailings project in Zambia. Earlier this month, Cape Lambert signed a joint-venture agreement with Paragon Mining to develop the Kipushi cobalt tailings and Kasombo cobalt projects in the DRC.
Investec’s Marc Elliott points out that developing new supplies of cobalt is potentially more tricky than for lithium “as so much (cobalt) supply is from the DRC which is a challenging place, particularly for new entrants, and therefore also more challenging to get finance for. However, if it gets too expensive don’t underestimate the ability of science finding alternatives or reducing the need for the commodity.”
— Diana Kinch, with the collaboration of Anthony Poole and Andy Blamey