To start, where do our panelists see the biggest deficits in metals supply in the coming years? What are the risks to come with that and potential solutions?
Paola Rojas: All the metals supporting the energy transition are going to be in a very strained situation. I think what we worry about the most in the years ahead, is copper.
My father was a porphyry copper expert, and he used to manage BHP for Argentina. In the early ’90s, they were exploring and talking about copper all the time. That decade was so significant for the metal. Many large mines were found and put into production, and many big deposits were identified but stayed in the development phase. In the decades after that, it changed; investment fell and turning deposits into mines sort of stopped. If you look at the timeline, its pretty empty today.
Laura Hubbard: At Wood Mackenzie, we’re looking at the energy transition and the incredible requirement of battery materials. We’re forecasting that 69M passenger plug-in electric vehicles (EVs) will be purchased per year by 2040, which will be 57% of new vehicles. That will require all of the battery raw materials that we’ve been looking at.
Last year, there was an incredible increase in price for these materials and a great sense of shortage and opportunity. We’re now moving into a period of oversupply, and with new projects coming online, I think there’s a danger that the sentiment could cause a shift in focus away from this area. This could inevitably mean that the forecasted deficit we’re expecting in these key materials could be exacerbated.
At the moment, we’re forecasting that by 2028-2030, we will move back into a deficit. We shouldn’t let a decline in prices stop us from continuing to develop these much-needed projects.
Harry Fisher: At Benchmark, we’ve consistently said that raw materials are the bottleneck for the supply chain. It takes seven to 10+ years to develop these mining assets, whereas the downstream can be developed much more quickly. We’ve heard a lot of talk about what’s happening in the mid and downstream, but the commitments for raw materials aren’t always there.
We’re oversupplied at the moment, but from what we’ve seen in commodity markets in the past, that’s a dangerous game to play because we see a lack of investment, then suddenly there’s a big crunch. For nickel and cobalt, they’re both in a fairly significant surplus at the moment, but the demand outlook is very strong. So, it won’t take long in relative terms to swing back into a more balanced, and potentially, deficit market. Prices will respond, but it’s always the balance of that investment versus the commodity cycle.
Alberto Migliucci: The arithmetic reality is that global population growth, economic growth, and the increase in standards of living of some less developed nations are going to put incredible pressure on the amount of energy we need going forward. That as a base level means we’re going to have an incredible amount of energy, even if we didn’t have this whole EV paradigm. So, that would put a lot of pressure on existing energy sources, which are fossil fuels.
In the last 200 years, humans have pretty much used one main energy source, fossil fuels, and now we’re trying to turn that upside down. It’s a massive task and you’ll hear varying numbers from independent groups like Benchmark, Wood Mackenzie, or others that show we’ll need an extra 30, 40, or 50 lithium mines to achieve various net zero targets by 2030, etc.
We’re all trying to find out where the energy balance equilibrium is. When we talk about lithium, it’s the marketing guy, because everyone talks about lithium-ion batteries. Yet, a lot of the batteries, depending on which configuration they are, also contain nickel, manganese, or cobalt.
The scary thing is that in 200 years of technological advancement, everything we do, whether it’s medicine, bread, plastics, petrochemicals or energy, all have come from fossil fuels. Now we’re trying to turn that all over. That’s going to have an increasing squeeze on the environment, but also capital and financing.
Harry Fisher: One of the most important things to consider is what the application of the storage is, whether it’s going to be mobile or stationary storage. A lot of movement is working towards stationary storage — away from lithium due to the current supply constraints. Whether you look at nickel-manganese-cobalt (NMC) or lithium-ion-phosphate (LFP) batteries, lithium is a common commodity in all of those. So, I do think lithium is going to have a pinch for much longer than we expect. We seem to be finding substitute chemistries for other types of batteries; the rise of LFP being more suitable for, perhaps, your general commuter than high energy, high density NMC batteries. We must answer both what the application is and what battery chemistry is suitable for the requirements of the end user.
Harry Fisher: The benefit of lithium is that its intensity doesn’t vary a huge amount based on chemistry. Yet, you see big swings in the intensity between nickel and cobalt chemistries, and that’s why the LFP/NMC arguments are probably never going to go away. Lithium has the strongest mine outlook of the major raw materials and has less downside risk compared to nickel or cobalt.
There’s certainly a place in the market for both of those major groups in the EV market, and there’s going to be big differences between North America and Europe versus China and the rest of Asia. We will see different trends in different parts of the market but, overall, we’re seeing a fairly even split in the long term between NMC and LFP chemistries.
How do changing technologies impact potential investment decisions? How do people position themselves with this technological risk overhang?
Alberto Migliucci: Bankers traditionally hate to take on risk. They like to take everyone else’s risk, but not their own. So, with any new technology, they might be a bit hesitant in funding. Lithium’s been around for a while (at least a decade), and bankers are used to understanding the technological risk. Interestingly, also geological risk. If you said to me 10 years ago that someone was a lithium geologist, I’d say, what? I didn’t even know such a thing existed.
Now, everyone’s a lithium expert and that ameliorates the risk. So, there’s always that debate. This has created a platform where if you asked any banker, would you prefer to finance this established high quality coal mine or an early-stage development brine in Latin America, unfortunately you know what the answer is going to be.
These days you’re actually better off having a small cap lithium explorer or developer than an established mature coal producer. It also goes back to whether financers and investors are comfortable with lithium and cobalt risk. The problem now is not so much the commodities, but the jurisdiction. There’s an overlay of financing risk, technical risk, and then geopolitical risk on top of that.
Harry Fisher: We are starting to see more diversification for that reason. Some markets have been heavily leveraged on a couple of countries, cobalt for example, mined in the DRC and processed in China, but we are seeing fairly rapid diversification in nickel. Indonesia didn’t really exist as a nickel market 10 years ago. In 2015, around 5% of nickel production was coming out of Indonesia. Now, it’s about 50%. In eight years it’s risen to a global force and that’s just going to keep going.
Policy drivers, such as the Inflation Reduction Act (IRA), are having an impact too as the supply chains start to shift. We’re already seeing a lot of movement in the downstream, but also in the upstream or midstream. Recently there’s been a couple of big investments in Morocco, a lot of movement in South Korea, and companies investing in various jurisdictions. I think it’s a really good point and a trend that is likely to continue.
Paola Rojas: We’re going to be seeing a lot more M&A in the traditional sense, but also in creative ways, which we have started to see a lot of this year. Especially in the lithium space (if you compare it to the copper universe), you see that there’s a very diverse group. You have the majors, a big group of mid-tiers, and then the smaller players. In lithium, that exists, but it’s so much smaller.
We’re going to see a lot more deals between automakers and mining companies. We’ve seen offtakes (that was sort of traditional and very much needed by the lithium players), but now we are also seeing more intertwining of these different parts of the battery supply chain, like in the deal by General Motors, investing US$650M into Lithium Americas (TSX:LAC). That triggered a facilitation and eased the road for that asset to get final permits and finally start construction.
Keith Muller: With the risk profile associated with different battery chemistries, it depends on where you sit on the value chain. If you’re sitting right at the tail end of a cell manufacturer or a precursor etc., you sit on your feedstock. You’ve designed a US$0.5B – US$1.B processing plant facility to take a certain set of feedstock characteristics and specifications. So, perhaps, the lower down you go on that value chain, the less you’re exposed to technology risk.
As a producer of spodumene, our risk profile to battery chemistry is probably less than that of a converter or a precursor material producer. For us, it’s about putting molecules into the market. We’re seeing producers now looking at vertical integration of their supply chains. There’s a risk with that because you’re set on a pathway that you can’t undo. Once you’ve established those downstream processing facilities, you’re locked into that particular chemistry.
How does direct lithium extraction (DLE) affect the future prospects of hard rock projects in Australia?
Keith Muller: On the question of lithium brines versus hard rock, from an ESG perspective, there tends to be consensus that brines have a lower carbon footprint than hard rock spodumene mining. But then again, if you look at low-grade lepidolites in China, they have an enormous carbon footprint compared to even the best spodumene producers. DLE also has a very high energy intensity and that energy is not free.
Laura Hubbard: DLE has become a bigger part of the picture, with many operations in China now using adsorbent DLE technologies at scale, which has given us confidence that it can be commercialized more widely. In Qinghai and Tibet, they tend to have lower grade lithium than in South American brines and a high level of magnesium, which necessitates a different type of extraction. In Tibet, you’ve also got an extremely cold environment. Long winters make it difficult to extract a high quality lithium product out of that brine, unlike in Latin America where you’ve got better solar evaporation from a higher-grade brine to begin with.
Over time we expect to see these adsorbent technologies used more widely and other DLE technologies commercialized, however it will still need a cost benefit analysis of whether it makes sense over the low carbon option that we already have available. And of course, you need to tailor the DLE system to the individual deposit. So, I think there’s opportunity there, but I don’t expect to see it revolutionize the whole industry.
Given the current macro environment and the energy transition thematic where demand is increasing and supply is constrained, you wouldn’t really expect what happened over the last year and it highlights the difficulty in forecasting and predicting. How can we make more accurate predictions?
Paola Rojas: Forecasts should be renamed guesstimates, because in reality, no one really knows. You may say, “Oh, I’m bullish copper, so I think copper long-term is going to be a good bet.
And I’m pretty confident that that’s going to be the case.” Now is it going to be in the short term? Probably not. Is it going to be in five years? More likely. But then you start playing with probabilities and it becomes difficult. For investors that want to play in this space, it’s important to have a long-term view.
Alberto Migliucci: It’s funny because you reminded me of when I used to present a decade ago on various commodities, I’d put up the forecast of all the prominent Wall Street investment banking analysis, saying what their gold, coal, or iron ore prices would be, and then I’d revisit those forecasts the next year at a conference. Every single one of them, usually without doubt were wrong. It wasn’t even wrong by a dollar, they’d be wrong directionally.
I used to put this up and say, see, this is how difficult our industry is. It’s so cyclical. You’re just proving that point. But I think what Paola said is key — our industry is long-term. It can take 10 years to build a mine and get to production. So, I typically don’t look at day-to-day prices.
If this whole EV paradigm didn’t happen in the last decade, I’m not sure where mining would be now, because outside of cobalt, nickel, and copper, there’s very little going on. I mean gold’s always big, but apart from that there’s very little going on.
Harry Fisher: I think it’s also easy to forget that we are in an emerging market. We talk about it as if it’s vast while it has only just started. I always like to show where we are and where we’re going; we’re just about to hit a terawatt hour of battery demand this year, maybe early next year. But we see that going to eight terawatt hours by 2040. So, we are really only on that first uptick and we’ve only really seen the big first wave of EV demand in 2020. COVID, in a way, did a favour for a lot of countries because it gave everyone a bit of a shove saying, “We need to get this going to get the economies going.” I think it’s easy to forget that we’re really only at the start of this big thematic.
And yeah, I think the long-term sentiment is important and our methodology at Benchmark for price forecasting considers that. We’ve got a short, medium, and long-term view. The short term is always volatile. I think we never get it right, but comparing last year to this year, what nobody really saw coming was this slow down in China, in battery demand globally, this pressure on EV markets, and a continued pressure on the portables market (which is still a fairly significant part of the battery market).
Laura Hubbard: I must toot Wood Mackenzie’s horn a bit here, we did forecast this supply growth and the decline in battery raw material prices this year. We identified the new supply coming online and forecast that prices would fall from those high prices seen last year to pricing that reflects the real market environment currently. But as Harry said, it’s a very difficult set of markets to predict. This is a growing market, accurately predicting whether we will see growth rates of 10% or 20% or more in a year, it’s challenging to get that exactly right. For suppliers this is the challenge, determining when is the right time to bring on new supply.
Keith Muller: We just went through China’s Golden Week; coming from such a small base, the volatility is huge. You mentioned that prices came off 50% year to date; three years ago, I was selling spodumene concentrate for US$320/t and we were making money. I believe the spodumene price now is US$2,500/t. I would have loved to be in this situation three years ago. So even though the price has come off from a very unrealistic high, that was never a sustainable price. US$8,000 for spodumene concentrate – no one’s making money at that price except for the miners.
Let’s look at the impact of government regulations. How are these impacting where the money is going?
Paola Rojas: I think one of the crucial elements for the energy transition is the role of governments and how they can help get the supply needed to eventually decarbonize. The IRA has had a very significant role and helped to onshore a lot of local investment and partnerships, but has also acted as a public perception change for more people in the US to realize that this is something that they need to consider and needs more investment. What we haven’t seen yet is more support in terms of getting projects permitted. That’s the next piece that governments need to work on.
I think every country will need to have some sort of programme like the IRA or the Critical Minerals Act if they want to help. We also need to see faster permitting periods. Waiting for one, two, or three decades for a mine to get permitted is ridiculous, and we’re not going to get the minerals that we need that way.
Keith Muller: Albemarle came out not too long ago, increasing their forecast of demand by 2030 up to 3.7M metric tons of LCE. And of course, the Liontown play was an attempt to service some of the feed stock deficits. They stated that as a result of the IRA incentives, so they’re going to be sweeping up all the tier one jurisdictions; all the countries that deal openly and have free trade agreements with the US. But that doesn’t take away the demand and requirements that still exist in China.
Less favourable jurisdictions are going to have to come into play, and more expensive, higher cost production must come online. For any market dynamic, if you look at the incentive pricing on the cost curve, that’s what’s going to determine the bottom of your price index. So, I think the IRA influence is certainly going to increase the supply that’s going to come online, but it’s also going to open opportunities to less favourable jurisdictions and lower grade products. That means you’re going to push up the price as a result of that higher cost base.
We’re seeing a lot of regionalization of supply chains at the moment. How is this impacting the space?
Harry Fisher: The whole supply chain is becoming very geopolitical. We’ve seen a shift as Europe, the US, and China tried to ensure that they’re strategically placed to take advantage of these shifting supply chains and to hit their net-zero goals as well. Then, you look at the OEMs, and some of the midstream players who are positioning themselves in their own country or other countries, and how that fits within the policies that are being announced.
There’s a lot of incentive in the downstream to produce batteries and in midstream processing in the US, but actually the IRA is supporting the upstream in FTA countries and other partners.
Europe looks the same. They don’t have a great resource base for a lot of the critical raw materials. So, they’re going to have to rely on other countries, but they’re then going to incentivize the processing and the downstream. I think that kind of regionalization and localization thematic has eased a little, but at the same time the policy angle has accelerated rapidly, and we are seeing it as fundamental to the way in which supply chains are mapped out.
Laura Hubbard: I’m not seeing it so much as a localization, but as a desire for diversification of sourcing. In Europe, they’ve stated quite explicitly that no more than 60% of a supply of certain critical minerals should come from a single country. The US appears to be similarly focusing on ensuring supply is from a range of allies through the IRA EV tax credit. They want that broader security in terms of supply, and the place that we have the biggest challenge in this value chain is in the midstream that is so heavily weighted towards China in precursor, CAM, and anode active materials. The tricky thing about that is, how do you build supply elsewhere, which is inevitably going to be higher cost?
Paola Rojas: How can you avoid China? It just doesn’t work, it’s about managing that relationship, and with everything happening in the world right now, you have to put the geopolitical things to the side and think, okay, I need to still work with them.
Keith Muller: To the point of friendshoring or decentralization, I don’t think it’s a result of policy. I think it’s done out of necessity, for security of supplies. So the end users are going to the source and, as a result, it creates single stream supply chains. There’s not a very successful LME style market for lithium at the moment. So you don’t have a choice but to go to the source. As a result, you are, in essence, decentralizing the entire supply chain.
Alberto Migliucci: It’s a vertical integration and a security of supply. Over the last decade, all of the sudden power companies started buying downstream or upstream, into coal mines, and it never happened before. You’d get KEPCO (a Korean electric power company), for example, who traditionally would just buy coal. They would actually take a 10% stake in an Indonesian coal mine.
And Enel, the electricity company of Italy, would also buy a 15% stake in some coal mine around the world. There was a cross industry approach that we’re seeing now. We couldn’t have imagined something like Mercedes wanting to buy a 10% stake in a lithium mine. It’s incredible. It opens up so many opportunities from a funding and business point of view.
So, you have car companies buying stakes in lithium mines. Tesla has done a deal with BHP for their nickel. This is unheard of. It’s created a vertical integration out of necessity – it’s about security of supply.
Harry Fisher, Project Manager, Consultancy, Benchmark Mineral Intelligence
Laura Hubbard, Managing Consultant, APAC, Wood Mackenzie
Alberto Migliucci, Founder and CEO, Petra Commodities
Keith Muller, Chief Executive Officer, Atlantic Lithium
Paola Rojas, CEO, Synergy Resource Capital