Battery Metals

Each week our High Voltage column wraps all the news driving ASX battery metals stocks with exposure to lithium, cobalt, graphite, manganese and vanadium.

INDUSTRY FOCUS

High prices may hamper the EV boom

HSBC says delayed or cancelled mining projects – alongside “robust” battery demand – means lithium and cobalt supply will remain “reasonably tight”, according to Bloomberg.

This will lead to higher lithium and cobalt prices, which will slow electricity vehicle (EV) uptake over the next few years, according to analysts.

HSBC now says 776,000 tonnes per year of lithium will be required by 2025 — a 88 per cent increase from its last estimate more than a year ago.

HSBC revised down its market share projections for full EVs to 9.4 per cent, compared with an earlier estimate of 10.5 per cent by 2025.

It also went against the grain by doubling its forecast for plug-in hybrid EVs (or PHEVs) from 2.4 per cent to 5.5 per cent of the market by 2025.

A PHEV is a type of hybrid electric vehicle that combines a gasoline or diesel engine with an electric motor and battery.

“High lithium and cobalt prices – but also limited supply and lower demand for pure EVs -– now favour more plug-in hybrids in the short to medium term vs. our previous expectation,” HSBC analysts say.

But other analysts reckon the decline of PHEV vehicles has already started.

Non-DRC cobalt projects just got more attractive

It’s official – the Congo is raising royalties on cobalt.

The Democratic Republic of Congo – which controls about 60 per cent of global supply — has labelled cobalt a “strategic” metal and slapped a 10 per cent royalty on it.

That is almost triple the 3.5 per cent previously levied on the battery metal.

(As a point of reference; in Australia cobalt royalties are somewhere between 2.5 per cent and 5 per cent across the various states.)

The royalty hike represents a bit of a double-edged sword for battery metals stocks.

On one hand, it’s a crappy turn of events for ASX-listed juniors like Nzuri Copper which is trying to bring a copper and cobalt mine called “Kalongwe” into production in the Congo.

On the other hand, junior stocks with cobalt projects in more stable jurisdictions (like Australia) are looking a lot more attractive to investors and off-take partners right about now.

Hornsdale is a Rockstar

For stationary storage, that decisive moment when cost and performance reach parity with established alternatives is arguably here.

Stationary storage systems are big batteries often designed to store excess power from the power grid, including from renewable sources, for use during expensive peak demand periods.

It also includes residential and industrial ‘behind the meter’ systems.

Analysts and industry insiders are constantly revising their stationary storage projections upwards as the industry accelerates.

In 2016, for example, BNEF expected 25GW of installed storage by 2028, and for the market to be worth $US250 billion by 2040.

BNEF now reckons the global energy storage market will grow to a cumulative 942GW by 2040, worth about $US620 billion in investment over the next 22 years.

The main driver for the bullishness? Faster-than-expected falls in storage system costs.

In December, it was revealed that the misunderstood and much maligned 129MWh Hornsdale power reserve in South Australia, better known as ‘Tesla’s big battery’, had already saved $40 million in wholesale market costs after just one year in operation.

The world’s largest lithium-ion battery energy storage system was built at a cost of about $90 million and is owned and operated by French company Neoen.

The positive impact of the battery’s services have already been recognised by the Australian Energy Market Operator(AEMO), which stated that frequency and ancillary services (FCAS) provided by Hornsdale were more “rapid and precise, compared to the service typically provided by a conventional synchronous (usually gas) generation unit”.

FCAS is a group of services that help stabilise the grid.

If the frequency falls or rises outside a certain range, blackouts will happen such as the one South Australia experienced in September 2016.

Franck Woitiez, Managing Director Neoen Australia, said the success of Hornsdale had strengthened the commercial case for new battery projects in Australia.

“Hornsdale Power Reserve is an example of the projects that will underpin a modern energy system in Australia and Neoen is excited to continue leading this sector.”

Incredibly, batteries for stationary storage will make up just 7 per cent of total demand by 2040, with EVs taking dominant market share.

SMALL CAP SPOTLIGHT

It’s been a rough week — of the ~200 battery metals stocks on our list, about 104 lost ground, 27 were ahead and 57 were steady.

Major small cap winners included Celsius Resources up 16 per cent, Vital Metals up 14 per cent, and European Metals up 11 per cent.

There was also some great news for lithium-focused Kidman Resources today.

Objections to Kidman’s application for exemption from minimum spending requirements on its Mt Holland tenements have been withdrawn, and forfeiture applications at Mt Holland will be dismissed.

This settlement provides certainty for Kidman and its joint venture partner SQM, and will enable them to progress the integrated project development at Mt Holland “unimpeded”, the company says.

“This settlement resolves this matter completely,” Kidman managing director Martin Donohoe said.

“With the settlement concluded, funding secured through to final investment decision and our recent lithium hydroxide offtake agreements with Tesla, Inc. and Mitsui & Co. Ltd, we will be able to wholly focus on progressing the development of the Mt Holland lithium project.”

Gold prices edged higher on Tuesday, supported by hopes that the U.S. Federal Reserve could pause its rate hike cycle sooner than expected and as the dollar slipped after the previous session’s rally. Weakening U.S. dollar outlook and very dovish pivots from the Fed amid uncertainties surrounding global equity markets which are expected to decline further serve as factors that help boost demand for gold in the broad market.

The dollar index DXY, a measure of the greenback’s strength versus a group of six major peers, edged lower after rallying in the previous session as a vote on Brexit deal was postponed. Both analysts and investors continue to remain a skeptic on Fed’s plans to continue raising interest rates next year owing to macro data across key markets and US hinting at a global economic slowdown.

Safe Haven Demand Boosted Over Geo-Political Woes & Equity Rout

Lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar. However, the dollar still has some momentum from yesterday’s session as Dollar continues to hold the first position among safe-haven assets and risk-averse market scenario has put a steady bid in both Dollar and Gold resulting in a tug-off war for the upper hand on both sides of pair which has greatly limited profit potential of the pair.

As of writing this article, spot gold XAU/USD is currently trading at $1246.89 an ounce up by 0.19% on the day while US gold futures GCcv1 are trading at $1252.40 an ounce up by 0.24% on the day. Meanwhile, Spot Silver XAG/USD is currently trading at $14.61 an ounce up by 0.58% on the day.

Oil prices remained on shaky ground on Tuesday after sliding nearly 3% yesterday, pressured by weakness in global stock markets and doubts that planned supply cuts led by producer club OPEC will be enough to rein in oversupply. However, the upward price action of crude oil in early Asian market was underpinned by reports of disruption in Libyan crude exports. Libya’s National Oil Company declared force majeure on exports from the El Sharara oilfield, as it was seized by a local militia group over the weekend.

NOC said the shutdown would result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield. In physical markets, Kuwait and Iran this week both reduced their January crude oil supply prices to Asia. As of writing this article, spot US Crude WTI/USD is currently trading at $50.92 up by 0.16% on the day.

Precious metals are big business in the EU but possible conflicts between recycling policies and chemical management mean that the industry risks missing out on a golden opportunity.

Hear ‘precious metals’ and think bracelets, rings and gold bars. But that is not the reality: One-third of the globe’s 4,500 tonnes gold demand is needed in industrial and manufacturing processes, while only 50% of silver’s 35,000 tonnes demand comes from jewellery.

Precious metals like gold, silver and platinum are used more and more in our electronic devices, the batteries of our electric vehicles and even our satellites and spacecraft.

But just like any other useful material, precious metals are facing recycling challenges on all fronts. One of the main problems is the simple matter of collecting used items like old phones, laptops and tablets.

Consumer culture, programmed obsolescence and simple wear-and-tear mean that people are now replacing their smartphones on a regular basis.

Research in the United States showed that although phones last on average just under five years, consumers upgrade or replace their devices roughly every two years.

Those phones either end up passed on to a family member or friend or, more likely, in the back of a drawer in case of an emergency.

In Europe, only one-third of waste electrical and electronic equipment is collected and reported, which means four tonnes and 40 tonnes of gold and silver, respectively, goes unused. Only 10% of recycled gold comes from electronics, the rest is unwanted jewellery.

At an event organised by the European Precious Metals Federation on 5 December, President Heinz-Günter Schenzel called for “intensive recycling” and highlighted the fact that gold, silver et al can be reused over and over, unlike other recyclates like plastic.

Chemicals management expert Hugo Waeterschoot pointed out that the high value of precious metals makes recycling an extremely attractive option. A lack of business case often acts as a barrier in other sectors.

Precious conflict

Waeterschoot also said that the relationship between recycling and EU chemical management law, known as REACH, is such that they are “not always best friends”.

Hopes to boost recycling levels have to be tempered against 2006’s REACH regulation, which evaluates the potential impact of substances on human health and the environment.

That is because the industrial processes used by precious metal producers include substances like lead, which is itself a hazardous material regulated by REACH.

During a presentation of a study on the implications of REACH law on the sector, expert Tim Becker outlined how different approaches could affect the circular economy, concluding that there is a “possible conflict” between policies.

Other stakeholders, like Egbert Lox from metals company Umicore, explained how differences between waste management directives and chemical management regulations have created an uneven playing field in Europe.

“From a logistics point of view, we have a Kafka-esque situation in Europe, where there are even different rules between regions, trucks are being stopped where there aren’t any borders,” Lox revealed, adding that a review of existing laws is “overdue”.

In the EU, directives lay down the broad strokes of an objective, with member states free to decide how to transpose rules into national law, while regulations have the same legal force throughout the entire bloc.

The Belgian ministry of economy’s Simon Cogen agreed that “directives are problematic” and added that the EU should look into a broad all-encompassing sustainability regulation.

Golden words

The European Commission’s Enrique Garcia-John, a policy officer dealing with REACH, suggested that part of the problem is that stakeholders from the waste and chemical industries have not communicated well with one another.

That point was echoed by the European Chemical Agency’s Matti Vainio, who said that “understanding trade-offs and problems is absolutely vital” and that the industry has to “clarify what their problems actually are”.

He added that the tools provided by ECHA are still sufficient but suggested that there are “more fundamental problems in waste rules”.

The silver lining seems to be that different stakeholders are now on the same page, in that all want the circular economy to take off in a big way, while also safeguarding worker health.

Garcia-John concluded that the next Commission will have to pay attention to the issue, as the borderline between what is a product and what is waste becomes “fuzzier” by the day.

New graphene nanotechnology in batteries could reduce charging times, improve durability and boost energy density.

Jas Kandola, CEO of the Graphene Corporation, said his company has developed high-performance graphene-lithium batteries in a commercially viable way.

The firm, which has research, development and commercial operations based in both the UK and India, has created a “proven, unique and cost-efficient process for producing all grades of graphenes, graphene oxides and graphene composites”.

It has developed a battery designed to the specifications of a large mobile phone brand – it boasts an energy density up 45% higher than comparable lithium-ion options, a weight reduction of 30% and is able to reach 80% charge in only 20 minutes.

Mr Kandola said the company’s technology also works better in the cold than normal batteries and achieves a higher energy-density due to its unique chemistry.

He suggests the organisation’s core technology can be scaled up from phones to 40-foot long units for grid-balancing purposes.

The Graphene Corporation is currently set up to produce 7.5 tonnes of graphene a month, at a significantly lower price than the current market cost of the material.

The CEO said the price of graphene-lithium batteries paid by the customer would be very similar to current lithium-ion batteries.

He suggested the firm eventually planned to go lithium-free with solid-state designs, adding “the core technology transcends many, many sectors”.

Jas Kandola, CEO of the Graphene Corporation, said: “This is a significant milestone for our business and a testament to the hard work and skill of our scientists and engineers who have worked tirelessly to bring this innovative technology to fruition. We have re-engineered the leading battery technologies and initially developed graphene-lithium and graphene-lead batteries for our clients. Further developments are planned.

“We are at planning stage with our clients to help them launch improved versions of their existing consumer products using our batteries which have significant outcome of having much higher energy density and significantly reduced charge times. One such product being launched imminently by one of our clients is a new mobile phone which has a 30 minutes charge time”.

In a series of talks that took place within the COP24 summit in Katowice, Poland, defenders of the circular economy highlighted the importance of including mining of rare earth metals into their discussions.

Based on a research document focused on the Netherlands and prepared by consulting and venture building firm Metabolic, the experts agreed that resources are the missing link in the climate debate. In their view, this is a mistake because rare earth metals are needed to build enough solar panels and wind turbines to meet the Paris Climate Agreement targets.

In detail, the report found that achieving such goals requires major inputs of iron and steel for the foundation and shaft of wind turbines. At the same time, elements such as silicon, copper, lead, and zinc are needed. However, their supply is more or less guaranteed given that they have been used in large quantities for decades.

Other metals, such as neodymium, terbium, indium, dysprosium, and praseodymium, would need to be mined in larger quantities and production would need to grow as much as 12-fold by 2050 compared to today’s output.

Besides being key components of wind turbine and solar technologies, these metals are used in electronic equipment like hard drives, loudspeakers, and LCD-screens.

Neodymium, for example, is used for permanent magnets in wind turbines and in electric vehicles. Using the Netherlands’ demand as a case study, the document states that the country will have about 1.2 million electric cars in 2030, resulting in an average demand of 100,000 electric cars per year. With a neodymium demand of 1.46 kg per car, the result is a total demand of 146 tonnes per year. In other words, the Dutch demand for neodymium – only related to the energy transition – would amount to 4% of the global annual production.

Just focusing on electric vehicles, Metabolic expects total lithium and cobalt demand to increase by a factor of 25 towards 2050.

Keeping these forecasts in mind, the consultancy proposes the idea of developing a European mining industry, given that the continent is almost completely dependent on foreign supply of critical metals, despite the fact that it hosts some reserves.

The report also suggests enabling the production of renewable electricity with a smaller demand for critical metals and increasing circular design and recycling efforts by embedding circular design principles into the production of wind turbines and PV panels, to enable future reuse of components and materials at end-of-life.

The new policy restricting miners to conduct massive digging and mining within their mine sites, among others, will make it hard for the Philippines, one of the largest nickel producers in the world, to produce more of the said mineral commodity next year.

Philippine Nickel Industry Association (PNIA) President Dante Bravo said the country’s nickel ore shipment may go down by 10 to 20 percent next year from the 30 million wet metric tons (WMT) or 19.5 million MT of projected nickel output for this year.

“My projection is that because of the new regulation on mine rehabilitation program, which requires to limit the area where you can operate, it’s likely that the production will be reduced by 10 to 20 percent,” Bravo said on Wednesday.

It was in August when Environment Secretary Roy Cimatu signed the Department of Environment and Natural Resources’ (DENR) Department Administrative Order (DAO) on progressive rehabilitation, which aims to minimize the disturbed area of a mining project at any given time.

The order covers all Mineral Agreements (MAs), Financial or Technical Assistance Agreements (FTAAs), and other similar mining tenements having surface metallic mines under development, construction or operating stage.

Under the DAO, if a miner is producing 1 million MT or less, they can only extract within 50 hectares of their mine sites, while those producing around 1 million to 3 million MT are only allowed to operate within 60 hectares of their tenements.

Those producing 3 million to 5 million MT, on the other hand, can only excavate within 70 hectares of their contract areas, while those with annual production of 7 million MT but less than 9 Million can only extract within 90 hectares of their mine sites.

Bravo, who also serves as the president of Global Ferronickel Holdings, Inc. (FNI), the largest single lateritic mine exporter in the world, said this policy will largely affect the country’s nickel production in 2019 and the following years.

“If you limit the open areas in mine sites, that means you lose certain flexibility,” he added.
But in terms of the value of nickel, Bravo said there may be an improvement moving forward because of better global prices.

This, as the overall nickel inventory may go down following an increase in global consumption.
Right now, Philippines is still the largest supplier of nickel ore to China, the world’s second largest economy.

For the first nine months of the year, the country’s production of nickel went down from 22.4 million MT to 22.2 million DMT, based on a data from the Mines and Geosciences Bureau (MGB).

According to the agency, the government agency tasked to regulate the mining sector, the zero production of 11 out of the 29 nickel mines in the country, either due to suspended operations or being under care/maintenance status, “continued to weigh heavily on the overall performance of nickel.”