The race for electric vehicle (EV) battery metals is heating up.
Automakers can’t go green without having sufficient quantities of the lithium, nickel and cobalt that make the batteries work.
Fear of missing out, quite literally, is generating an industry-wide shift to investing directly in the mining sector to ensure future supplies of the battery inputs.
General Motors Co has announced a $650-million investment in Lithium Americas Corp to help fund development of the Thacker Pass project in Nevada.
GM gets exclusive rights to 40,000 tonnes per year of lithium from a domestic mine, which is key to qualifying for the EV subsidies available under the Inflation Reduction Act.
Carmakers have already been busy tying up supplies of battery metals under direct off-take agreements with existing metals producers.
Now they are getting into the business of actually digging the mines, or at least helping with the finance.
The investment rush has until now largely played out in the lithium sector but French-Italian carmaker Stellantis has just pivoted into copper with an investment in an Argentinian project.
COPPER PIVOT
Stellantis, the third largest automotive group by sales, will pay $155 million for a 14.2% stake in McEwen Copper, a subsidiary of Canada’s McEwen Mining, which owns the Los Azules project in Argentina.
The deposit, ranked in the top 10 global undeveloped copper resources by Mining Intelligence, is expected to yield 100,000 tonnes per year of refined cathode from its anticipated start date in 2027.
The automaker’s investment comes with an option to purchase the mine’s output at a ratio equivalent to its equity ownership.
With the help of existing shareholder Nuton, a subsidiary of Rio Tinto, and its copper leaching technology, McEwen is aiming to make the mine carbon-neutral by 2038, adding to the project’s green credentials.
Copper is an often forgotten component of EV batteries, but it plays a critical role as a current collector. All battery chemistries require copper, albeit to varying degrees. Lithium-iron-phosphate batteries, a burgeoning part of the EV market, need around 50% more copper than nickel-manganese-cobalt, according to the International Energy Agency (IEA).
Outside of the battery pack copper is also used in the electric motor, the busbar and in what can be up to a mile of internal wiring.
The amount of copper used in a typical battery electric vehicle is 83 kilograms, compared with just 23 kilograms in an internal combustion vehicle, according to the International Copper Association.
FEAR OF FALLING SHORT
Stellantis’ leap upstream in the copper processing chain follows similar deals with Germany’s Vulcan Energy for lithium and Australia’s Element 25 for manganese.
The copper investment has the same strategic rationale, one of “ensuring strategic supplies of raw materials necessary for the success of the Company’s global electrification plans”, to quote Stellantis.
Automakers’ collective move into the mining sector has so far largely prioritized the lithium sector, where Western companies have been playing catch-up with Chinese investors.
Lithium supply is struggling to scale up at the speed required to meet accelerating demand from battery-makers. Even with a recent pullback in the spot Chinese market, the price of lithium carbonate has risen seven-fold since the start of 2021.
Where lithium is today, copper could be tomorrow, if you believe Glencore, which has warned of a cumulative shortfall of 50 million tonnes by 2030 under the IEA’s net zero emissions pathway.
Imminent shortfall has been part and parcel of the copper narrative for many years, largely due to poor visibility on future project time-lines.
However, this time could be different given the sector’s chronic under-investment in new mine capacity. Producers have been collectively scarred by the experience of the 2000s, when they spent heavily on new mines only to see the copper price slide steadily lower over the first half of the 2010s.
Capital expenditure in the sector slumped, miners opting to return cash to shareholders rather than dig more big copper mines. It hasn’t recovered despite the pick-up in the copper price from a cycle low of $4,318 per tonne in 2016 to $9,000.
Current guidance “points toward 34% less growth capex deployed in nominal terms between 2022-2026 than was deployed over the same time frame during the early-mid 2000′s,” according to Goldman Sachs.
If copper producers remain too wary of investing in future supply growth, automotive capital may be the answer. It is already a key enabler in the build-out of lithium, nickel and manganese production capacity.
BACK TO THE FUTURE
The automotive sector is driving back to the future, the new rush to take control of supply chains an echo of Henry Ford, who famously bought iron and steel operations to supply the iconic River Rouge complex in Dearborn, Michigan.
Ford’s ambition to own the full automotive supply chain from mine to product was driven by the raw material shortages created by the first world war.
The company’s modern-day successors are faced with the same raw materials shortfall across the battery metals spectrum. If they could have sourced their metals using their favoured horizontal supply chain model, they would have done.
But so intense is the competition for battery metals and so entrenched the dominant Chinese operators that Western automotive companies have little choice but to invest directly in the next generation of supply projects.
However, the move upstream comes with plenty of potential pitfalls.
Greenfield mines have a history of running late and over budget, particularly when they are experimenting with new processing technology such as is being deployed at many lithium projects.
It’s worth remembering that Henry Ford’s vertical integration model wasn’t always successful.
The Brazilian rubber plantations, intended to supply latex for tire production, were plagued by poor yields and bad relations with the local workforce. It didn’t help that Ford initially insisted on a Midwestern diet and participation in events such as square-dancing.
However, even after the rules were relaxed and the operations transferred to a more promising site, Ford’s Brazilian dreams were overtaken by the invention of synthetic rubber.
Ford ended up selling the assets back to the Brazilian government for just $250,000 without having achieved a commercially viable operation.
It’s a useful reminder that going upstream can be a high-risk business for even the biggest automotive companies.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
