There are global market forces currently impacting pricing, supply, and demand for the battery metals. What are some of the biggest impacts you’re seeing right now?
Xi Xi: We’re seeing better battery design, and the cost of metals keeps dropping. Lithium has dropped about 90%. And in 2024, we are going to see more in terms of performance and dropping battery prices.
Andrew Trahar: We’re seeing more activity from strategic government-led initiatives, like the Inflation Reduction Act (IRA), but at the same time, we’re also seeing a withdrawal of capital from institutional fund managers who are once again dumping listed stocks, with capital for private assets being quite hard to secure. I think the roles of private equity funds like ourselves, government – led initiatives, and strategic financing is going to be key to enable this transition.
We’ve seen a big drop in pricing, but it’s because hundreds of gigafactories are still being built and the miners have responded very quickly. They’ve done a great job of producing the minerals required, but a lot of these gigafactories will only be coming online in 2026, 2027. So, you’ve got this mismatch in timing of supply and demand that we’re going to see a big reversal in in due course. We’re going to have very volatile pricing for the next year or two as we try to see the market find a supply-demand balance.
Helen Brume: The interplay of supply and demand plays a key role, but underpinning it all is the fact that there’s an estimated US$10T gap in the industry. When you look at the inflationary pressure increasing the cost of production, the trend around better compliance with ESG, more scrutiny around sustainable mining practices, child labour — all of that adds pressure. And then obviously, you have the growing electric vehicle (EV) industry underpinning and sustaining that demand.
A lot of manufacturers are locking down their minerals supply chains, going into long term offtake contracts to secure the mining resources. But at the same time, the suppliers of those resources don’t want to give up a lot of the upside by entering into those long-term contracts. So, they tend to build in those prices at the beginning, which increases the pricing of some of these commodities.
Vinit Lakhani: Because of EVs and the focus on net-zero energy transition, the demand for these battery metals and minerals has absolutely exploded over the last couple of years.
I think the price for these products will become very volatile. Historically, they’ve been relatively easy to forecast. Now, it’s very tough to forecast, primarily because of the current demand and the perceived forecast of demand. Secondly, the supply chain for these battery minerals is extremely concentrated. A case in point is lithium, where you’ve got mines all over the world, but most of it is coming into China for processing.
When it comes to graphite, China is controlling all the processing capacity. And because of such concentration of the supply chains and the huge gap between the upstream and downstream, and even potentially midstream, there’s a bit of a lag, and there are no future markets to protect yourself from pricing. These lags and the gap between upstream and downstream will continue keeping the prices very volatile.
Technology is also important. A couple of years ago, cobalt and nickel were the flavour of the season. But suddenly, the mass market shifted towards LFP chemistry and now nobody’s talking about cobalt and nickel prices. They’ve been the worst performers for the last year and are expected to be worst performers this year as well.
Where do you see that supply potentially coming from? Looking across the African continent, do you see a lot of opportunities here to help fill those gaps?
Xi Xi: Traditionally, for lithium, it’s been Australia and Chile, but now we’re seeing a huge supply coming out of Zimbabwe, with three mines commissioned last year. And we’re seeing a mine in Mali coming imminently on stream. There is lots and lots of opportunity in Africa for critical minerals.
Andrew Trahar: Africa presents a fantastic opportunity on the mineral front. Latin America is really growing, with Brazil becoming a credible lithium player too. We are involved with a rare earths mine that just started production in Brazil. So that’s pretty exciting.
We’re also seeing opportunities in Africa. We have a mine in Madagascar that’s just started production which is ramping up and commissioning its graphite mining operation. Additionally, some of the traditional players, like Australia, are providing opportunities. The challenge for Africa is the improvement in logistics, reduction in bureaucracy, cutting down permitting, and actually allowing Africa to become a leading jurisdiction in decoupling from fossil fuels.
I’m hopeful that with investment and infrastructure, we will see an improvement in supply chains, and an improvement in Africa’s competitiveness.
Helen Brume: 70% of the resources needed for decarbonization will come from the African continent, from places like the DRC and Zambia. Nigeria is also a place to watch out for. They have high lithium reserves, they just need to get their act together and figure out how to monetize that. Most importantly for Africa, is how can we improve the value addition. For so long, Africa has been a resource point where minerals are extracted and the value is created outside the continent and then re-imported. So, it’s time for Africa to do things differently, enter into more sustainable partnerships and more sustainable mining practices that puts additional value on the continent. I think that’s where African Export-Import Bank (Afreximbank) will play a strong role.
Vinit Lakhani: Africa is and will remain where the supply chain starts. Over the next couple of years, we will see a substantial amount of raw minerals, like lithium, being produced and processed to a stage where they can be shipped out from Africa.
By 2030, I’d like to see at least a midstream capacity being set up in Africa. We have seen that happen in more established products, for example, copper processing happening in DRC and in Zambia. We have also seen this in the more traditional minerals like manganese and chrome.
Do you see new initiatives, especially from regional governments, to establish more of that kind of top to bottom value chain here?
Xi Xi: Morocco seems to be the regional country trying to take advantage of the IRA. In Asia, the EV energy transition metals are still very much dominated by China. But now Korean companies are looking to also take advantage of it.
Andrew Trahar: African nations are not doing nearly enough, and I think they really need to step up their game to encourage deployment of capital and strategic government support, because all that’s going to happen is that we’re going to lose industry. South Africa has a large automotive industry, and if South Africa doesn’t support the development of gigafactories in the country and the transition to EV vehicle production, it’s going to fall behind the curve.
Helen Brume: We know the government has a critical role to play in terms of setting the tone to encourage investors and putting in the right regulatory framework. But I think partnerships will play a key role. And that’s where obviously institutions like Afreximbank comes into play.
We’ve entered into a partnership with the DRC and Zambia to help them in their battery electric initiative. We’re building a battery precursor pack. We have committed US$1B to the feasibility studies and the results were released sometime last year. This is a partnership involving Afreximbank, the IFC, and UNECA. The idea is to create a free trade zone that straddles both countries and attracts manufacturing companies to come and manufacture those batteries, which speaks to my earlier point about improving beneficiation on the continent.
Vinit Lakhani: Around 10, 12 years ago, Indonesia used to export a lot of raw material (copper, nickel, cobalt, manganese, etc.) in concentrate form to other countries where downstream processing happened. Then, the government came up with a new mining law, which restricted these exports.
It was a bit of a shock to the commodity universe, but Indonesia had a fairly decent banking system and a reasonable level of law of the land which made that possible. It’s been a great success story that attracted a lot of investment from both Western and Asian foreign investors, and Indonesia is now at the top of the map when it comes to exporting of a lot of these processed minerals and metals.
A similar thing needs to happen in Africa. Africa is a lot more diverse though, with multiple countries, politics, and laws to manage. But, I think, with the support of banks like Afreximbank and other multilateral institutions, this can be possible. Unless you get debt capital into the market, unless these projects become bankable, you can’t fund these projects out of equity. You need to set up a framework, regulatory and infrastructure-wise, which makes conducive for foreign investors to put their equity in and with a view that these banks will come in and support from their side of financing.
Let’s look at where the financing is currently coming from for these key critical and battery metals. As investors, what do you look for when you’re assessing companies within the sector?
Andrew Trahar: There are oil majors and automakers who are new entrants into the mining space, and thank goodness, because so many of the commercial banks, who were key financial supporters of these projects, evaporated after the last commodity crisis. And some of the traditional institutional fund managers disappeared as well. So, it’s a breath of fresh air to have new entrants in the space to collaborate with.
Many of the OEMs are trying to work out how they play this space, through pure equity, prepay, loan finance, offtakes, etc. The trickiest thing, is that as an equity investor, like ourselves, how do we find the right deposits that are going to produce the right mineral? And that’s where working with an automaker can be very helpful because we need to make sure that whatever we dig out of the ground is going to meet the right spec and grade for the customer.
Helen Brume: The better the assets, the better your chances of extracting value from it to pay back your loan. We also look at jurisdictions. And not because we’re uncomfortable with certain jurisdictions, but having a favourable jurisdiction already sets the tone for how your financing or your investment is going to play out, and how the operators are going to be able to work on those assets.
We look at ESG and sustainable mining practices. We look at the sponsor’s commitment to setting up an abandonment account, because too often we see mines abandoned and the impact on the community is completely devastating. Finally, we look at the infrastructure supporting the area in which the mine is going to operate, the access to roads and general logistics. How are you going to evacuate your products? How cumbersome is it? Do you need to put in extra financing to build a logistics framework?
Vinit Lakhani: I see a lot of money going into setting up gigafactories, whether it’s through IRA money, private equity, or even from the OEMs. But to feed into these gigafactories, I don’t see the comparable amount of investment getting into the upstream space, into the mines. I think that’s where the miners are lagging in making investments into new projects. We’ve only seen a handful of projects being announced by the major miners, whether it’s lithium, cobalt, or nickel.
Xi Xi: I feel like in China there are a lot more consolidations. For example, you have two companies that make 60% of the world’s batteries — CATL and BYD. The more you move downstream to the car, the fiercer the competition and the less margin you’re making.
As an equity investor in the critical minerals space, how concerned are you about the innovation around the technology?
Andrew Trahar: We like to bet on proven adopted chemistries. The gigafactories that are being built today, are being built on a nickel-cobalt-manganese chemistry or a lithium-ion-phosphate battery chemistry. So that’s what we are banking on.
I think it’s very dangerous to play the technology gamble. There are hundreds of billions of dollars going into building gigafactories that will be configured to produce those kinds of batteries, and that is the kind of commitment that is being made by these automakers. There’s good reason for it because those are the batteries that are proven to work, so they’re willing to commit capital. To reconfigure those gigafactories is extremely difficult and very costly. So, we are betting on proven chemistries.
We are looking for assets that also will produce them at a low cost, but I think we do have to take cognizance of the evolving nature of how those chemistries, particularly on the cathode side and the lithium-ion battery, and a nickel-cobalt manganese cathode, has fluctuated. Many automakers are comfortable in producing different vehicles for different customers. They’ll produce combustion engine vehicles for customers with range anxiety, and a nickel-rich chemistry battery for a customer in the US or Europe who wants to make sure they can do a longer range. Then for city run arounds globally, they’re happy to have a lower cost, lithium-ion phosphate product.
Finally, what are you most excited about for the future of the green energy transition and all of its associated metals and opportunities?
Xi Xi: I’m always excited to see new battery technologies. So, I think it’s not just going to be one LFP or LFMP or sodium. There’s always going to be a secret ingredient. And every year we’re just becoming better and better.
Andrew Trahar: The most exciting thing is to see the increased adoption of clean energy technologies. I love to see these huge ambitious scale renewable generation projects, the solar and wind ambitions. Only a few years ago, people were laughing when you said that EVs were going to be a meaningful part of the automotive mix. But it’s a real thing. It’s being increasingly adopted. Gradually, we will see with scale production that the cost of the battery will become more and more competitive.
Helen Brume: I’m excited about what the future holds for Africa. I’m excited about Africa waking up and realizing its full potential. I’m excited for Africa to enter into meaningful, sustainable partnerships that help retain value on the continent.
Vinit Lakhani: I’m excited to see recycling become an important contributor to the primary supply chains, because there’s limited amounts of mining possible. I’d like to see a more efficient and better recycling technology at scale. The best thing about recycling is that it can be set up regionally, which is unfortunately not the case right now. For example, right now a lot of African batteries find its way into Asia for recycling. It’s not a very expensive technology. So, if you can recycle locally, regionally, all these batteries, electronic waste, and pretty much everything that has got any metal or mineral of value, that will not only help in reducing the carbon footprint, it’ll also stabilize and streamline the supply chain, which tends to get very concentrated between the location where you find the ore and the capacity jurisdictions. So, it has multiple benefits and I am personally very passionate and excited to see recycling taking up in a more active way.
Panelists:
- Helen Brume, Director of Project & Asset Based Finance, African Export-Import Bank
- Andrew Trahar, Partner, Vision Blue
- Vinit Lakhani, Head of Base Metals, Tata International
- Xi Xi, Director, Zeta Resources
