Choosing a major technological change isn’t always the same as a huge return on investment. Ask an investor who invested money in the dot-com boom 20 years ago. A more recent example is the case in 2016 and 2017, when the automotive industry moves from internal combustion engines to electric vehicles (EVs). And the mining industry jumped in.
In the following year, the paper was greatly proven. Major automakers and governments are behind these changes, and EVs will dominate new car sales in 10 years. However, investors who jumped in initially suffered heavy losses by 2019, and London companies struggled with financing the mine. Lithium, cobalt and graphite prices also plummeted in 2017-2019 as supply overwhelmed demand.
But now, stock prices are backing up, cash flows to build mines, and new players emerge, focusing on raw materials exposed to lithium, graphite, nickel and other EVs.
What do we need?
Lithium, graphite, nickel, manganese and cobalt are key components of lithium-ion batteries, and electric vehicles also require large amounts of copper and rare earths. Another driver of demand is stationary batteries used as part of a renewable energy system.
As we have seen in recent features for EVs (Race to Riches, Jan 28), demand has skyrocketed in recent years and is expected to grow even more rapidly over the next decade. According to Bloomberg New Energy Finance, spending on passenger and commercial EVs and electric buses that led passenger car sales rose nearly a third to $133 billion in 2020. Looking ahead, Benchmark Minerals Intelligence predicts that nearly 200 battery giants will be built over the next decade, more than double the existing number.
The plant is slowly building capacity in Europe and North America, but is mainly found in China, Japan and Korea.
Bacanora Lithium (BCN) provides a perfect example from the last 5 years in the battery metal sector. The company quickly grew from Aim tiddler to a promising lithium option in London in 2016. The main outlook for Bacanoras is the Sonora clay lithium deposits in Mexico.
Construction of Sonora was scheduled to begin in 2018, but a $100 million share increase was withdrawn three days after it was announced. Weak lithium prices and a surge in supply in Australian mines frightened investors that the stock price fell from 137p in early 2018 to 25p a year later.
However, site preparation has now begun, and last month’s share price hit a two-year high, and production possibilities are expected to increase from 2023. Fellow Aim-listed Savannah Resources (SAV) works in a Portuguese mine to supply European automakers, but is not as far on the development schedule as Bacanora.
The power to drive new interest in this sector is simple.
Peter Secker, CEO of Bacanora, has seen a significant increase in EV absorption over the past six months and Europeans moving along the EV path.
Tesla is building factories all over the world. And China is still going that way. They will be electric before the rest of the world.
Lithium has different price markets depending on how close it is to the products the battery manufacturer needs. Australia, a major producer of minerals along with Chile, exports most of its ores to China given its limited local processing capacity. This spodumine feedstock hasn’t increased its price as much as lithium carbonate or hydroxide, or another step-by-step battery-grade chemical that has been removed from the ore.
The benchmark revealed that the price of battery-grade lithium carbonate rose more than 40% in January to $9,450 (tonne) per ton. The increase in the price of raw materials wasn’t that dramatic, and Spodumin rose only 6% in the same period.
Lithium miners in London plan to sell products that have been removed a step or two from ore, mainly taken from the ground. Bacanora, the first locally listed miner to reach production, will sell battery grade products in its own processing facility.
We’ll try to avoid the pitfalls of the converter’s mercy, and we’ll sell it to downstream consumers, which are battery manufacturers, and to a much larger market, cathode manufacturers, Secker says. Conversion companies are mainly Chinese companies that purchase lithium ores or concentrates.
However, changing investor and consumer expectations can see automakers chase local lithium supplies to reduce supply chain emissions. Mexico is a major automobile manufacturing hub in the Americas, but currently has no battery production capacity, and in any case, Bacanora has already pledged supply to its major shareholder Ganfeng Lithium and trading company Hanwa.
Another change in Bacanora compared to 2018 is the Ganfengs investment, which now accounts for 29% of the company’s capital and 50% at the project level, halving the cost of building mines and plants of $420 million.
UK investors may also want to look closer to home given the pressure to strengthen local car and battery manufacturing capabilities. Cornish Metals (CUSN) offers full baskets. In addition to traditional tin, there is copper in the United Downs licensed area, and a loyalty agreement with private explorer Cornish Lithium may eventually result in a source of lithium income.
Cornish Metals has not yet completed a feasibility study for the mine, so it is still at the very speculative end of the sector.
Several advance earnings options make it easy for investors to choose a winner. Non-metal options range from the giant Glencore (GLEN) to smaller producers such as Atalaya Mining (ATYM) and Central Asia Metals (CAML). These have less direct EV exposure, but will still do well in the associated copper demand.
In addition to individual stocks, the Global X Lithium & Battery Tech ETF (LIT) and the L & G Battery Value -Chain UCITS ETF (SOLBATT) both have major lithium players not listed in the UK.
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