Bullish on battery metals

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At Ahead of the Herd we’re invested in metals necessary for the inevitable shift from a global transportation system powered by fossil fuels, to one that is fully electric. As sales of electric vehicles continue to climb (also electric buses, trains and e-bikes), among the metals we are most bullish on, are lithium, nickel, cobalt, manganese and copper. All five are crucial to electrification. Lithium, nickel, manganese and cobalt are needed for lithium-ion batteries, and copper is utilized in other parts of an EV, like the electric motor and wiring. An electric vehicle contains four times as much copper as a fossil-fueled model.

Lithium is obviously crucial in this shift due to its use in the batteries. There is no substitute for lithium and it is expected to remain the foundation of all lithium-ion EV battery chemistries for the foreseeable future.

Nickel is popular with EV battery-makers because it provides the energy density that gives the battery its power and range. Increasing the amount of nickel in a battery cathode ups its power/ range, but add too much of it and the battery becomes unstable, ie. vulnerable to overheating and a shortening of its life-span.

Nickel is used in two of the dominant battery chemistries for EVs, the nickel-manganese-cobalt (NMC) battery used in the Chevy Bolt (also the Nissan Leaf and BMW i3) and the nickel-cobalt-aluminum (NCA) battery manufactured by Panasonic/Tesla.

Cobalt is a necessary ingredient in the cathode to provide stability and to maintain its cycle life - ie, how many times the battery can be discharged and recharged without loss of capacity.

Finally, manganese is an essential element in two battery chemistries currently being used by battery-makers - LMO (lithium manganese oxide) and NMC (nickel manganese cobalt) - with the latter being the most prominent due to its balanced performance. According to ‘The Assay’, a Hong Kong-based mining magazine, The NMC battery is frequently referred to as the ‘all-rounder’ with good energy density, power output, thermal stability, charging time, and shelf life.

NMC popularity

NMC batteries have become so important, they are seemingly insulated from their most important demand driver - EV auto sales - even when demand drops.

Consider: the amount of nickel, manganese and cobalt used per NMC electric vehicle battery continues to rise despite less cars sold. IHS Markit says the world’s automakers will make 6% fewer EV cars and light trucks than a year ago, owing to China’s decision in June to reduce subsidies on purchases of new electric cars. The subsidy slash in China resulted in sticker shock for new EV buyers; that, combined with a slowing Chinese economy, meant that in July, for the first time ever, China’s monthly EV sales dropped.

Cutting EV subsidies also exacerbated the most prolonged downturn in China’s normally booming automobile market (traditional vehicles plus EVs), the world’s largest; in September sales sagged for the 15th month straight.

Yet despite flagging sales, demand for EV battery metals remains sturdy.

According to Adamas Intelligence, a minerals research firm, the average new EV now contains 22% more nickel, 19% more cobalt and 15% more manganese than a year ago.

Battery-makers are moving from low- or no-nickel battery cathode chemistries such as lithium ion phosphate (LFP) batteries that use zero nickel, and NMC 111 batteries that use equal parts nickel, cobalt and manganese, to higher-nickel varieties such as NMC 523, 622 and 811 (8 parts nickel to 1 part cobalt and manganese) batteries.

It makes sense to use more nickel in EV batteries, because doing so increases the battery’s energy density, thereby extending the vehicle’s range. “Range anxiety” is a key limitation on the penetration rate of EVs into the traditional market. People don’t want to buy an electric vehicle only to discover they can’t use it for anything beyond short trips in the city. So battery makers are turning to nickel.

Battery-cos have been developing nickel-rich NMC 811 batteries (80% nickel, 10% cobalt and 10% manganese) because they have longer lifespans and allow EVs to go further on a single charge. They also use about three times less cobalt, which is over twice as expensive as nickel. ($USD $15.88/lb vs $6.09/lb)

The base metal needed to make stainless steel is now used in two of the dominant battery chemistries for EVs, the nickel-manganese-cobalt (NMC) battery used in the Chevy Bolt (also the Nissan Leaf and BMW i3) and the nickel-cobalt-aluminum (NCA) battery manufactured by Panasonic/Tesla.

The CAGR (compound annual growth rate) of NMC 811s has been phenomenal.

According to Adamas Intelligence’s EV Battery Capacity and Battery Metals Tracker, in April 2019 the NMC 811 cathode chemistry saw a 251% increase in deployment year over year. Despite holding just 1% of the passenger EV market by gigawatt hour deployed (GWh), the percentage of 811s is expected to rise further in coming months due to the release of the Nio ES6 battery electric vehicle (BEV) and the GAC Aion S BEV, both equipped with NMC 811 battery cells from China’s CATL, the largest EV battery manufacturer in the world.

Inside EVs reports NMC 811’s CAGR (June 2018 to June 2019) was 251%, the NCM 622 battery CAGR was 247% and the NMC 523’s was 87%. A Fitch Solutions forecast has NMC batteries nearly tripling from 28% of global EV sales to 63% by 2027.

China is playing a critical role in the growth of NMC 811 battery chemistry.

Most Chinese battery manufacturers use lithium-iron-phosphate (LFP) batteries with no nickel, but they are looking to migrate to nickel-containing batteries with several including Shanshan, Nichia, L&F & Reshine producing them. In April CATL said it had begun mass production of the NMC 811.

Cobalt not going anywhere

EV-makers want to reduce the amount of cobalt in their batteries because, as mentioned, it is over twice the cost of nickel, and the battery accounts for around half the price of an EV.

Using cobalt is also likely to attract unwanted attention to the awful conditions of cobalt mining in the DRC, the world’s largest producer, including the use of child laborers; the unstable African country has made cobalt the “blood diamonds” of the EV industry. A third reason for lessening the percentage of cobalt in EV batteries is cobalt’s dependence on other host minerals. Because it is mostly mined as a by-product of nickel and copper, end users are at the mercy of those markets. If the price of either base metal should fall, the incentive for mining cobalt will decrease, potentially making it hard to source supply.

For these reasons, some industry observers think cobalt’s days are numbered, but they’re wrong. That’s because cobalt is actually the “safe” element in the battery cathode. Reducing the amount of cobalt shortens the life of the battery cell. The battery has to last at least eight years - the industry standard - if not, the owner can replace it under warranty. Those battery replacement costs would likely negate any savings gained from using less cobalt.

Summing up, a lithium battery for electric vehicles has to be both strong and long-lasting, through many charging cycles. It’s mostly the nickel that gives the battery its strength, and the cobalt that gives it stability and resilience, to ensure an industry-standard 8-year lifespan.

“Cobalt is the element that makes up for the lack of stability of nickel, says Marc Grynberg, CEO of Umicore, a nickel and cobalt company. “There isn’t a better element than nickel to increase energy density, and there isn’t a better element than cobalt to make the stuff stable.”

For more on the nickel and cobalt markets, read Cobalt to share EV battery duties with nickel

So, while Elon Musk claims Tesla can reduce the amount of cobalt in its Tesla 3 batteries to zero, to cut costs, the reality is that cobalt is an indispensable battery ingredient. Formerly used mostly in superalloys for jet engines and hardware, over 50% of cobalt demand now comes from the battery sector. Expect that percentage to increase, not decrease, over time.

Inomin Mines (TSX-V:MINE)

Companies that own deposits of nickel and cobalt (often mined as a nickel or copper by-product) will do well in the new green economy. One of these is Inomin Mines (TSX.V:MINE).

According to a Nov. 4 news release, Inomin has acquired two properties in central BC, Beaver and Lynx, not far from Williams Lake and 150 Mile House, containing nickel and cobalt in prospective large quantities.

At the Beaver property, a 2,187-meter drill program in 2014, consisting of 19 diamond drill holes, intersected very uniform nickel sulfide and cobalt concentrations. Highlights included 157.3 meters, 106.6m, and 86m, all containing 0.18% nickel and 0.01% cobalt.

From the news release,

The ultramafic rock hosting the nickel, delineated by magnetic surveys and drilling, covers a large 4 km by 8 km footprint, indicating the property’s potential for large, bulk tonnage, near-surface nickel deposits with cobalt credits.

The Lynx project is less explored than Beaver but it is almost twice as large - suggesting a tantalizing upside.

Copper crunch

In EVs, copper is a major component used in the electric motor, batteries, inverters, wiring and in charging stations. Filling enough orders to satisfy rocketing demand for EV auto parts is expected to present copper miners and refiners with a significant challenge going forward.

Earlier this year, research quoted in Barron’s said the mining industry will need to produce 5 million tonnes of copper a month by 2030, which is about 2.5 times the amount produced this year, just to meet demand from EVs.

The base metal is heading for a supply shortage by the early 2020s; in fact the copper market is already showing signs of tightening - something we at AOTH have covered extensively.

As we wrote in The coming copper crunch, over 200 copper mines currently in operation will be depleted in the next 15 years. Without new ones to replace them, we are looking at a 15-million-tonne supply deficit by 2035.

Max Resource Corp. (TSX-V:MRX)

Colombia-focused Max Resource (TSX.V:MRX) expects to be among a very select few copper juniors with a large-enough deposit to interest a partner to help develop it into a mine - thus presenting at least part of the solution to the depleting mines problem.

In a recent interview, Max’s head geologist, Piotr Lutynski, told AOTH that Colombia’s stratigraphy is similar to his homeland, Poland, and its Kupferschiefer sedimentary copper deposits. KGHM Polska Miedź (KGHM), the sole producer of copper in Poland mined 30.252 million tonnes of ore at 1.49% copper and 48.6 g/t silver, comprising 452,000 tons of copper and 1.471 tons of silver in 2018.

A crew at Max’s flagship Cesar copper project has been looking for surface outcrops, they think could be the tip of the iceberg of a giant sediment-hosted copper system below surface. If there’s an orebody at Cesar, underneath those outcrops, Max would be looking at a major discovery.

The company has identified a 70 x 20-km copper-silver target area with up to 2% combined copper and silver. Eighteen structures identified over 9 square km indicate mineralization is open in all directions. Grades ranged from 0.3% to 4.2% copper and up to 116 g/t silver; 27 of 36 assays exceeded 1% Cu; 15 of the 43 more than 2% Cu; and three exceeded 3% copper.

The palladium advantage

Bloomberg says there will be a 54-fold increase in electric vehicles between 2017 and 2040, the IEA predicts 24% annual growth until 2030. We’re not sure whether these targets are achievable. What we do know, is whatever the percentage of the total vehicle market EVs end up representing, there is going to be a long phase-in period.

It’s not only how quickly car-makers can crank out EVs and how soon consumers feel as comfortable buying one as an ICE model. It’s whether the raw materials can keep up.

At a conservative 40% market penetration of EVs by 2050, we found in the United Kingdom alone, providing 12,520,000 electric vehicles with 20kg of cobalt per EV, we are looking at 250,400 tonnes of cobalt, or nearly twice the world’s current production.

At 83kg of copper per EV, the electric vehicle market would need 39,654,080 tonnes of copper, or 2.2X 2018 global production.

Clearly, we need something to serve as a bridge to widespread electrification, and the answer is, hybrids and palladium.

Critical to the discussion is emissions control. Electric vehicles, including cars, trucks, cargo vans and 18-wheelers, are the most promising technology to decarbonize America’s largest source of emissions, the transportation sector.

But along with selling more EVs - in 2018 US sales pushed past 1 million - emissions control is equally critical in cutting down air pollution and mitigating the effects of heat-trapping greenhouse gas emissions exiting tailpipes.

Concerns over air pollution led the EU to set a target of cutting emissions by at least 40% by 2030, from 1990 levels. The United States under President Obama embarked on a path of restricting auto emissions significantly, but the plans have skidded to a halt under the Trump administration. China, whose major cities are often cloaked in a thick fog of air pollution, has also begun to implement tougher vehicle emissions standards. The country is targeting a reduction of between 26 and 28% of emissions from 2005 levels by 2030. The new rules demand that vehicles emit fewer pollutants such as nitrogen oxides, particular matter and ammonia.

The tighter emissions standards that are being rolled out worldwide in response to worsening air quality, have affected automakers’ selection of vehicles and the components of their engines.

A recent Reuters article reports that “The auto industry has all but stopped developing next-generation combustion engines as limited resources are directed towards building electric and self-driving cars.”

However, the news agency quotes analysts saying it won’t be until the middle of the next decade (we'd say a lot longer than that) before electric vehicles overtake their gas and diesel-powered predecessors, noting that EVs only accounted for around 1.5% of the 86 million cars sold last year.

If we are stuck with conventional vehicles for several more years, we are also stuck with catalytic converters. These pollution-control devices employ both platinum and palladium, but more platinum is used in the autocatalysts of diesel engines, and more palladium is found in the catalytic converters of gas-powered vehicles. Autocatalysts are the largest markets for both precious metals.

Demand for the metallic element has surged since 2016 with the movement away from more polluting diesel-fueled vehicles, aided by “diesel-gate”. The price has more than doubled over the last three years (+124%) and ran up 18% in 2018.

Despite automobile demand slumping in China last year, palladium finished 2018 at $1,262 an ounce - almost catching gold’s year-end close of $1,282/oz. At present, the spot price of palladium is $1,878/oz, $415/oz higher than gold.

Not only has demand bounced up, palladium is also facing constricted supply. 2018 was the seventh year in a row that palladium was in deficit because of strong vehicle sales and low mined output.

According to a report from Sprott Asset Management, “Supply shortages continue to support palladium’s performance, with strong multi-year growth in palladium demand now straining a fixed supply.”

Amid these market conditions, which will remain so for the foreseeable future in the absence of new deposits, and as long as gas-powered vehicles and hybrids keep rolling off assembly lines, companies that mine palladium are well-positioned to make gains.

Palladium One (TSX-V:PDM)

Considering the difficulty the world’s largest palladium miners, especially those in South Africa, are having increasing production, the onus is on smaller companies to find and develop new deposits of the platinum-group element. One company that happens to have one, is Palladium One (TSX-V:PDM), developing its LK copper-nickel-PGE project in Finland.

In September the company published the first (maiden) NI 43-101-compliant resource on its Kaukua target, thereby placing Palladium One in the starting blocks of what should prove to be a very interesting run at developing an open-pit Cu-Ni-PGE mine.

The exciting part about Kaukua, is the envisaged open pit resource (estimated at 22 million tonnes, indicated and inferred) is just one part of a very large 2,500-hectare land position. Nine exploration permit applications feature three mineralized zones: Kaukua, Murtolampi and Haukiaho.

Only about four kilometers of the 25-km basal contact have been drill-tested.


Likely unknown to most people is the amount being invested in public charging infrastructure, to deal with drivers’ range anxiety - still a significant obstacle to EV ownership despite range extensions across a broad spectrum of EV models. Light-duty EVs with a range of over 200 miles (321 km) either available now, or for release in 2020, include: Tesla’s Model 3 and X, the Jaguar I-Pace, Kia e-Nero, Hyundai Kona Electric, Mercedes-Benz EQC, Chevrolet Bolt, Nissan Leaf and Audi e-tron.

Wood Mackenzie states that US utilities have invested nearly $2.3 billion in EV charging infrastructure. In the fourth quarter of 2018, the New York Public Authority announced a $500 billion commitment to grow the state’s clean energy economy, with half of that ($250 billion) earmarked for a fund to lessen range anxiety. The fund would pay for interstate direct current fast chargers (DCFC), airport charging hubs and developing EV-modeled communities.

America’s Transportation Infrastructure Act of 2019 sets aside capital for public EV charging infrastructure. The bill would authorize $287 billion to finance the next five years of Highway Trust Fund operations.

Wood Mackenzie predicts that by 2020 9.4 million EVs will be on the road, with 7 million residential charging points in service. By 2030, those numbers climb to 74 million EVs and 30 million charging points.

These figures indicate that the United States, despite White House reluctance to embrace clean energy, is putting up a lot of money to fund what we at Ahead of the Herd believe is an inevitable shift from a fossil-fuel-based to an all-electric global transportation system.

Mining is inseparable from this transition. The widespread adoption of NMC batteries guarantees a steady flow of demand for nickel and cobalt for many years to come, not to mention lithium, for which there is no substitute. Even far from being commercialized solid state batteries employ lithium. Constricted supply for this quartet of elements all but guarantees higher prices.

Copper too will need to be mined in far greater quantities than currently in order to meet EV parts requirements, even at say, a 40% penetration of the ICE market. As we move in the direction of more EVs relative to ICEs, there needs to be a transition period as diesels are phased out and gas-powered vehicles take their place. Mass adoption of hybrids is the next step in getting to the target number. In both vehicle types, gas-powered cars/ trucks and gas-electric hybrids, palladium-rich autocatalysts can perform the crucial function of filtering air pollution en route to a better climate future.

Richard (Rick) Mills
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Richard owns shares of Palladium One (TSX.V:PDM). PDM is an advertiser on his site.

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