Can we dig it? Battery metals market may be worth twice coal exports

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If Australia catches 25% of the battery metals market, it could double the mining revenue it currently gets from coal exports.

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An electric car being charged. Australia has good supplies of lithium, used in electric vehicle batteries.
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Two articles caught my eye recently, and made me double down on an idea that has been brewing for some time – an Australian sovereign wealth fund focused on battery metals.

Using International Energy Agency forecasts for electric vehicles, and market pricing for battery metals, in this article I will show that by 2030, capturing just 25% of the battery metals market, could lead to twice as much mining revenue ($135b/pa) to Australia as we get from coal exports ($65b/pa).

It’s time we stop coveting the Norway sovereign wealth experience, the world’s largest sovereign wealth endowment at over $1trillion dollars, and take steps to create our own.

Article 1: Australian Government may be on the hook for $200m, to deal with risks to the environment resulting from a rusty oil tanker.

Article 2: Norway set to gain more from drilling in Great Australian Bight than Australia

See the connection?

It is the oldest business model trick in the world, to privatise the profit and socialise the risk.

Just to add salted herring into the wound, the lion’s share of profit from Australian oil and gas assets being exploited in the Bight, will flow to Norway, ranked No.1 for human development by the UN. Ok ok, Australia is ranked no.3 on that list too, so it isn’t all bad I suppose…

Perhaps ironically, it comes at a time when Big Oil appears set for a Big Decline – even BNP Paribas thinks so, looking with a financial lense only. So perhaps more fool Norway?

But really the reason the articles got my attention is that we are sitting on the very things that will replace oil and gas this century.

Battery Metals.

Nickel, Cobalt, Manganese, Lithium, rare earths and Vanadium for grid scale storage too.

The detail is covered in fantastic groundwork laid, under the brand name Lithium Valley.

Although it must be said that given BHP sees Nickel as a once in a generation investment opportunity arising from the EV transition, perhaps it should be called Nickel Nirvana.

If BHP sees this as a once in a generation investment opportunity, it probably means as Australian’s, we are sitting on a once in a generation opportunity, to create a sovereign wealth fund focused on battery metals investment.

A sovereign wealth fund could focus on bringing online battery metals supply in Australia initially, with the potential to leverage our mining and chemicals expertise into projects globally over time.

Instead of piecemeal R&D funds drip fed to projects, a sovereign wealth fund could make serious long term investment in chemical value adding, providing the stability needed to build our capabilities and bringing leverage and scale to battery cell manufacturing partnerships with global giants such as CATL, Samsung and LG Chem.

We even have expertise in battery metals recycling, and so could control a closed battery metal materials, with product stewardship embedded in the sovereign wealth fund investment model.

The maths on Nickel as a sovereign wealth opportunity is pretty straightforward so let’s start there.

Its an open secret that battery chemistry in cars is going to “NMC”, standing for Nickel: Manganese: Cobalt. Most importantly, it’s going to that chemistry mix in roughly 8:1:1 over time (it isn’t quite at those ratios yet across all battery suppliers, but some of the big ones like CATL are already doing 811).

High Nickel ratios are partly what has given Tesla’s batteries an edge to date as they enhance energy density, and probably one of the reasons CATL looks set to supply Tesla in China.

Mass market EV’s are almost guaranteed to need at least 50kWh for the foreseeable future, to give buyers enough range to make the purchase worth it, which means roughly 60kg of Nickel per new EV. Nickel has been selling for around $7/lb US, or $22/kg Australian.

That’s $1320 worth of Nickel per EV, before we consider the opportunity for Australia to value-add (i.e. to produce refined battery chemicals, or battery cells themselves, rather than just supplying processed ore).

How many EV’s could there by by say, 2025?

There are currently about 77m cars made each year. When you scan across the plans of big auto (VW, Toyota, Hyundai…Tesla), its plausible we could get to at least 30%, if not 50% of new cars being EV by that time.

Let’s call it 25m EVs by 2030, a figure even conservative analysts would currently accept. The international energy agency is forecasting it could be as high as 125m EVs by 2030.

25m x $1320 = $33b/pa. That’s $33b/pa of Nickel revenue…Now add cobalt revenue at 8kg per car, fetching $50/kg (AUS). That’s another $10b/pa. Lithium at say 10kg/car, fetching roughly $11/kg (AUS), add another 2.5b/pa.

Just on three key battery ingredients, by 2025, EVs (just passenger vehicles) might chew through over $45b/pa of raw metal inputs at current metal prices.

Bear in mind, those metals are currently in a price funk – that $45b/pa could easily become $90b/pa+ on bull market metal pricing alone.

Play it out to 2030 using the IEA forecast of 125m EV’s, include bull market pricing (which would be likely given the enormous demand pull for these metals) and you get a market size $540b/pa.

To put that in perspective, Australia’s annual coal export revenue is ~ $65b, a relatively small number particularly given the weight of evidence behind coal’s structural decline.

Capturing just 25% of the EV metals market by 2030, would make it twice as large as coal is today.

The thing is, realising that value 20 years from now, requires action, real action, today.

How long do we have until the opportunity passes us by? Until a sovereign wealth fund for battery metals, as an idea, is too late?

Looking across the lithium industry, the writing is on the great wall. Assets across Western Australia have been largely stitched up by foreign investment to date, with project deals initially done on the back of high lithium prices and a buoyant outlook for the industry.

But a re-work of Chinese battery subsidies combined with slower than expected EV ramp by the majors, has seen lithium prices come well off, and projects already being mothballed.

The cynical are saying this is just part of the long game being played, taking advantage of commodity pricing and sentiment to extract value from those that are commodity exposed (Australia). That is, a lot of lithium projects used relatively high cost debt and investment coming from international syndicates, including car companies and battery makers themselves.

Many of these are now well positioned to swoop on assets and squeeze their value for the long term.

The next wave of investment is expected to come for Nickel, with sovereign risk in Indonesia and the Phillipines giving Australia a strong competitive edge, and possibly “ethical cobalt” given the very real supply chain risks around cobalt supply from Africa, specifically child labour and conflict labour in the DRC.

Will Australia be ready to ride this wave?

Will all Australian’s share in the benefit of this once in a lifetime opportunity, to align financial and environmental goals for the long run?

Perhaps most importantly, can we dig it?

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8 Comments
  1. zippidy dooda 1 week ago

    First of all, Australia already has a sovereign wealth fund (the “futurefund”) and it’s currently at about $200bn AUD. But the real question should be, is the Oz gov really up to the task of making the best investment decisions in the very risky business of mining? And placing any mines or processing plants in the most economically logical locations rather than based on political criteria? I think not (see the boondoggle of Al smelting). And it’s not like Australia is lacking in local companies with experience and capital to take this on – BHP is the world’s largest diversified mining company and as you note are already making large investments in mining the key battery components. Today these are Nickel/Manganese/cobalt but in a decade or two, Sulfur? Al? Hydrogen? who knows?

    • Mark Roest 1 week ago

      Mostly metal oxides and clays.

  2. Pedro 1 week ago

    We need a government that ‘digs it’ first. Not a government that digs a great hole for itself and forgets to bring a ladder.

    • Tosh Szatow 1 week ago

      Government follows public sentiment. This needs to be a people’s movement I believe, that brings government with it.

  3. Mark Roest 1 week ago

    Your assumptions have a gaping hole that a ship could sail through. Let’s go through the list of minerals first:

    Nickel, Cobalt, Manganese, Lithium, rare earths and Vanadium for grid scale storage too. Cobalt and Lithium are toxic and hazardous. Rare earths may be abundant in Australia, but probably not on the global scale a mass electrification using lithium would require. Vanadium has been (though that might change or have already changed), very low-density battery, meaning a large installation,taking up expensive space.

    Next, the assumption that what industry is moving to in the short term, with essentially the same manufacturing systems, is what will be so for the future. I don’t think so, when the top lithium battery developers are finally shooting for 500 Wh/kg, most of the industry is at 200 or fewer Wh/kg, and saline-based, ceramic semiconductor batteries are coming within 2 years that don’t cause fires or explosions, are non-toxic, don’t use rare or even supply-constrained materials, will always cost less to manufacture than lithium batteries do, take up much less space per kW and per kWh, and are expected to have capacities from 2 kWh/kg in 2 years, to 3 in 3 years, to 5+ in 5 to 7 kWh/kg years. Consider that the the tipping point for full battery-electric commercial passenger aircraft is 700 Wh/kg, according to the Aeronautics Division of NASA.

    By way of context, in 1983 most widely used solar was on the order of 5 to 7% efficient. And William Todorof was granted the first multijunction silicon multicrystalline thin film patent for a fired ceramic semiconductor formulation that is an antecedent of the battery, and got 22.5% efficiency! The core concept of the patent was that it is a new, fast semiconductor. It is a solid precedent for the possibility of new solar and battery physics.

    Unfortunately for Australian mining ambitions, these higher-priced minerals are not part of the picture.

    • Tosh Szatow 1 week ago

      Hi Mark, the article isn’t based on my assumptions, I’ve taken them from people that are doing detailed bottom up research looking at where the battery metals and EV market is going. Benchmark minerals in particular are doing great work tracking giga factory build out – really $ bringing scale to battery production and cost reduction. It would be good if you could post some references/links that support your assertion about current battery chemistry will be superceded in two years

  4. Alan Wilson 1 week ago

    It would be great if Australia as a whole can make a heap of money out of the next big step of EVs over the next 30 years …. but lm sure we are going to be ripped off by international players

  5. Nick Kemp 1 week ago

    Without getting into the ins and outs of the mining side the value of the sovereign wealth fund was twofold. First – the idea of having a huge investment funding ongoing public expenditure on health, schools and welfare etc. But second, and probably almost as important, the investments are held in US dollars which avoided the running up of of the Kroner along with the loss of local manufacturing export industries (the so called Dutch disease)

    We already missed the boat on that one in the last mining boom even though we capture a relative pittance from iron ore etc and we missed the boat on the first one with natural gas even though we’ve seen it all before it made more sense to our olitical class for states to run a reverse auction on the royalties and distribution rather than worry about the underlings in the electorate.

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