Pala banking on battery minerals

Oct 10, 2017

For miners, the electric vehicle narrative is well-established now: lithium supplies should be fine by the start of the next decade as the car industry ramps up production, while demand for cobalt will far outstrip what can be pulled out of the ground.

2295702-1-eng-GB_drc-tenke — Tenke Fungurume in the DRC is one stable source of cobalt for the near future

Speaking at last week’s Natural Resources Forum in London, Pala Investments head of research Jessica Fung laid out her firm’s outlook for the raw materials going into lithium-ion batteries.

For context, Pala expects annual battery capacity installed in cars to go from around 50 gigawatt-hours last year to almost 1,000GWh in 2030, the equivalent of 20 million cars.

Fung only seriously plotted the cobalt, lithium and nickel demand out to 2025 because of the uncertainty of the Li-ion battery make-up beyond then.

Unsurprisingly, her models make Pala’s decision to launch an energy metals fund this year look like a no-brainer.

This year, Pala also backed RNC Minerals (CN:RNX), which has nickel and cobalt projects, and Cobalt 27 (CN:KBLT), run by its own Anthony Milewski.

Fung said there would be significant supply gaps in cobalt and nickel by 2025.

“We expect to double annual demand from 96,000 tonnes [last year] to 184,000t by 2025,” she said.

“We expect EV batteries to grow from representing 5% of total cobalt demand now to 29% of total cobalt demand in 2025.”

Fung said cobalt production (including projects in the pipeline) would be around 140,000t in 2025 so there will be a significant undersupply, although the two numbers really split in 2022.

Nickel is similar, although on a larger scale and already seeing undersupply due to political issues in Indonesia and the Philippines.

“Nickel [mine supply] will go from 2.1 million tonnes to 2.6Mt in 2025, and EV batteries going from less than 1% of nickel demand now to 10% by 2025,” Fung said.

She estimated nickel demand at 3.5Mt in 2025; making for a 12% supply gap when nickel scrap supply is factored in.

Lithium producers will meet the estimated 539,000t demand if the majority of new projects get built.

While this is unlikely given the mining industry’s track record, a further price boom might just encourage it to happen.

Fung’s theory was that a combination of new projects, recycling and an evolution of battery chemistry would keep the incoming EV juggernaut rolling on.