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Metals Are The New Oil
The green energy revolution is aiming to replace fossil fuels with renewables. This will drastically reduce the need for coal, oil, and gas energy extraction. However, EVs, solar panels, and wind turbines require specific materials to be built.
For example, mass EV adoption will require a tremendous amount of minerals, especially graphite, copper, lithium, and silicon, cobalt, manganese, nickel, and rare earth elements. The demand for copper would grow from 110,000 tons in 2020 to 3,119,000 tons in 2040 in the sustainable development scenario. Even in the more moderate “stated policies scenario”, copper demand would grow to 951,000 tons of copper or 8.6x more.
The same holds true for all aspects of the energy transition. Stronger power grids will require copper and aluminum (the largest power line cables are made of aluminum). Wind turbines require powerful magnets rich in rare earth elements. Each solar panel contains, on average, 20g of silver on top of polysilicon and copper. And, of course, power grid-scale battery packs will also require a lot of metal. Overall, EVs, energy storage, and electric grids will be the highest drivers of mineral demand for clean energy by 2040.
Because many metals will be in high demand due to the energy transition, it can be a little confusing for investors to know which to pick.
The first one to consider is copper. This is because it is the only highly conductive metal that is cheap and abundant enough to be used at scale in batteries and grid applications. So, whether the demand comes from EVs, utility-scale batteries, grid improvement, or energy production (solar and wind), they will all need more copper.
Another one is lithium. Most alternative battery chemistry compositions for EVs differ from the classical lithium-ion but still use a lot of lithium. This includes lithium-iron-phosphate (LFP) batteries and most designs for solid-state batteries.
Regarding batteries, another 2 metals of importance are nickel and graphite. Both are used in large amounts, even in advanced battery chemistry.
Cobalt, however, is something most batteries and EV companies are actively trying to either reduce or eliminate entirely. So it might not be a great investing idea in the long run, at least not if this is the only metal the company produces.
Lastly, something to consider is the outsized role of China in the renewable and EV supply chain, with the country responsible for a large part (and sometimes almost all) of the refining of these metals. So, a look at graphite, rare earth metals, and other important metals is also an option.
Top 10 Battery Metals & Renewable Energy Mining Stocks
This list seeks broad exposure to mining stocks active in metals important for batteries and renewable energy. It is also looking to reduce geopolitical risks for Western investors, with such metals increasingly used as a weapon in the US-China trade wars. So this is a partial list, with a preference for large, liquid stocks over more speculative smaller or exploration-stage miners (junior miners).
BHP is the largest mining company on Earth and has the largest reserves of copper, with more than 180 Mt (million tons) contained in its deposits. The company also mines potash (fertilizer), nickel, and iron ore.
In 2023, BHP finished divesting its metallurgical coal mines in a bid to re-center on renewable-focused metal instead.
It is also working hard at decarbonizing its daily operations, with the company already one of the mining companies with the lowest carbon intensity and among the ones reducing it the quickest. A lower carbon footprint will mostly be achieved by decarbonizing electricity used in its mines (wind + solar) and phasing out diesel engines in favor of electric equipment, first with trolleys (cables over the trucks) and then batteries.
Because of its deep commitment to the energy transition, BHP might be an easy pick for investors looking for exposure to the mining sector and mining operations that will progressively become less sensitive to oil prices.
Rio Tinto is the world's second-largest mining company. A large part of the company's business is in iron ore. But it is also a very large producer of copper and aluminum, with strong expansion plans for copper production.
Notably, it is expanding the Oyu Tolgoi mine in Mongolia. The mine is the largest project in the history of Mongolia. Rio Tinto recently finalized the full acquisition of the mine, leaving it the sole private owner (66%) together with the Mongolian government (34%).
Rio Tinto is expected to provide 25% of growth volumes in global copper supply in the next 5 years.
Rio Tinto is also a leader in the innovation of copper extraction through its venture Nuton, whose new technology allows for a much higher rate of copper recovery from mined ore.
Rio Tinto's aluminum production is low-carbon, thanks to using hydropower to refine bauxite into alumina and then aluminum.
The company is also active in lithium, with the recent acquisition of the Ricon project in Argentina, and despite the (temporary?) cancelation/freezing of the Jadar lithium project in Serbia.
The company is a major actor in copper and is looking to benefit from the growing demand for lithium and low-carbon aluminum. Nevertheless, the core business is still to this day iron ore. So, investors in the company will want to be familiar with this market as well and calculate accordingly the potential risks of a recession or a declining demand for steel from the Chinese infrastructure and construction sectors.
3. Glencore plc (GLNCY)
Glencore is a major mining company in copper, nickel, cobalt, silver, gold, zinc, lead, and chrome.
It is also a producer of coal (thermal and metallurgical), a trader/marketer of coal, oil, and gas (including 6 million barrels of oil sold daily), and a recycler.
Glencore’s earnings are largely derived from its energy products, especially coal, which is still in high demand globally due to the global energy crisis that has unfolded since the beginning of the war in Ukraine.
Most of the company's investments, $2.5B in capex in H1 2023, are in copper, followed by coal and zinc. The company has also recently bought mining assets in bauxite (aluminum) from Norsk Hydro, copper from Pan-American Silver, and copper+nickel from Polymet Mining.
The company is distributing a generous dividend (almost 10% yield at the time of writing of this article). This dividend might not be sustainable if the price of coal or copper comes down, but in any case, it reflects a long-term policy of returning cash to the shareholders.
The important activity in coal might be a problem for some investors looking for a climate-friendly investment.
At the same time, it can provide diversification in case the growing demand for energy worldwide means that we need more renewable energy and coal stays in demand.
It should also be noted that metallurgical coal is important for producing steel, itself an important competent of wind turbines.
Southern Copper is a subsidiary of GrupoMexico Mineria, which owns 88.9% of the company, with 11.1% in free float publicly traded. The company itself is roughly split 2/3rd toward its Mexican assets and 1/3rd toward its Peruvian assets.
The company mines are exceptionally rich in ore, with the lifespan of the mine the largest in the industry, measured in decades, even after the expansion of production scheduled for 2028. So, while Southern is maybe not the largest producer of copper (it is the 5th largest), the company is one of the richest in copper assets in the world. Finally, it has some of the cheapest to operate mine, together with Vale and Glencore.
Copper makes the bulk of Southern Copper production, followed by molybdenum. 86% of the global molybdenum production is used in steel production, with the rest used by the chemical industry.
The remarkable quality of Southern Copper mining assets means there is very little geological risk for the company's shareholders.
However, there is some geopolitical risk, as Peru has recently seen mass protests against other copper mines, like the Las Bambas copper mega mines. New regulations on Mexican mining might also be a risk. Nearby, nationwide violent protests against a mine extension in Panama also occurred in October 2023.
So, while Southern Copper stock can be very attractive from a perspective of copper reserves, production costs, and dividend yield, investors might want to diversify their exposure, something true for all mining stocks.
Freeport is a large copper company that also produces molybdenum and gold. The company produces in the Americas (Arizona, New Mexico, Peru, and Chile) and Indonesia.
The company is operating mines but is also building a massive smelter operation (refining ore) in Indonesia, costing $3.6B and to be commissioned in 2024.
Each region is roughly responsible for 1/3rd of the company production (with Indonesia a little above North America, which is above South America).
The company wants to reduce its carbon footprint by moving its Indonesian operation energy needs from coal to LNG and other projects to renewable electricity.
Freeport has been aggressively reducing its net debt thanks to the higher copper price of the last few years and is redistributing cash to shareholders mostly through share repurchases.
Freeport has been at the tip of innovation in the industry, notably being the first US mine with a fully autonomous haulage system (self-driving trucks).
Due to its diversified assets base and mines in the USA, Freeport-McMoRan carries less jurisdiction risk than most mining companies. This somewhat comes at a premium on the stock price but can make it a good choice for investors looking to benefit from rising copper prices while also looking to reduce risks.
Albemarle is the largest lithium company on Earth, with production sites in Australia, Chile, Argentina, and the USA. The company also produces bromine.
The company has steadily grown its production and sales, with 2023 net sales expected to be 3x times higher than in 2021. It is also quickly expanding its refining capacity to triple it by 2027 compared to 2022. It expects to be able to triple its lithium production by 2030.
Thanks to its scale, Albemarle can produce lithium at a relatively low cost and is a key partner for most EV manufacturers and battery producers, with 80% of its products sold through long-term contracts.
Because of its wide geographical reach, Albermarle benefits from the global electrification trends and makes lithium investing a simpler option. It presents a relatively safe profile by mining industry standards, with most of its mines in “safe” jurisdictions like Australia and the USA.
SQM is the second-largest lithium mining company in the world, with its assets in Chile and lithium representing the bulk of the company's business. It is also the market leader in producing potassium nitrate of natural origin and sells specialty chemicals like iodine, potassium chloride, boric acid, and magnesium chlorides.
In April 2023, the company had to face a move by Chile threatening a partial nationalization of the country’s lithium industry. Past the initial shock, further details on the plan clarified that the country still intended to attract private foreign investment.
More specifically, national lithium company Coldeco is renegotiating a contract with SQM, and other lithium deposits will be offered for exploitation. The existing contract will nevertheless be respected and run until 2030.
Because the negotiations are ongoing, very little information is available, and it is hard to predict the long-term future of SQM. Still, Chile is a country highly dependent on mining for its economy, and the initial backlash against the nationalization plans, impacting not only confidence in lithium but in all mining, has forced the government to limit its ambitions (for now?).
The combination of a moderate decline in lithium prices and the threat of nationalization has severely hurt the share price, with the company trading at the end of 2023 almost 50% down from its peak at the end of 2022.
This can be seen as either reflecting the real risk on the company or as an opportunity to grab investors willing to take the risk and collect a high double-digit dividend yield as a reward.
Like for all lithium investments, investors will want to be familiar with the EV landscape (demand and the potential of innovative chemistry like sodium-ion batteries, not using lithium) and expect the high volatility of lithium prices to persist for the foreseeable future.
8. Norsk Hydro ASA (NHYDY)
While not directly a battery metal, aluminum is a growing important metal in the modern world. This is partially because it is used to build lighter vehicles and infrastructure, driving fuel efficiency and reducing carbon footprint while also being 100% recyclable.
It is also important as most high-tension aerial power lines are actually made of aluminum instead of lower-tension copper cables. So, investments in stronger power grids are likely to ramp up aluminum demand. Solar farms require a lot of aluminum for their structural frames. So, while the green transition made “only” 6 million tons of demand out of 97 million tons in total in 2022, this demand will more than double by 2030.
Aluminum is also a metal that requires tremendous amounts of energy to refine bauxite and produce aluminum.
Thanks to its reliance on hydropower in Norway and recycling, Norsk Hydro is one of the aluminum suppliers with the lowest carbon footprint. The company is also planning to switch fuel and improve its operations to improve it further by 2025. It aims to reach net zero by 2050 or earlier.
Lastly, Norsk Hydro also benefits from the fact that Russia, formerly a key supplier to Europe, has been mostly cut off from the Western aluminum markets.
The company has been investing in green energies, with Havrand Hydro, a green hydrogen project, and REIN Hydro, a provider of green energy solutions to industrial companies. It also invested in battery production capacity in the EU, notably owning 30% of synthetic graphite anode material producer Vianode and 50% of EV battery recycler Hydrovolt.
The focus of Norsk Hydro on Norwegian hydropower and low-carbon operations makes it a strong metal company to handle the green transition. Its aluminum products will also be in high demand for consumers and companies committed to the green transition and ready to pay a premium for low-carbon aluminum. The same can be said for green hydrogen, which should, in the long run, replace coking coal in the make of low-carbon footprint steel.
Rare earth metals are not technically rare on earth, although they are often hard to obtain as they are mostly present in very low concentrations instead of dense ore or nuggets like most other metals.
Rare earth metals are instrumental to computing and renewable technology, notably making a vital part of permanent magnets needed in wind turbines, as well as in electric motors (including for EVs) or advanced weaponry.
Currently, most rare earth production, and even more, the refining, is done by China. Recently, China has started to “weaponize” this quasi-monopoly, notably by limiting the exports of germanium and gallium, 2 rare earth metals important for the semiconductor industry, in retaliation for trade sanctions by the USA on semiconductor technologies.
Lynas is a rare earth miner with mines in Australia. The company is also building a processing facility to see more of its refining operations down in Australia instead of shipping it to partners in China, with the Kalgoorlie Rare Earths Processing Facility almost finished (see link for video timelapse of the construction) and facilities in Malaysia, as well as a project expected to be operational in Texas by 2025-2026.
Rare earths are now considered a strategic asset, with the vulnerability of depending on Chinese supply perceived as a critical risk. This means that Lynas production might be able to command a premium in case of an international crisis or if China decides to restrict further the export of other rare earth metals. It also represents a commodity market sector often uncorrelated to other metals like copper or lithium.
While most of the R&D effort on battery technology is focused on the cathode part (currently mostly made of lithium), the anode part is widely considered a problem “solved,” relying on the unique electric properties of graphite. As graphite is much cheaper than lithium, this is not a part of battery technology likely to be modified heavily any time soon.
This, too, is a sector where China is dominant. This is potentially problematic, as China just announced in October 2023 restrictions on graphite exports. With China controlling most of the graphite production steps, this could severely impact the plans of most EV manufacturers out of China.
This move should benefit Syrah, as the company is producing its graphite in Mozambique (with a mine life of 50 years), and is nearing completion of an Active Anode Material (AAM) factory in the USA, the first in the country.
Syrah is the largest integrated natural graphite company globally and the first integrated supplier to be present outside China. Its graphite operation is the largest outside of China, with a much higher grade and larger reserves than its competitors.
Graphite is not necessarily a rare resource but nevertheless is in high demand compared to production due to the EV boom. Compounding the problem is the process of de-globalization and US-China trade tensions, leading Western manufacturers to look for more reliable suppliers in neutral third-party countries.
The company has invested heavily in expanding its production, and it seems that the timing will turn out to be lucky, with full vertical integration to be achieved by 2024. This global context benefits Syrah, which signed 2 offtake agreements with Tesla. It is likely that other Western manufacturers of EVs and batteries will also look to Syrah to secure non-Chinese supplies of graphite as soon as possible.
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