Navigating a lithium-ion age boom
The world is in the grip of a lithium-ion battery-powered revolution, accelerating demand for raw and refined minerals, such as lithium, cobalt and copper. But the mining sector will need to adapt and learn the lessons of the last commodities boom if it is to navigate and survive this rapidly changing marketplace.
From London to New York; Beijing to Sydney, the new battery-powered revolution is sweeping through modern life.
High-performance lithium-ion power packs drive the mobile phones in our pockets, the laptops in our backpacks and are at the heart of the next generation of mobility.
Powering electric cars, bikes, buses and scooters is a key part of the vital transition towards creating a greener economy.
This is creating something of a global boom: between 2015 and 2018 shipments of lithium-ion batteries increased year-on-year by 24 percent in terms of capacity, reaching over 148,000MWh. The figure is set to top 500,000MWh by 2025. Add in the global Electric Vehicle (EV) explosion as nations ditch the internal combustion engine in favour of cleaner electric power, and the growth potential is almost exponential.
From boom-bust to boom-growth
The supply of raw and refined “new-age minerals” – the resources needed for lithium-ion batteries – is setting a new direction for automotive, energy and electronics supply chains.
The mining and processing sector is set to become a primary beneficiary of this revolution. Yet amid this race to lead the market, the sector must heed the lessons of former commodities boom and bust cycles; resisting the temptation to abandon sound capital processes in the rush to service changing markets.
The challenge is readying the sector for potential steep growth, but managing the risks associated with the unpredictable pattern of demand.
In treading this difficult tightrope, it is essential that industry develops the right commercial models that optimise extraction and minimise cost.
As historic volatility in commodities pricing demonstrates, it is no easy task to get these models correct, leading either to an oversupply that depresses prices or an undersupply that slows the innovation the minerals bring.
The challenge of increasing demand
There are a huge number of factors impacting the sustainability of growth in the EV and lithium-ion battery markets which will govern demand for these raw minerals. The development of regulations that will drive the impetus towards battery power and renewable energy varies hugely between governments around the world, as do the strategies employed by vehicle manufacturers in response to the fast changing pace of consumer demand for electric vehicles.
Advances and development of new extractive techniques is accelerating on the supply side.
However, this must be weighed against evolving technologies that may eventually supersede the lithium-ion battery, leading to a potential drop in demand.
Successful navigation of this conundrum will be to manage risk so that pace of production is finely tuned to the nuances of the marketplace.
To prepare for the uncertainty, mining and processing organisations should be taking immediate steps to de-risk their supply chains.
Adding to the complexity of supply, China, for example, is not only ploughing vast investment into the battery manufacturing sector, but also into the lithium and cobalt extraction market, forming local joint ventures and tying up the supply to meet its expanding domestic demand.
This could give China the potential to dominate global market supplies.
Understanding the supply risks
Lithium is predominantly found in Chile, Australia and China and supply is dominated by four mega organisations – Albemarle, SQM, FMC and Tianqi. The latter recently paid more than US$4bn to become the second-largest shareholder in SQM, a deal which gives it effective control over nearly half the current global lithium production.
Cobalt, on the other hand, is a comparatively scarce resource. Recovery faces some interesting geopolitical risks given that a high proportion of deposits are based in the unpredictable legislative and political environment of the Democratic Republic of Congo.
The geological spread of mineral deposits impacts on corporate strategy: for cobalt extraction, the proximity of copper and nickel can be necessary to make this a viable business proposition. As a result, investment in increased cobalt supply could easily be impacted by changes in demand and prices for copper and nickel.
A complex picture
This boom in highly sought after minerals brings a raft of new risks for the mining sector on both the demand and supply sides and to avoid the pitfall of past commodity booms.
It is critical that the entire supply chain understands these dynamics and looks to address the risks that lie ahead.
It is a complex and difficult challenge. Getting it right involves navigating exciting new opportunities that allow individuals, society and, perhaps most importantly, our environment, to benefit over the long term from this energy revolution.