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Miners to get boost as electric vehicles drive demand for lithium, cobalt and nickel

Last updated: 15:30 02 Mar 2017 GMT, First published: 12:41 02 Mar 2017 GMT

Electric car
The electric car battery market presents an opportunity for miners

The electric vehicles (EV) market is driving demand for lithium, cobalt and nickel as sales of the eco-friendly automobiles jumped 45% to one million units in 2016, according to Liberum.

EVs, which are powered by rechargeable batteries containing nickel, lithium and cobalt, had just 0.8% market share last year but Liberum expects this to grow to 4% by 2022 with sales of 4.5mln.  By 2030, the investment bank sees EVs accounting for eight out of 10 cars sold globally.

“For 2035, when we are forecasting an EV share of new car sales of 18% or 31mln units, the industry value is almost $1tn: batteries $228bn and semiconductor content $31bn,” Liberum said.

Glencore and Bancanora Minerals among key beneficiaries...

Glencore plc (LON:GLEN), a major producer of nickel and cobalt through its Katanga and Mutanda mines in the Democratic Republic of Congo, stands to benefit from the increasing demand for EVs.

The mining giant’s nickel output in 2016 was 115,000 tonnes, which accounted for 3% of its mining revenues and 5% of global production.

The group also produced 128,000 tonnes of cobalt last year, representing 23% of global production and accounting for 2% of the company’s industrial revenues.

“Within our cautious stance on the major miners Glencore is our preferred exposure,” Liberum said, issuing a ‘hold’ rating on the stock.

Among London’s small cap firms, Liberum believes Bacanora Minerals Ltd (AIM:BCN) is also likely to receive a boost from EVs and demand for lithium batteries, which are also used in smartphones, laptops and cameras. 

The company, also listed in Canada, owns the world’s largest known lithium clay deposit in Sonora, Mexico.

Bacanora last month said it was positioning itself for the expected surge in lithium by agreeing to take a 50% stake in the Zinnwald lithium project in Germany with the option to take full ownership within two years.

“It is unique in the lithium space in that it can be quick to market like new hard rock supply, but is significantly lower cost and competitive with brines,” Liberum said, reiterating a ‘buy’ rating.

“It is the only aspiring producer currently sending lithium carbonate samples from an operational pilot plant to potential customers.”

Another London-listed stock that is set to profit is European Metals Holdings Limited (LON:EMH) (ASX:EMH), which owns the largest lithium resource in Europe.

Last month the company announced an increased resource at the Cinovec lithium deposit in the Czech Republic.

European Metals recently completed an extensive seven-month drilling campaign at Cinovec, consisting of 17 holes for 6,081 metres.

The total resource now amounts to seven mln tonnes lithium carbonate equivalent, contained in 656.5 mln tonnes of ore grading 0.43% Li2O and 0.04% tin at a 0.1% lithium cut-off.

Scarcity issues may surface

As demand for EV batteries grows, a scarcity of lithium, nickel and cobalt may arise within a decade, Liberum said.

Lithium demand for batteries is expected to reach 258,000 tonnes in 2025, compared to 196,000 tonnes in 2016. While there a several new lithium projects, historically many mines have suffered delays or experienced cost-overuns.

Supply is concentrated in Chile and Argentina, which suffers from water shortages, and in China, which gets hit by harsh winter weather. The regions are also affected by nationalistic government policies from time to time. 

FinnCap’s Martin Potts argued there were enough lithium resources and reserves to satisfy expected demand over the next decade but there weren't enough mining companies seizing the opportunity.

“Lithium is not scarce in geological terms – known reserves according to the US Geological Survey total 14 million tonnes of contained lithium or almost 75 million tonnes of lithium carbonate equivalent (LCE),” he said.

“In addition, a further 40 million tonnes of lithium in resources (210 million tonnes LCE) have already been identified, principally in the brine deposits of Chile, Argentina and Bolivia.”

He also noted that a majority of lithium is sold under contract rather than traded at spot prices, though its value has jumped 250% in the past year.

Turning to nickel, demand is estimated at 323,000 tonnes in 2025, about 15% of the current total industry output. Nickel demand for batteries currently represents 5% of total industry demand, with its chief use in the cyclical stainless steel and electroplating market.

On cobalt, Liberum noted that there is “tightness” in market due to battery demand, which is expected through 2020.

Liberum did not provide estimates on cobalt for 2025 and 2035 as it was unsure of future content as nickel replaces future formulations of nickel manganese cobalt oxide (NMC ) or nickel cobalt aluminium oxide (NCA).

 “Through 2025, we are confident that NMC or NCA will be the principal cathode used in EV Li-ion batteries. Beyond 2025 it is possible that alternatives emerge such as solid-state or lithium-air batteries, particularly the former.”

Leaders in electric car production...

Until recently, Tesla Inc (NASDAQ:TSLA) has been the poster child for EVs. Tesla has reported strong demand for its Model S and Model X electric cars as well as the upcoming Model 3, the group's more affordable vehicle that is expected to become available this year.

Sales in 2016 came to 76,000 and its market share of the global market was 10%.

However, Tesla faces competition from the likes of Bayerische Motoren Werke AG (ETR:BMW) which is expected to release a rival to the Tesla Model 3 with an update to the BMW i3 range.

BMW recorded 62,000 group EV sales in 2016. It currently has 8% market share and is ranked third by sales after BYD and Tesla.

China's BYD Company Limited was the best-selling global light duty EV manufacturer in 2016 with 102,470 unit sales, 17% global share.

Elsewhere, Volkswagen (ETR:VOW3) is stepping up its game with plans to for a China EV production joint venue .

General Motors Company (NYSE:GM) was an early leader in EVs but only in plug-in hybrid electric vehicles. GM outlined its plans for investing further in EVs in China last August with the expansion to be led by its Chevrolet Malibu XL hybrid, Buick LaCrosse hybrid and Cadillac CT6.

NIssan reported EV sales of 56,000 last year with 7% market share, mainly for its Leaf model. Renault, which has a cross-shareholding agreeing with Nissan, achieved EV sales of 29,701 last year with a market share of 4%, primarily for its Zoe model.

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