The mining industry's role in building the future green economy is undeniable, as all the necessary metals such as cobalt, copper, nickel, lithium, vanadium, and graphite are either yet to be mined or have already been mined.
And yet the sector continues to receive lowly valuations from the broader investment community.
Nevertheless, some companies are actively working to change this perception and are approaching the issue from various angles.
No discussion of the electric vehicle supply chain is complete without mentioning Tesla Inc (NASDAQ:TSLA). At the top end of the value chain, Tesla, led by Elon Musk, has begun the construction of a lithium refining facility in Texas.
While some see this as a small step among many achievements, the lithium refinery holds strategic importance beyond its local impact. Musk is on the hunt for lithium to build out a supply chain.
While there may be differing opinions regarding the abundance of lithium ore, there is little debate about China's control over the supply chain, with estimates suggesting that they dominate up to 80% of the world's lithium refining capacity.
In a fast-moving world, Musk is taking no chances. He needs fully refined lithium for the local production of Tesla’s in North America, and the only way to ensure that supply completely is create capacity himself.
Moving product up the value chain
Not every car company, is going to build its own refinery. Product and supply chain are coming closer together.
Take Talon Metals Corp. (TSX:TLO, OTC:TLOFF), for example. In January 2022, Talon inked a landmark six-year deal with Tesla to supply the electric vehicle manufacturer with nickel concentrate from its Tamarack nickel project in Minnesota.
According to a statement from Talon, Tesla has committed to buying 75,000 metric tonnes of nickel in concentrate.
Tesla also has a preferential right under the agreement to negotiate the purchase of additional nickel concentrate beyond the 75,000-ton commitment.
It’s a trend that’s not just running from the top down, either, but it is buoyed by policies – like the recently-enacted Inflation Reduction Act – that are allowing companies to invest more heavily in their North American operations.
The Inflation Reduction Act includes a provision that limits the $7,500 EV tax credit to vehicles that are assembled in North America. Beyond that, a certain percentage of each car’s battery components need to be built in North America, and critical minerals like nickel, lithium, copper, or phosphate need to be sourced from the US or a US free trade country, with these percentages increasing every year.
Many miners are now beginning to look at their own projects in the battery and green energy space not just as, or not even primarily as, a mining opportunity, but instead as an opportunity to move product up the value chain, greening the global economy in the process.
A case in point is Westwater Resources Inc (NYSE-A:WWR), a US company developing battery-grade natural graphite products. The company’s primary project is the Kellyton graphite processing plant that is under construction in east-central Alabama. Similar to lithium, graphite looks like being a key component in the electric vehicles of the future.
Westwater believes it will benefit from the bill's Advanced Manufacturing Tax Credit – a 10% tax credit for the costs of producing certain critical minerals in the US.
Westwater executive chairman Terence Cryan said the company would be able to leverage this tax credit for the future production of advanced anode material from its Kellyton graphite processing plant located in Alabama.
The thinking is that, over time companies will receive much better ratings from the investment community as they come to be regarded more as manufacturers of green energy products than as miners.
Leveraging mineral assets in the Americas
A pattern is already being set: add on a refining operation, a recycling operation, or better still, an all-out battery manufacturing operation, and the investors take notice.
Electra Battery Materials Corporation (TSX-V:ELBM, NASDAQ:ELBM) is a similar case. Leveraging the company’s own mining assets and business partners, the Electra Battery Materials Park in Ontario will host cobalt and nickel sulfate production plants, a large-scale lithium-ion battery recycling facility, and battery precursor materials production, which will serve both North American and global customers.
And then there’s Sigma Lithium Corp (TSX-V:SGML, NASDAQ:SGML), the Brazil-focused lithium developer that is powering the next generation of EVs with environmentally sustainable and high-purity lithium.
Earlier this year, a report from Bloomberg indicated that Sigma is on the short list of takeover options by Tesla.
Sigma Lithium is currently commissioning its wholly owned Grota do Cirilo project in Brazil. The project is expected to produce 766,000 tons annually of battery-grade sustainable lithium concentrate in an advanced Greentech lithium plant that uses 100% renewable energy, recycled water and dry-stacked tailings.
A greener circular economy
It’s not only lithium, graphite and cobalt companies that stand to benefit from the circular economy. Auto manufacturers are now eying lithium iron phosphate, or LFP batteries, which have low risk of catching fire and cost less as they use iron and phosphate, instead of scarce cobalt and nickel that go into traditional lithium-ion batteries.
By extracting and refining advanced phosphate material for lithium iron phosphate (LFP) batteries, First Phosphate Corp. (CSE:PHOS), a Canadian company, is hoping to transform the Saguenay-Lac-Saint-Jean region into North America’s LFP Battery Valley.
Right now, First Phosphate is the only pure-play, publicly traded company to be focused on producing clean, high-grade, and ethically sourced phosphate for LFP cathode active material.
The excitement extends past Tesla to other car companies: Ford Motor has begun building a $3.5 billion battery plant in Michigan that will produce LFP batteries for its EVs, and Volkswagen and Rivian have also telegraphed plans to use LFP in North American cars.
This idea of a circular economy goes one better than capturing value all the way up the supply chain – it takes the end of the supply chain and brings it back round to the beginning.
-Alastair Ford contributed to this report-
Contact Angela at angela@proactiveinvestors.com
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