Brisbane Resources Round-up delegates were today told that the genie is out of the bottle as far as new age commodities, including battery metals, are concerned and these metals make a compelling investment case.
In regards to the sector, “We don’t think we are late cycle, we think we are early cycle but there will always be mini cycles as part of this process,” keynote speaker Julian Babarczy said.
Babarczy, who is Regal Funds Management’s head of Australian equities, delivered his address on the opening morning of Vertical Events’ Brisbane Resources Round-up in front of hundreds of investors.
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There are 37 mining companies making presentations over the two days at the Hilton Brisbane as well as representatives of state mining bodies and corporate investment advisers.
Babarczy’s address was titled ‘How Institutional Investors Analyse the Investment Opportunities for New Age Commodities’.
He outlined the following reasons for investing in the new age metals sector:
- Demand drivers remain;
- Supply debate rages;
- Now is a good time to invest; and
- M&A is a likely consequence of current market conditions.
Compelling growth outlook
He said what was being seen in the battery materials space, amongst a lot of negative sentiment as there was in other market sectors, was a pretty compelling growth outlook.
“With new age commodities of lithium, cobalt, graphite, high purity alumina and to a lesser extent rare earths and graphene, the demand outlook is overly compelling with annual growth rates generally between 20% and 100%.
“This demand is driven by all the factors that drive base metals but also the new age factors such as energy efficiency, battery technology, population growth and the like.
“The most relevant themes to focus on are electric vehicles (EVs), which encapsulates cobalt, lithium and graphite, and LED lighting where HPA sits,” he said.
Governments seek energy efficiency
As governments increasingly mandate new levels of energy efficiency as populations increase giving rise to social and environmental issues, Babarczy said for the first time in history more people were living in urban environments than rural ones.
A packed conference hall listens to keynote speaker Julian Babarczy.
“One of the biggest bugbears of this is pollution in emerging countries and particularly China, where various industries are being shutdown.”
EVs more efficient
He said the internal combustion engine was being seen as public enemy number one. “The efficiency of internal combustion engines in terms of energy input compared to energy output is less than 20% while the efficiency of electric motors is around 70%.”
Babarczy said regulators were seeing this as an effective way to reach emissions targets and governments were starting to respond with policies.
“The battery industry sees this as a big chance to step up and fill that void and we have seen almost a five-fold increase in the capacity to build electric batteries globally.
“China is the major driver of EV demand with demand also increasing on a global level.
Economies of scale developing
“We are starting to see economies of scale develop and battery costs are falling.
“The holy grail is less than $100 per kilowatt hour which many believe will be achieved in the next few years owing to better technology and processes,” he said.
Automobile makers are now responding to increasing consumer demand by pouring in billions of dollars into R&D.
“At the start of the journey”
The Regal Funds Management spokesman said people were trying to predict that the good run for these metals was coming to an end “but we believe we are at the start of the journey”.
“EV penetration is only around 2% and we think it can get to 80 to 100%, but not in the timeframes of most investors,” he said.
“What we see is a 10-fold increase over the next decade.
“In reality, investors need to look at the longer-term outlook as there will be a yawning gap between supply and demand by the mid-2020s.”
Growing demand for HPA
With LEDs, he said the growing use to provide energy-efficient lighting was another strong market for battery metals, particularly high purity alumina (HPA).
“While LED demand is increasing the need for HPA, there is also a growing requirement for HPA in providing more effective and safer separators in batteries.”
He said the new trend of producing HPA from kaolin deposits was changing the game as it provided for superior HPA at lower costs than the traditional aluminium source.
A number of companies are working in this space, including Altech Chemicals Ltd (ASX:ATC) in a vertically integrated capacity and FYI Resources Ltd (ASX:FYI).
The Brisbane Resources Round-up continues today.
Sentiment now “too cold”
Babarczy also provided some commentary on the state of the small cap resources sector, saying it was much harder than it was this time last year.
“Back then it was far too hot but now the pendulum has swung too far the other way and sentiment is too cold.
“Generally, investors are still probably over-owned and some investors who aren’t naturally akin to the sector probably still have positions that they haven’t been able to exit.
“This is why we are seeing more selling response than buying response.”
Risk money in other sectors
He also said that there had been a lot of risk money move into other assets, such as medicinal cannabis stocks, which had attracted a lot of the speculative money in the last 6-12 months.
“This has sucked a lot of the speculative money out of mining stocks.
“It won’t last forever and we are quite optimistic about where we are in the cycle right now,” he added.
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The Brisbane Resources Round-up continues today, opening with a keynote titled ‘The Australian Metallurgical Coal Industry’ from S&P Global Market Intelligence senior research analyst Richard Foy.
Along with the 48 company presentations, there is an opportunity to network with the 70 exhibitors in the exhibition hall.