The Electrification Revolution needs Copper, Cobalt and Nickel
The recent global market and policy re-balance towards electric vehicles and renewable energies represents a paradigm shift in the demand for key commodities. While some commodities such as lithium are coming off a low base and can be ramped up to meet supply demands, such a supply response is difficult emulate in the the relatively mature supply chain for copper, cobalt and nickel. Given the anticipated increase in demand, Greenfields sees a great opportunity to participate in the supply response to higher metal prices.
UBS predicts that if 100% of the globe's automotive demand shifted to electric vehicles, then the demand for nickel will increase by 105%, and cobalt 1,928%. The global mining giant BHP estimates that the combination of electric vehicles, solar panels, wind turbines and other green technologies will result in the demand for copper increasing by 50%.
The opportunities are that new, high-quality copper deposits cannot be readily brought into production, less than 10% of the current nickel supply is suitable for battery manufacturing, and more than half of the world's cobalt comes from highly volatile counties where supply disruption is a constant threat.
Greenfields is positioned to benefit from the massive demand growth for copper, cobalt, and nickel.
"The problem is: copper is not being discovered fast enough to meet upcoming demand. A study by Wood Mackenzie found that there will be a 10 million tonne supply deficit by 2028. That’s equal to the annual production of the world’s biggest copper mine (Escondida) multiplied by a factor of ten."
"Copper mining is all about grade or scale. The majority of global output comes from mega mines that have massive economies of scale to reduce costs. However, it has been a long-running trend that the grades for these established mines are dropping." (source link).
The world's largest miner, BHP, strongly believes in the growth potential of copper, and highlights the constraints on being able to meet this demand. BHP's reasoning is outlined in this link, and key points it identifies are:
Declining mine grades and depletion of viable resources. Much of the current copper supply comes from giant deposits that were discovered, and brought into production, decades ago.
Insufficient number of quality discoveries that can offset the mine depletion. Without meaningful discoveries, the industry is trading on borrowed time. Many of the traditional mining areas are thoroughly explored, making new discoveries more difficult and more expensive to discover.
Most areas that are still prospective for large, high-quality copper deposit discoveries are located in areas with high country ('above ground') risk. The unfavourable above ground risk limits the ability and willingness to explore in these regions thereby curbing the probability of new discoveries being made.
Lack of water! Many mines are located in arid locations and sourcing water can be a real constraint (Ed: notably in countries like Chile). Lack of water not only restricts the potential to produce copper in the arid regions, but may also place the mining companies in competition with other end users of water.
Rationality. Some commodity markets are relatively inelastic, and production continues even when prices are low. This 'sticky' production leads to volatility and value destruction. As the world's largest miner, a rational, relatively stable market is important for justifying investments.
The Chinese urbanisation process is not finished. BHP estimates that 47% of the Chinese population still lives in rural areas, with growth in urban areas expected to increase. The urbanisation process requires a lot of raw materials, especially copper.
Indian urban residents are decades behind the Chinese equivalents in terms of end product use. Combined with infrastructure needs and economic growth, BHP expects a huge demand for copper to rise out of India.
The growth in electricity consumption is projected to outstrip the supply of the copper required to transmit that energy.
Electric vehicles require about four times as much power as a conventional internal combustion vehicle. Each new electric vehicle will require 6,400 L of water, placing great constraint on the industry's ability to not only find copper, but find copper that can be economically mined.
While much attention is given to the growth in electric vehicles, the growth in wind and solar energy is remarkable. As these renewable energy sources replace coal fired stations, it will require much more copper. BHP states that wind and solar require five times more copper than coal-sourced energy.
Greenfields is targeting sedimentary-hosted copper deposit that are know to have the capacity to be both high-grade and long lived (in some cases inter-generational!). Importantly, the water and above ground risk that bottlenecks much of the potential copper supply are non-issues in Greenland.
Nearly 20% of all cobalt is used for superalloys – a class of high-tech metals that originally emerged to suit the high operating temperatures of jet engines. However, by 2020 almost 1/5 of cobalt demand may stem from electric vehicles.
Currently, 98% of cobalt is produced as a by-product of copper and nickel mines. It is unlikely that this by/co production mix will change. By virtue of its sedimentary hosted copper deposits and according to the United States Geological Survey, the DRC produces about 54% of global cobalt production, and holds approximately 49% of known cobalt mineralisation.
By virtue of its sedimentary hosted copper deposits and according to the United States Geological Survey, the DRC produces about 54% of global cobalt production, and holds approximately 49% of known cobalt mineralisation. However, the DRC ranks:
156th out of 169 countries in the Corruption Perceptions Index [Denmark/Greenland is 2nd]
176th out of 188 countries on the Human Development Index [Denmark/Greenland is 11th]
152nd out of 159 countries in the Human Freedom Index [Denmark/Greenland is 8th].
Approximately 20% of the DRC’s cobalt production is associated with child labour.
Greenfields is an opportunity for exposure to sediment hosted copper-cobalt without the country risk - an important consideration in the electric vehicle supply chain. As cobalt is a key component in lithium-ion batteries, any supply disruption may see cobalt prices sky rocket. Greenfields has is positioning to be a safe source of cobalt that can offset, and benefit from the precarious cobalt supply.
"Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide" - Elon Musk
Nickel demand is projected to grow from 70,000 tonnes, to 2,200,000 tonnes if there is 100% adoption of electric vehicles. For use in the manufacture of batteries, nickel needs to be in a sulphate form. However, only 10% of current global nickel supply is in sulphate form, not all of which is suitable for use in batteries.
Greenfields' projects are prospective for both sediment hosted, as well as magmatic nickel sulphide deposits. Both these deposit types may be suitable to the production of battery quality nickel sulphates.