Political ambitions vs. geological reality

To attain new net zero legislation, the world is going to need immense quantities of battery minerals for EV production – is there a sufficient supply of copper, lithium, nickel, cobalt, manganese and graphite?

By Ellsworth Dickson

In recent months, worldwide news media have reported various jurisdictions passing legislation banning the sale of new internal combustion vehicles starting in the near future. For example, Japan, Korea, Canada, and New Zealand have passed legislation committing to achieving net zero carbon emissions by 2050 while Ireland, Chile and Fiji have proposed legislation. The UK has a legally binding net zero target by 2050 and new interim targets to reduce emissions by 78% by 2035.

For its part, Canada plans to reduce emissions by 40% by 2030 by “strengthened zero-emission targets of 60% of new sales by 2030 and 100% by 2035, a commitment to decarbonize the electricity sector by 2035 and a reduction in oil and gas sector emissions by 31% below 2005 levels by 2030”, according to The Vancouver Sun.

At the recent UN Climate Change Conference (COP26) in Glasgow, Scotland, over 30 countries, six major vehicle manufacturers and other participants such as cities set out their plans for all new car and van sales to be zero-emission vehicles by 2040 globally and 2035 in leading markets. Vehicles account for about 10% of global greenhouse gas emissions.

The Glasgow Pact, among other things, calls on countries for a phase-down of coal power and a phase-out of “inefficient” fossil fuel subsidies.

Almost all vehicle manufacturers are switching over to production of electric vehicles (EVs). It’s not necessary to review the plans of every worldwide car maker but to give you an idea of how massive this change is, consider General Motors [GM-NYSE] which, according to Motor Trend magazine, has committed to spend US$35 billion to build 30 EV models by 2025 by which time the company expects to build over 1 million EVs annually in North America. GM wants to have an all-electric vehicle lineup by 2035.

While new legislation, multi-country agreements and auto manufacturers stepping up to the plate are well intended, what about the enormous supply of battery minerals needed to manufacture batteries for electric vehicles? These include lithium, nickel, copper, manganese and graphite. Paradoxically, decreasing production of oil and gas will lower emissions; however, ramping up battery mineral production will increase emissions.

On April 11, Canada’s Prime Minister Justin Trudeau was in Victoria, British Columbia’s capital, promoting the use of electric vehicles. He said the federal government plans to build some 50,000 charging stations and offer more EV buyer subsidies as most EVs are expensive. By 2030, Trudeau has a target of 60% of new vehicles sold to be EVs, up from the 50% goal set by the Liberals less than a year ago. He said that all these new EVs means that the country will need more electric power available to charge the batteries of this massive new fleet of EVs but that’s a topic for another day. He didn’t rule out nuclear power plants.

The big question is: Will there be enough battery minerals available to satisfy government legislation and auto makers’ demand?

Copper is the main battery metals used in EVs. Conventional gas-powered cars contain 18 to 49 lbs. of copper while a battery-powered EV contains 183 lbs. For a fully electric-powered bus, some 814 lbs. of copper is needed. Multiply these numbers by the millions of EVs slated to be built around the world and we are talking big numbers – and that’s not counting other major copper uses such as power lines and wiring.

A recent Bank of America Global Research reports stated their analysts have predicted that the copper market will see a deficit this year, a return to growth in 2023, and then enter a deficit again starting in 2025. The Northern Miner said this situation is developing partially due to limited exploration.

What about lithium? According to Benchmark Mineral Intelligence, the price of lithium has increased by 480% in the last year. The mid-March assessment by Benchmark shows battery grade lithium carbonate (EXW China, ≥99.5% Li₂CO₃) averaging US$76,700/tonne, an increase of 10% in just over just two weeks and a 95% rise since the start of the year. In March last year, lithium was US$13,400/tonne.

The price of lithium is now so sky-high that Elon Musk has recently said that Tesla Inc. [TSLA-NASDAQ] may get into the lithium mining and refining business. Lithium deposits are not that rare in the United States, however, refining sources are limited.

There are a number of publically-trading lithium exploration and mining companies with projects around the world, including Australian-based Vulcan Energy Resources Ltd. [VUL-ASX; VULNF-OTC] which is developing a €1.7 billion combined geothermal and lithium extraction project in the Upper Rhine Valley of southern Germany where there is 15.85 Mt of lithium carbonate equivalent – enough lithium for a million electric vehicles – per year!

Another Aussie company, Allkem Limited, formerly Orocobre, has built and is now operating the world’s first commercial, brine-based lithium operation (in Argentina) constructed in approximately 20 years.

Recently, automaker Stellantis and South Korean tech giant LG announced plans for a $5 billion battery plant in Windsor, Ontario, as reported by The Vancouver Sun.

Vancouver, BC-based Mangrove Lithium plans to have a commercial lithium recovery and refining facility operating this year.

Meanwhile, other companies plan to or are already recycling EV batteries – a growth industry for sure. For example, American Manganese Inc. [AMY-TSXV; AMYZF-OTCQB; 2AM-FSE] has built a lithium-ion battery recycling demonstration facility in Richmond, BC. The company also owns the Artillery Peak advanced manganese exploration project in Arizona.

Earlier this year, Electra Battery Materials [ELBM-TSXV; ELBMF-OTC], formerly First Cobalt, signed a battery recycling and cobalt supply agreement with Japanese conglomerate Marubeni. The company plans to close its hydrometallurgical facility in Ontario and restart it by integrating it into a larger battery minerals park.

American Lithium Corp. [LI-TSXV; LIACF-OTCQB; 5LA-FSE] has several advanced lithium exploration projects in Peru and two in the U.S. New Age Metals Inc. [NAM-TSXV; NMTLF-OTCQB; P7J-FSE] is exploring its Lithium One and Two projects in Manitoba.

In its annual report, the United States Geological Survey stated that owing to continuing exploration, identified lithium resources have increased substantially worldwide and total about 86 million tonnes.

An analysis by Energy Brainpool has estimated that the currently available and economically degradable lithium reserves will last until 2050 to meet global demand. Clearly, the world has enough lithium resources; it is battery manufacturing facilities that are needed.

Cobalt is a different story. It’s a sad fact that some 35,000 children work mining cobalt in the Democratic Republic of Congo, some as young as six years old. With 120,000 tonnes of cobalt produced in 2021, the DRC was the world’s largest source of mined cobalt, supplying over 70% of world cobalt mine production. This is an agonizing situation – not only for the child workers – but also for many downstream users of cobalt for industrial uses who want to make sure they don’t buy DRC cobalt. China imports ~80-90% of DRC cobalt.

Except for artisanal mining in the DRC, most cobalt is mined as a by-product of copper or nickel.

Canada Silver Cobalt Works Inc. [CCW-TSXV; CCWOF-OTC; 4T9B-FSE] has various interests in a number of silver-cobalt properties near the Town of Cobalt and in the Gowganda camp to the northwest. It recently reported intersecting 9.30 metres of combined massive sulphides containing 1.20% NiEq, consisting of 0.72% nickel, 0.86% copper and 0.09% cobalt mineralization at its Graal property in Quebec.

There are numerous junior explorers targeting cobalt, not only in the famous Cobalt Mining Camp in northeastern Ontario but various other locales too.

Gino Chitanoni is president of PolyMet Labs in Cobalt, Ontario, which offer assaying and bulk mining services to local cobalt explorers. Fortune Minerals [FT-TSX] plans to buy a shuttered steel processing plant in Alberta and change it into a cobalt refinery to handle ore from its Nico project in the Northwest Territories. The Idaho Cobalt Operations of Jervois USA is on track to produce and process cobalt ore in Q3 this year.

With new EVs being legislated into use, we are seeing record demand for cobalt (as well as other battery minerals). The German Mineral Resources Agency (DERA) has stated that cobalt demand assumes world demand will grow to 225,000 tonnes per year by 2026. Between existing mines and new discoveries that will become mines, this should bolster the current world reserves of 7,600,000 tonnes (USGS). A slightly earlier report by Energy Brainpool said that in purely mathematical terms, the 7.4 million tonnes of reserves of cobalt alone would suffice to secure an average demand for cobalt of 300,000 tonnes/year until 2042.

Nickel is also a critical battery metal. In a report, CNBC reported that “while there’s enough nickel in the ground to support a major EV ramp up, there are not enough planned mining projects or processing facilities to make the type of high-grade nickel that’s needed for EV batteries”.

Sherritt International Corp. [S-TSX] plans to increase nickel and cobalt production by 15-20% at its Moa joint venture mine in Cuba.

Germany finds itself in an awkward situation. Russia, which produces about 10% of the world’s nickel, exports the metal to Germany for its industrial uses. On March 8 nickel prices more than doubled to over US$100,000 a tonne.  LME nickel prices have since dropped to about US$30,000 per tonne but remain well above pre-invasion levels.

Actually, nickel analysts have differing views. The International Nickel Study Group (INSG) said that the global nickel market is expected to see surplus of 76,000 Mt in 2022, from a deficit of 134,000 Mt in 2021. INSG said that world primary nickel production is forecast to reach 3.12 Mt in 2022, a rise of around 10% from 2021, while demand is seen at 3.044 Mt in 2022, an increase of about 18% from 2021. Meanwhile TD Securities said there will be a minor nickel deficit in 2022. According to the USGS, world reserves of nickel total >95,000,000 tonnes in both laterite and sulphide deposits.

Manganese was not a well-known metal until the EV boom as it is primarily used in steel production and has no satisfactory substitute in its major applications.

According to Mordor Research, the global manganese market is projected to grow at an even faster rate to a CAGR of over 4.0% between 2021 and 2026. Much of this growth will be attributable to EV demand. The disposable and rechargeable battery space is the second largest buyer of manganese.

The leading countries for manganese ore production were, in descending order on a contained-weight basis, South Africa, Gabon, and Australia. Currently, there is no apparent shortage of manganese in the world. The USGS estimates world manganese reserves stand at 1.5 million tonnes – not a great deal.

Canadian Manganese Company Inc. [CDMN-NEO] has a 100% interest in the advanced Woodstock manganese property in New Brunswick, Canada.

Manganese X Energy Corp. [MN-TSXV; MNXXF-OTCQB; 9SC2-FSE] owns 100% of the Battery Hill property project in New Brunswick. According to Brian Way’s (2012) Master’s thesis on the Woodstock manganese occurrences include Battery Hill, the area “hosts a series of banded iron formations that collectively constitute one of the largest manganese resources in North America, approximately 194,000,000 tons”.

Graphite is the only non-metal battery mineral. China is the world’s largest graphite producer. There is not a shortage of graphite. The USGS reports that while the United States’ domestic resources of graphite are relatively small, the rest of the world’s resources exceed 800 million tonnes of recoverable graphite.

In Alaska, Graphite One Inc. [GPH-TSXV; GPHOF-OTCQX] has proposed that a graphite mine and processing plant located on the Graphite Creek property on the Seward peninsula, about 60 km north of Nome.

Lomiko Metals Inc. [LMR-TSXV; LMRMF-OTCQB; DH8C-FSE] has a positive PEA on its 100%-owned La Loutre graphite project 180 km northwest of Montreal, Quebec. The PEA supports an open pit project with the annual production of 100,000 tonnes of graphite over 15 years.

Nouveau Monde Graphite Inc. [NOU-TSXV; NMGRF-OTCQX; NM9-FSE] is developing the 100%-owned Metawinie graphite project 120 km north of Montreal. A positive PEA stated there is an indicated mine life of 25.7 years

Battery mineral explorers and miners are in an enviable position with the huge and rising increase in demand thanks to EV production. In the second half of 2021, there was a 62% increase in EV registration to 5.8 million units – and it is still ramping up.

The  CRU Group has estimated total annual global demand for lithium-ion batteries (in terms of power capacity) is expected to increase exponentially this decade, from 279 GWh in 2020 to 2,139 GWh in 2030, representing a 22.6% annual growth rate.

Canadian resource companies are in a particularly advantageous position with their established Toronto and Vancouver geological, geophysical mining and financing infrastructure able to smoothly create and finance new junior explorers with solid technical talent.

While the net zero dreams of politicians may at first glance seem unattainable, there is real geological evidence that their dreams may actually come true in one of the greatest industrial changes to the automotive sector since Henry Ford’s Model T was introduced in 1908.