As markets continue to fit and start nervously in Australia, the United States, the United Kingdom and Canada, some constants remain on the calendar for the natural resources’ investment community and one of them is starting the promotional cycle for the calendar year in the historic African trading city of Cape Town.
And, there is really no better time of the year to be there (except for the grief at home around back to school logistics), given the circa 30-degree days that allow many from the Northern Hemisphere a welcome winter break, something not lost on international tourists either as they complete for square meterage with mining types at the many restaurants scattered through the V&A Waterfront district.
Cannings Purple was represented on the ground again this year to take the temperature of financiers, project developers and investors who fly-in from all major markets to set the scene for the year. The traditional Investing in African Mining Indaba celebrated its 25th anniversary in 2019 and was making clear attempts to claw back the junior exploration and mining set with projects scattered around the prospective regions of the continent.
However, most of those who fit in that category from Australia and elsewhere have locked on to a dedicated investor and mining company matching event held up the hill in Cape Town, in the grounds of a repurposed colonial mansion within the affluent Gardens district of the city.
Why? Well, it works for these guys, they pack on average 20 meetings each into the two days with pre-qualified investment groups and amenable individuals. The fifth annual 121 Mining Investment Cape Town event pulled in 111 resources companies representing a wide cross section of commodities and with projects at various stages of development or production. Founding partner of 121 Group Toby Duckworth reinforced our estimate of circa 500 people in attendance by confirming 480 investors had indeed registered to attend.
Despite the variety on offer, the dominant prevailing theme of battery materials stories proliferated both events, with 121 dedicating a panel session to it, which I will deal with in a bit more detail below, and Indaba setting aside a whole day of the three-day conference to capture the volume of players and commentators who have moved relatively quickly into this space.
The panel, convened by Thomson Reuters commodities and energy columnist Clyde Russel took a cross section of views from participants on pricing, the influence of China, supporting infrastructure, battery chemistry and the risk of commodity substitution.
All on the panel accepted the assumption that the mass transition to predominant electric vehicle fleets is real and unfolding, but some had different views on whether or not the resources industry was ready or not to fully capitalise on the associated value chain.
Roskill EV material division analyst David Merriman said the supply chain for the whole range of materials going into electric vehicles – not only into batteries, but also into the motors, wiring and light-weighting alloys – really needed to grow, and be able to grow at a substantial year-on-year forecast by whatever means available.
He said, taking a look only at battery materials in particular, we were already starting to see issues with producing lithium at a mine site level, let alone moving downstream into the refined lithium products that were required to make this revolution tick-over. And, it was not just lithium, he believed similar issues would apply to sourcing high purity nickel and cobalt sulphate and suitable graphite material.
Bloomberg New Energy Finance head of metals and mining Sophie Lu said there was a lack of alignment between refining capacity of the lithium-ion battery supply chain and the development of mining projects in the medium term.
She said there was also a further misalignment between the needs of the battery industry for long term supply stability at what they consider to be a fair price, verse the boom to bust investment cycle that existed in a lot of these currently considered minor metals.
Lu believed battery manufacturers and others at the consumer end of the supply chain needed to move away from there tendency to overreact to short term spikes in commodity prices when developing their new battery technologies, like those that occurred with lithium and cobalt in 2018.
The theory here is that with currently circa 40 different recipes circulating the world for lithium-ion batteries, pending its end-customer requirement, it is hard enough for precursor producers to ensure they meet the baseline impurity thresholds for as many of those recipes as possible to broaden their potential off-take market.
If you add to that commodity price-driven reactive behaviours from manufacturers looking to insulate themselves from potential price shocks up to a decade down the track by modifying constituents within cathodes (an in some cases anodes and electrodes,) it really starts to restrict major investments in new production capacity in response to the higher commodity price signal due to the uncertainty and lack of transparency from battery manufacturers on their mid-to-long term plans.
The solution, of course, is greater communication up and down the supply chain from explorers through to automotive manufacturers, to create a far better understanding of each other’s critical investment and operating risks.