September 30, 2023

Lithium costs have been holding at excessive ranges for the previous 12 months, with battery prices rising for the primary time in a decade, partially resulting from prices associated to uncooked supplies.

As demand from the electrical car trade continues to extend, the necessity for battery metals akin to lithium will solely soar, with trade individuals emphasizing that the pipeline would not have sufficient provide to satisfy anticipated demand.

“The one approach you may get oversupply into this market is if in case you have an overinvestment upstream, and we have but to see it,” Rodney Hooper of RK Fairness mentioned throughout a panel dialogue at this 12 months’s Benchmark Week in Los Angeles.

“From a junior perspective, you possibly can argue (whether or not) incumbents have sufficient brownfield growth inside their very own portfolios to satisfy demand,” he continued. “The reply is not any. That is an trade that this 12 months will see demand rising over 40 p.c. It is unprecedented, so they do not have that capability.”

Talking with the Investing Information Community on the sidelines of the present, Simon Moores, CEO of Benchmark Mineral Intelligence, mentioned funding for battery metals provide is just not taking place on the price wanted.

“Funding has occurred, however it’s not taking place nonetheless at a price that anybody wants. Institutional cash remains to be not as aggressive appropriately,” Moores mentioned. “Quite a lot of offers have been carried out with type of development-stage junior mining, however numerous them are very weak offers … the truth is these firms, these builders, want laborious money to get issues up and operating.”

For Arash Nazhad, managing director at Citi, the difficulty from a funding perspective is that, at the very least previous to the final 18 months, there was no ahead curve or actual offtake contracts.

“When you have a look at a few of the massive names within the house, you have been functioning largely on the spot costs. What’s taking place, I feel, exterior of fairness, is that there is numerous strategic capital coming into this house … that capital is at decrease prices, and capable of perceive technical danger and capable of assist fund the event of a few of these belongings,” he mentioned at Benchmark Week.

Relating to lithium provide particularly, consumers cannot simply safe provide or safe costs, they want each. For Hooper, locking in costs now means that there’s a want to barter longer-term offers.

“I’ve all the time been a proponent of those streaming offers, that are successfully a model of pre-funding, the place you may lock in a a lot better price and get the cash upfront. However clearly that you must take a leap of religion into the challenge,” he mentioned.

One other development seen within the sector lately has been rising curiosity in lithium from main miners, together with built-in oil and gasoline firms and huge chemical firms that historically did not have belongings within the battery metals house.

“From my perspective, one problem all of them face is how do they value lithium … one factor we’re seeing instead for that’s these prepayment contracts or offtake agreements which might be being signed on the outset. Including some transparency round that’s really serving to folks,” Nazhad defined throughout a panel.

ESG on the forefront of funding selections

Deal with environmental, social and governance (ESG) points within the battery metals house continues to extend, and has been constructing for the previous 5 years at the very least, mentioned Elizabeth Tate, founding father of Greene Tate Methods.

“And it is actually been a giant leap within the final two years,” she mentioned throughout a panel at Benchmark Week. “I feel that is pushed by an elevated appreciation for the chance administration worth of ESG and the understanding that these ‘points’ are predictive of future development and future values.”

Anthony Tse, who’s an working associate at funding agency Franklin Templeton, mentioned that alongside its funding framework, his agency now has the identical degree of self-discipline, rigor and robustness round influence framework.

“So actually, they do sit facet by facet versus sort of being a subset of labor that must be carried out,” he mentioned.

For Tem Tumurbat, managing associate at Nomadic Enterprise Companions, ESG commitments want to begin early.

“After we make investments, we actually search for alignment and we really get dedication. It is a pledge that you will construct this firm on the premise that every one the ESG points are thought of,” he mentioned.

Relating to social points, measuring the influence turns into extra complicated than different elements of ESG.

“I feel we’re seeing this paradigm shift the place points aren’t simply an E or an S or a G, however must be checked out from an E, S and G perspective,” Tate mentioned. “Water is critically an environmental situation, but in addition the way you’re affecting the water sources in a given space within the area, your entry to water — it is also a social situation.”

Whereas plenty of these sources can be found, Tumurbat thinks it will be very difficult to carry many stakeholders on board to get their consent. “The world is just not able to construct 300 new mines by 2035 … ESG is so vital; nothing new might be as vital, as a result of many nice initiatives are likely to get caught if they do not have neighborhood assist,” he mentioned.

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Securities Disclosure: I, Priscila Barrera, maintain no direct funding curiosity in any firm talked about on this article.

Editorial Disclosure: The Investing Information Community doesn’t assure the accuracy or thoroughness of the knowledge reported within the interviews it conducts. The opinions expressed in these interviews don’t mirror the opinions of the Investing Information Community and don’t represent funding recommendation. All readers are inspired to carry out their very own due diligence.

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