Lithium investment on the rise
Investors are betting big on a lithium comeback less than three years after prices of the metal used in rechargeable batteries collapsed from a record price and sent miners reeling.
Producers of the metal that had been shunned amid supply overhangs and plateauing demand raised almost $3.4 billion in equity offerings in the Americas so far this year, data compiled by Bloomberg shows. That’s seven times the total amount raised from 2018 to 2020, when the industry was in a downturn.
Interest in the industry is resurgent as electric-vehicle targets set by global automakers and a change in the US administration signal that a battery boom is finally gathering momentum. After the punishing three-year sell-off, prices of the soft silvery-white metal have started to rebound, and analysts, including those at BloombergNEF, expect further gains on rising demand and tight supplies of battery-grade lithium.
Talks with investors and discussions on potential supply agreements with automotive-equipment and battery manufacturers “which were only in my dreams a year ago are now filling my calendar,” Robert Mintak, chief executive officer of Vancouver-based Standard Lithium Ltd., told Bloomberg.
A lithium price index compiled by Benchmark Mineral Intelligence jumped 32% this year through February, after plunging 59% from mid-2018 to mid-2020. The metal reached an all-time high in May 2018.
The investor pool “is expanded to technology investors and others,” said Mintak, as major automakers’ determination to deploy hundreds of billions of dollars to electrify their fleets gives investors “that safety that there’s going to be a supply pinch.”
The majority of the financing has been done by the world’s top two lithium miners - Albemarle Corp. and SQM, or Soc. Quimica & Minera de Chile SA, as it’s known formally - as they took advantage of their recent stock surges. Albemarle completed a larger-than-planned equity offering of $1.5 billion in early February, while Santiago-based SQM raised $1.1 billion in January.
Junior miners, most of which have yet to produce substantial amounts of lithium, are also attracting strong interest from investors. Take the case of Standard Lithium, which opened its first direct lithium extraction plant in El Dorado, Arkansas, in September, with the facility using a new technology that allows for a 90% lithium recovery rate. It raised C$34.53 million ($27.6 million) in an over-subscribed share offering in December. Investor interest was so strong that it had to turn away offers for more, said CEO Mintak.
Lithium Americas Corp., which is developing the Thacker Pass mine in Nevada, raised a total of $500 million through two primary share offerings in October and January, respectively.
“The tide is finally turning, and much faster than I thought,” Chris Berry president of House Mountain Partners, an industry consultant. “You see that with Lithium Americas being able to raise a total of half a billion dollars recently. This is for a pre-revenue company regarding lithium.”
Sigma Lithium Resources Corp., which is developing a hard-rock lithium project in Brazil, had to upsize its private placement and increase offering price, which “says a lot about investor demand for lithium exposure, that asset, and that company’s vision,” said Berry.
Junior lithium miners raised $529 million this year, Bloomberg data showed. That’s about $63 million more than the total amount raised from 2018 to 2020.
Ford Motor Co. announced last month that its passenger-vehicle range will be all-electric in Europe by 2030. General Motors Co. plans to sell only zero-emission models by 2035. Volkswagen AG went further, announcing plans this week to build six battery factories in Europe and invest globally in charging stations, as ensuring scaling battery production has become a key in the EV race.
Batteries make up about 30% of an electric car’s cost. And automakers around the world look to pivot to EVs, with hopes to get batteries at the cheapest price possible but also secure enough supply to meet those ambitions.
Meanwhile, US President Joe Biden has pledged to build back the economy after the devastation of covid-19 with cleaner energy and a lower carbon footprint. The administration said in late February it would conduct a government review of US supply chains to seek to end the country’s reliance on China and other adversaries for crucial goods.
The election of Biden is “a very favorable signal to investors” as it boosted confidence that the switch to clean energy will accelerate, which along with existing favorable subsidies and regulations in Europe and China bodes well for raw materials needed for that energy transition, said Seth Goldstein, an analyst at Morningstar Inc. The US is the second-largest EV market, after China.
Andrew Bowering, a director at Vancouver-based American Lithium Corp., called the US review on supply chains “huge” for the lithium industry as it shows the government’s realization that in order to meet clean-energy goals, it’s important for the US to have a security of supply of raw materials such as lithium.
“All of a sudden, after three years of downturn, you’ve got the price of the commodity starting to go up again and a change in the administration in the US that’s pushing a green new deal and support big money going into the green automobile industry,” said Bowering. “That leads investors into space.”
Mining Profile: Gary Nagle, CEO, Glencore
Gary Nagle has spent his career in mining, across two decades, with Glencore – the Anglo-Swiss metals and mining company with a diverse global portfolio. Nagle is a one company man who has experienced the journey of the resources industry from boots on the ground to the boardroom. He will succeed Ivan Glasenberg as Glencore’s CEO in July 2021
Gary Nagle was born in South Africa in 1975 where he earned degrees in commerce and accounting from the University of Witwatersrand, before qualifying as a chartered accountant in 1999. Nagle joined Glencore in 2000 as an asset manager in the coal department. His rise was swift; by 2007 he was named chief executive of the company’s Colombian coal operation, Prodeco.
Following the acquisition of Xstrata in 2013, Nagle moved to run the company’s South Africa-focused alloy assets, before being named head of the company’s global coal assets portfolio in 2018
Building his career by rising through the ranks of Glencore’s coal department Nagles was considered the most likely to succeed Glasenberg due to his asset-focus; mining accounts for a growing share of Glencore’s revenue as it moves away from its origins as a pure trader.
Glencore’s Chairman, Tony Hayward, commented on the appointment: “Gary Nagle has held senior roles in coal and ferroalloys in Colombia, South Africa and Australia. He has been on the Board’s radar for more than several years and was selected following a succession process overseen by the Board. We are confident that he has the right skill set and qualities to lead the Glencore of tomorrow.”
Ivan Glasenberg is retiring from his role as CEO after nearly 20 years at the helm of Glencore which saw him complete one of the largest mining mergers in history, with Xstrata. Looking back on his time at Glencore, the world’s largest commodities trader, Glasenberg reflected: “I am proud of the great company that we have built. Together, we have created one of the world’s largest diversified miners and marketers of commodities. Today, our diversified portfolio uniquely positions us to play an essential role in the global transition to a low-carbon economy.”
Glencore has announced plans to reach net-zero emissions by 2050 by reducing its direct and indirect carbon footprint by 40% by 2035.
Glasenberg has served as mentor to Nagle who has followed a similar career path at Glencore rising to the role of CEO via heading up the company’s global coal business.
“I have worked with Gary since he joined the company twenty years ago,” recalled Glasenberg. “I have always regarded it as a critical part of my job to develop the next generation of leadership at Glencore and I am proud of the strong leadership team that we developed from which we were able to select Gary. I am confident that his leadership, along with the support of the management team, will enable Glencore to take advantage of the opportunities that lie ahead and be a strong custodian for my shareholding in the company.”
Looking ahead to the challenges awaiting him, Nagle was full of optimism: “I am grateful for the trust placed in me by the Board and honoured to be appointed CEO at such an exciting time for Glencore. We will continue to deliver value to our shareholders, while operating safely and responsibly.”
Nagle will relocate from Australia to Switzerland to take up his new role.