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Energy Transition Will Require Collaboration Between Miners and End-Users

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With electric vehicle (EV) demand increasing the need for critical minerals, mining companies, auto manufacturers and other industry players will need to forge partnerships to secure supply, increase production, reduce permitting risks and more.

That was the conclusion of an expert panel at BMO’s 32nd Annual Global Metals, Mining & Critical Minerals conference in Florida.

“We’re going to see growth, particularly in developed world markets, for critical minerals,” BMO Capital Markets Commodities Analyst Colin Hamilton said to open the panel, Putting Partnerships in Place to Avoid Critical Minerals Supply Shocks. “You can’t do that on your own. It has to be a partnership event and it has to be done across the value chain.”

The session, which featured Sham Kunjar, Executive Director of EV Critical Minerals at General Motors (GM), Jonathan Evans, Director, CEO and President at Lithium Americas, and James Litinksy, Chairman and CEO of MP Materials, covered a wide range of issues related to the critical minerals and EV ecosystems, with the main takeaway being that industry players must collaborate to meet rising metal demand.

Upstream Advantage

The idea of partnership is most important in upstream production. Going forward, having control over upstream, rather than downstream, is going to be a major competitive advantage, said James Litinksy of MP Materials. Currently, China has dominated the supply chain for most EV-related critical minerals, but it’s expected to start earmarking resources for domestic, rather than global, production. That could have massive implications for the mining industry.

“As the Chinese industry moves downstream, their supply will be utilized for their own sector,” said Litinsky. “This is really an existential issue not just for growth, but for the competitiveness for all of western industry.”

To meet demand, miners and original equipment manufacturers (OEMs) will need to work together to secure sufficient supply, which is something GM is already doing. In January, the auto company took an equity stake in Lithium Americas, with the two companies agreeing to develop the Thacker Pass mine in Nevada, the largest known source of lithium in the United States. Additionally, last August, GM announced that it was pre-paying lithium manufacturer Livent Corp. $198 million for a guaranteed six-year supply of lithium.

“You’ve seen a real difference in the perspectives of OEMs and how critical it is to get access to the upstream,” said Litinsky. “If you are not thoughtful and you are not making the right plans then you’ll find that when the music stops there will be no chair for you to sit on.”

Naturally, Sham Kunjar of General Motors agrees.

“If we don’t move fast and be the first to secure this then, at least over the next 10 to 15 years there will be a severe shortage of supply and it will throttle our growth,” he said. “So being the first mover in this space and securing as much as possible directly is key to our success.”

“There’s a lot of harmony between the teams, a lot of shared vision,” said Evans about Lithium America’s deal with GM. “The way GM invested in us is very powerful, in that they’re investing with our shareholders. They are about our success.”

Overcoming Challenges With Collaboration

It’s also going to take collaboration to overcome the challenges the North American industry faces in developing critical mineral assets. For instance, when it comes to permitting – the number one issue for conference attendees, according to a poll – the main concern is around reliability and predictability, says Evans. Investors, industry, and government need to come together to create a more predictable permitting process.

That will take some time, he noted. Right now, the critical mining industry is a bit like the technology sector in that you have a lot of smaller players taking on the risk. The larger operations will step in when the industry is more developed and there’s more safety around permitting – and when permits can be done in two years instead of ten.

“It becomes the time value of money,” said Evans. “People will step in when there’s predictability, but it’s a tough road (until we get there).”

When it comes to the government, U.S. legislators have come a long way, especially given the incentives for purchasing EV vehicles in the U.S.’s Inflation Reduction Act. However, it “continues to need help around permitting to address what’s good for everybody, as opposed to maybe listening to the concerns of two or three people,” Evans noted. “What happens in a lot of these projects is that with social media there are a few voices that are very loud.”

Early Stages

Panellists agreed that it’s still early for the critical minerals industry. Colin Hamilton wondered whether we’re going to have enough materials to meet demand, partly due to a lack of investment over the last few years. Litinsky, while admitting that no one can predict the future, doesn’t think so.

“I feel strongly that we’re in the beginning stages of this,” he said. “I’d start to get worried if there was 80% EV penetration and the world was electrified and there was a lot of new supply coming online. But until we have seen even some of the middle signs of excess – and we are so far from the opposite of excess – the key thing now is to just recognize that we are in the early stages of a cycle and the cycle will make up for a lot of mistakes.”

It’s early days for GM, too, with Kunjar noting that it plans to convert its entire light fleet to EV by 2035. The company recently announced it has secured enough power for about one million units by 2025. It’s also doing a lot of work in the battery chemistry space, looking at different mineral mixes to improve efficiency without sacrificing energy density, he said.

Getting to the next stage will require enormous investments, with Litinsky saying about $300 billion in capital will be needed to bring on the EV revolution in earnest. Some OEMs likely won’t survive, he added, in part because they won’t have secured supply. Having only a handful of companies producing EVs could slow the transition, though, noting that pricing could also move to a point where there’s a massive investment cycle.

In any case, it’s going to take a while before EVs – and the critical minerals within them – dominate the roads. “What’s different about this market in the supply and demand dynamic is the time frame,” said Litinsky. “It’s not as simple as, ‘We need more software companies. Let’s get all the venture capital firms and invest a bunch of money and in one year, we have a ton of software companies.’ This is longer, which makes for more extreme cycles.”

Evans is optimistic, though, that in about a decade, the critical minerals and EV industries will look a lot different than they do today. “In ten years from now it will feel a lot different,” he explained. “It will feel a whole lot different in terms of charging infrastructure, critical minerals, projects, giga-factories. At that point it’ll be almost a different generation and we’ll wonder how we got here, but it takes that long.”

As for increased collaboration between OEMs and other industry players, Kunjar said that discussions between miners, government and auto companies are picking up. “We are seeing some movement from the mining industry, and we’ve seen a lot of movement from the government,” he said. “When we first started this discussion probably about three years ago, there wasn’t too much of an awareness of what needed to be done. But now we are seeing people coming to us and saying what more can we do? That’s really good to see.”

Read more
Colin Hamilton Commodities Analyst, BMO Capital Markets Ltd.


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