Big investors are loving small nickel and copper stocks as electric car market grows
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Small caps in the nickel and copper space are catching the eye of investment banks and other big investors as the electric vehicle revolution gathers steam.
Investment bank Canada’s IBK Capital Corp has set its sights on nickel and copper small caps with projects in Latin America and Africa.
“Given where we see demand for electric vehicles going [and] the evolving battery chemistry universe, nickel is something that we’re paying quite a close attention to,” IBK Capital senior vice president Miranda Werstiuk said at last week’s International Mining and Resources Conference in Melbourne.
“The other is copper — also given the need for copper in electric vehicles. We’ve been spending some time looking at juniors, obviously in Latin America and some in Africa.”
There is also increasing number of deals between Chinese battery giants and miners.
Earlier this year, China’s biggest lithium battery maker Contemporary Amperex Technology (CATL) injected $C15m ($15.9m) into Canada-listed North American Nickel (which has a market cap of just $35.5 million) and a nickel sulphide project in Greenland.
By next year CATL wants to be producing batteries with a chemistry make-up of 80 per cent nickel, 10 per cent cobalt and 10 per cent manganese – also known as NCM811.
Batteries with higher nickel content are cheaper and longer-lasting because they can store and produce more energy.
Right now CATL makes batteries with 50 per cent nickel, 20 per cent cobalt and 30 per cent manganese.
CATL supplies batteries to electric car makers SAIC Motor Corp, Geely, BMW and Volkswagen.
Russian giant Norilsk Nickel recently inked a deal with German chemical heavyweight BASF to build a large nickel and cobalt cathode manufacturing plant in Finland.
That plant alone is set to supply BASF’s battery materials to 300,000 electric vehicles.
Eddie Sugar, a partner with New York-based corporate advisory firm EAS Advisors, said “China is definitely taking the forefront in terms of financing the materials going into electric vehicles and batteries”.
ASX small caps looking attractive
Aussie juniors are also benefiting from the rapidly expanding electric vehicle market.
Soon-to-be-listed Norwest Minerals has attracted interest from a flood of institutional investors particularly because of its “Bali” copper project in WA, where recent rock chip sampling returned high-grade copper of up to 36.8 per cent copper.
Grades of between 1.5 per cent and 6 per cent are considered good and grades above that are high-grade.
A recent trip to Hong Kong proved fruitful for the company that was spun out of battery metals-focused Australian Mines (ASX:AUZ), with several institutional investors keen to back Norwest, according to corporate advisor Terrain Capital.
Ivan Arriagada, the boss of Chilean copper miner Antofagasta, told delegates at IMARC that conventional car uses 25kg of copper, while an electric car requires about 80kg.
Gianni Kovacevic, chairman of Canada-listed CopperBank predicts that demand for the red metal is predicted to grow at an annual rate of between 4 and 6 per cent.
“Final energy today, only 19 per cent is electricity, it took us 120 years,” Mr Kovacevic told delegates at IMARC.
“In the next 40 years it’s going to go to 50 or 60 per cent, but the amount of copper per application is going to increase.”
Right now, 75 per cent of the world’s copper is used to produce, generate, conduct, transport or utilise electricity and Mr Kovacevic says there will be “countless billions more products that will use copper”.
Meanwhile, a September forecast by researchers at Roskill suggested demand for nickel sulphate – essential to production of cathodes for lithium-ion batteries — may reach 800,000 tonnes to 1 million tonnes by 2030.
This represents almost half the size of today’s entire nickel market.
Big battery makers are showing increased interest in ASX-listed small cap nickel players like Cassini Resources (ASX:CZI) and St George Mining (ASX:SGQ).
In August, Xu Jinfu, the chairman and a major shareholder of Guangzhou Tinci Materials Technology — one of the largest lithium-ion battery electrolyte manufacturers in China — became a key cornerstone investor in Cassini.
Other high net worth Asian investors with a history of successful development, off-take and financing of battery minerals assets also joined the register as part of a $4.2m placement.
The investment could potentially mean an off-take deal for the company’s West Musgrave nickel and copper project down the track.
John Prineas, executive chairman of St George Mining, told Stockhead in August that the junior nickel explorer was also seeing interest from battery manufacturers.
“That’s sort of pointing to maybe a crunch in about two or three years in the nickel sulphide market and very good escalation of prices,” he said.
Nickel sulphides are much cheaper to turn into battery grade nickel sulphate than nickel laterites and will fetch a premium price.
The bigger players are also trying to capitalise on the soaring demand for nickel, with the likes of Andrew “Twiggy” Forrest recently injecting more cash into Poseidon Nickel (ASX:POS) and increasing his stake to about 18 per cent.
Mr Forrest is better known for his exploits in iron ore through Fortescue Metals Group (ASX:FMG).
Nickel and cobalt explorer Jervois Mining (ASX:JRV), meanwhile, is backed by well-known Sydney-based mining fund Terra Capital.
Terra Capital believes there will be a supply squeeze in both nickel and copper within the next year or two.
Lack of new discoveries set to drive copper prices
While around $100 billion has been spent on copper exploration in the past decade, just nine discoveries have been made, according to CopperBank’s Mr Kovacevic.
There are currently 25 mines that supply around 50 per cent of primary copper, and most of them are located in just two countries – Chile and Peru.
The world has just 20 years of reserves left.
Along with the lack of new discoveries, the grade of existing mines is declining — which means more material has to be mined to get the same amount of copper.
The lower grade also means that the copper price has to be much higher to incentivise new production.
Copper is currently fetching around $US6,254 ($8,700) per tonne on the London Metal Exchange.
“I believe that the copper price is going to exceed its old all-time high, not because I’m a prognosticator, because I understand engineering, and we have to be able to make 0.4 per cent copper ore economic,” Mr Kovacevic said.
He predicts copper will have to rise to somewhere between $US12,000 and $US14,000 per tonne in the next 10 to 20 years.