Battery demand drives our newest resource asset class – low emissions minerals
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Two years ago so-called ‘low emissions minerals’ were not an investment class in Australia.
Today, lithium, graphite, cobalt and manganese are the hottest resources — with the possible exception of Pilbara gold nuggets — on the ASX.
Rob Murdoch, the founder of resources analyser Austex Mining, says Australia’s resources market has changed dramatically in the last two years — all thanks to batteries.
“These companies didn’t really exist as an investment two years ago,” he told Stockhead.
“The market has changed. Graphite, lithium, manganese, cobalt — no one specialised in cobalt exploration two years ago. It was always a by-product of copper mining.”
The rise of the lithium battery industry is supporting the production of minerals associated with low emissions power.
Graphite, for example, has been used to make foundry crucibles for years, but it didn’t become popular until it became a lithium-ion battery component.
Being located in Western Australia is a good way to hike a share price too.
Mr Murdoch says a reliable trend is that companies with resources in that State will be valued at least double that of a similar company elsewhere in the country.
High risks for low emissions
There are three risks he sees for these minerals, however.
One is that China is the biggest buyer and many offtake, or future sales deals are non-binding MoUs. If Chinese buyers can’t find takers for the product, the arrangements underpinning mines may fall through.
He says oversupply will come — “lithium is very common”. Right now there aren’t enough producing mines to be a problem, however, some companies are spruiking resources with very low grades because of the popularity of the minerals, he said.
The third risk is that the market for minerals like lithium or graphite is opaque.
“It’s not a transparent market. These metals are not in the LME [London Metals Exchange] and don’t have an organised market. With gold you can sell bullion to the mint,” he said.
An organised market for low emissions minerals is not likely to appear anytime soon because the majority of buyers are Chinese.