European carmakers are now going direct to miners and Aussies can cash in on that
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With capital still hard to come by for early stage battery metals explorers, there is a need for those in the industry to rethink their approach.
And this is where Europe is offering a massive opportunity, especially for Aussie companies.
The major European carmakers have decided to bypass the trading houses and go straight to the source – and Australian battery metals are a priority on their radar.
“Things are different these days because lithium and cobalt and other battery minerals will go through offtake agreements and not through the world market any longer, and you need direct agreements,” Stefan Müller, CEO of Frankfurt-based consultancy DGWA, told Stockhead.
DGWA is a German corporate boutique for global small and mid-cap consulting and investments. The company helps connect listed and non-listed companies to investors, financial institutions and industry.
“BMW, for example, officially announced that they want to bypass the trading houses in the future, which means they won’t go to Glencore any longer, they will go directly to the mine,” Müller said.
And everyone is watching the big three given that Europe’s automotive industry is the largest in the world.
But the major carmakers won’t just pick any old mine to buy from, they want sustainable and ethical supply, which is why Australia is high on their list.
Müller said the sustainability discussion was “proceeding with high speed” in Europe.
“It’s clear that in the future for every mineral you will have green mines and dirty mines, and when your mine is in Australia for example it’s of course a sustainable mining product,” he said.
“I think it will end up in a situation where you will have two different prices at some point — that mines that produce a dirty product can’t sell at the same price as mines that produce sustainable and green.
“So the industry [in Europe] is more and more interested in these companies.”
European investors are a little savvier when it comes to battery metals and they didn’t bail out in droves when prices started to fall.
However, they are very much aware that there is no rush to get into the market because the main event is still coming.
“Every single day there is something regarding EVs and the investors know that the boom is coming, that is absolutely obvious,” Müller said.
“They know the reasons why the lithium price is down is obvious and the reasons why it will go up again is obvious too, but it will not happen tomorrow.
“So most of the investors are on the sidelines, because they see there is no immediate need to invest.”
According to Müller, this means Australian miners looking to other markets like Europe to raise money need to go beyond the financial markets.
There is now that corporate connection that companies can tap into, but it requires a different approach.
“What they have done in the past is they found a very cheap project, raised a bit of money, developed it a little bit and hope that somebody takes it over and the stock price goes up,” Müller said.
“In the past you always went to the world markets and you had price volatility.
“Now you have offtake agreements that give you security – it de-risks your project.
“You may have the chance to have prepaid offtake agreements, which gives you the opportunity to raise money outside of the financial markets without dilution for example.”
But very few companies in Australia have cottoned onto that fact yet.
“They still think that it’s enough to do business like they have done in the last 20 years,” Müller said. “That maybe right when you have a big gold business somewhere or copper or something like that but when it comes to battery minerals, it’s totally different.”
Müller said many Australian resources companies underestimated the importance of corporate connections.
“They still only look for financial markets connections,” he explained.
“They think they come over one time a year and do a little roadshow and that brings them money and knowledge and share price trading volume.
“That’s not the case, if a company is doing it right and they sit on a project that is really promising, they have to do it all [in Europe] and attract the industry and not only the financial markets.”
The amount of money it takes to develop a mine in Australia pails in comparison to the level of cash the major European carmakers have to splash around.
“If you go to a junior miner and ask him what he needs to finish the DFS or whatever, then you may get an answer of between $10m and $20m or something like that,” Müller said.
By comparison, BMW’s R&D department alone spent somewhere close to €6 billion last year.
“Lots of that [R&D] becomes part of the next generation of cars, but lots of it doesn’t,” Müller said.
“So spending $20m to secure a long-term delivery of a resource that you for sure need, it’s nothing.”
And supply is getting tighter while demand is still growing, which means big car and battery makers will only be getting more desperate for resources.
“The market is not endless, you can easily calculate how much lithium will be available in the next 10 years,” Müller said.
“Even if somebody finds the biggest deposit on earth tomorrow it takes 10 years until it goes into production, and therefore you have to secure your production now.”
According to Müller, the demand for battery metals is heavily underestimated.
“Every new number that comes out is higher than the old one because it grows faster than expected and it covers much more than only cars,” he explained.
“Two years ago, people were only quoting cars and only passenger cars and they totally forgot all these two wheelers, now buses are becoming very interesting and all these tools at home.”