High Voltage: Carmakers, OEMs must jump in bed with rare earths stocks to grow supply
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Our High Voltage column wraps all the news driving ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, manganese, magnesium, and vanadium.
Western carmakers must get more involved in developing the rare earths supply chain to ensure future demand, just as they have in lithium, experts say.
EV makers and other OEMs – which boast far larger balance sheets than emerging miners — are pivotal to moving the nascent ex-China REE industry forward, delegates heard at the recent Rare Earths Industry Association (REIA) Annual Conference in Barcelona.
“OEMs have a massive role to play, especially those in the automotive industry but also those in power generation,” Neo Performance Materials (TSX:NEO) chief exec Constantine Karayannopoulos said, according to Argus.
“We need everybody at the table. OEMs and governments will be crucial,” Peak Rare Earths (ASX:PEK) head of marketing Andrea Cornwell said.
“The bigger end of town needs to step up,” Arafura Rare Earths’ (ASX:ARU) general manager Lloyd Kaiser added.
Rare earth permanent magnets are a crucial component in wind turbines and in the drive train of hybrid and electric vehicles.
There’s a couple of kilos of rare earths magnets in every EV, and about a tonne in every MW of power produced by wind turbines.
The forecast production of the magnet rare earths terbium and dysprosium appears to be in shortfall from about 2025 onwards.
Where is the supply going to come from?
During the ICE (internal combustion engine) age, the idea that a carmaker would invest directly in metal and mining operations to ensure supply was unheard of.
As recently as 2019 it was merely a light “topic of conversation”; now, miner and carmaker tie-ups are real and becoming more real every day.
This is the EV age, and things are different.
We need more than 300 new mines to feed a 500% increase in battery demand by 2035 – for lithium specifically, this means roughly 74 new lithium mines with an average size of 45,000 tonnes.
Securing access to critical minerals for batteries has therefore become ever more important amid the global automakers’ expedited transition to EVs. There are examples everywhere.
In 2020, Piedmont Lithium (ASX:PLL) inked a landmark supply deal with EV trailblazer Tesla.
Liontown (ASX:LTR) will supply both Tesla and Ford once production kicks off at the Kathleen Valley project in WA next year.
But it’s not just offtake carmakers and OEMs are interested in anymore; they want a stake in the mine itself.
In 2022, China’s largest electric carmaker BYD became the second automaker to take a stake in a major lithium miner, in a RMB 3 billion (~$630m) deal with Shenzhen-listed Chengxin Lithium.
This year, General Motors made the largest ever investment by an automaker in battery raw materials after pouring US$650m into NYSE-listed Lithium Americas Corp to help develop the Thacker Pass lithium project.
Some more details on the Lithium Americas / General Motors mega deal:
✅ GM now largest shareholder in $LAC
✅ Biggest OEM investment in battery raw materials / upstream
✅ Designed to maximise DOE loan programs – policy actually works, a direct hit! pic.twitter.com/3E26hdZ6uW
— Simon Moores (@sdmoores) January 31, 2023
In April, Mercedes Benz CEO Ola Kaellenius said the company was willing to allocate capital to support or ramp up a mining business “if an opportunity presents itself”.
OEM involvement in REE mining could make a significant difference in the viability of new projects, Argus says.
“These projects are typically fraught with risk — navigating complex geologies, very high costs, [and] an unusually intricate value chain,” it says.
In fact, only a handful of ex-China REE mining operations have come online in the past 50 years, such are the barriers to entry.
Then there’s the volatile pricing.
“The past two years have seen FOB China prices for neodymium oxide swing within a range of almost $130/kg — peaking at $193.75/kg on 23 February 2022 before falling to a low of $64.70/kg on 5 May 2023,” according to Argus.
“Similarly, praseodymium oxide peaked at $175.50/kg fob China on 1-4 March 2022 before then sinking to a low of $64.80/kg on 4 May 2023.”
Having an OEM secure long-term offtake makes new rare earth projects bankable, one attendee said on the sidelines of the Rare Earths Industry Association (REIA) Annual Conference.
Near term miner Arafura is a case in point; it recently received in principle support for up to US$300m ($437.8m) in debt financing from Canadian export credit agency Export Development Canada.
This was based on support from General Electric Company (GE), which is negotiating a long-term sales agreement for the supply of NdPr from Nolans for use in permanent magnets used in GE’s offshore wind turbines.
Binding offtake agreements have also been reached with two customers – Siemens and Hyundai– which together account for about 53% of the targeted 85% annual production from Nolans secured under long-term sale arrangements.
Nolans is expected to churn out 4,325 tonnes of NdPr oxide per annum over four decades, with first production pencilled in for 2025.
Here’s how a basket of ASX stocks with exposure to lithium, cobalt, graphite, nickel, rare earths, magnesium, manganese, and vanadium is performing>>>
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