• Fundie Tribeca says electrification will provide a lift in metals demand four times the size of China’s 2000s urbanisation
  • Miners who invest in decarbonisation and battery metals stand to benefit from energy transition
  • With rise of M & A, EV maker and billionaire investments in mining, the smart money is moving in

Electrification will deliver four times the demand growth for metals as the Chinese boom of the early 2000s, says one of Australia and Asia’s most prominent investment funds.

Tribeca Investment Partners portfolio manager John Stover told delegates at the Resource Connect Asia Future Commodities Forum in Singapore yesterday investors have been missing a trick with their approach to ESG in recent years.

Echoing the dot com bubble of the 1990s, until recently money has been flowing heavily into tech and sustainability stocks, attracting a halo he describes as HARM – Hope At A Ridiculous Multiple.

“What we’ve seen over the past six to 12 months is that the wind out of the sails of a lot of these high flying companies has come out and share prices have come down,” Stover said.

Instead, Stover suggests miners will be the key beneficiaries of the decarbonisation thematic.

“We have this coming demand boom from the electrification and EV boom, that we think is actually going to be about four times the demand growth we saw from China urbanisation,” he said.

“I see what teenagers are wearing on the street these days, they’re always wearing baggy jeans.

“And I think they’re making some of the same fashion mistakes my generation made in the ’90s.

“I think mining executives, we may end up seeing them looking back and making the same mistakes that their predecessors did in the 1990s as well, because this stuff is all cyclical.”


Picks and shovels

While tech has dominated major stock indexes like the NASDAQ in recent years, Stover says future value generation will be driven by the more humble “pick and shovel”, likening the return of investors to mining stocks to the retreat to real earnings after the collapse of the dot com bubble in the 1990s.

“We’re very focused on the battery materials space, mining technology, nuclear energy, hydrogen, renewable energy, etc. and we feel like the future alpha generation is going to be driven by these picks and shovel plays and the commodities that are going to drive decarbonisation going forward,” Stover said.

“Part of the reason we feel this way is this huge demand coming from electrification. If you look at electric vehicles, they use six times more battery minerals across copper and nickel, lithium, graphite, etc than a conventional vehicle.

“Benchmark’s done studies showing we’re going to need 384 new mines across these commodities by 2035 to meet the demand, and at Tribeca we think the demand for these commodities like lithium, nickel, graphite, etc, could rise by 20 to 40 times by 2050.

“So this is just this huge demand growth that the industry is really not prepared for. And this is all happening at the same time that mining capex is at multi decade lows.

“Mining capex per unit of mine production is at the lowest level in decades. And it’s really been flat for about the past five to six years. And this has happened at the same time that shareholder returns in the forms of dividends and buybacks are at all time highs.

“If you look at what we need in various decarbonisation and global warming scenarios relative to the plan and committed capex, it really pales in comparison.”


Strategic value

With big tech companies seeing their share prices drop off in the past year, Stover said strategic value is being seen in resources, where EV makers are starting to invest in miners to secure supplies and majors are trying to bolster their portfolios by taking over smaller competitors.

He says the smart money is moving into mining.

“Ford just announced they’re gonna participate in a $4.5 billion nickel processing plant in Indonesia. You see, an executive like the director of purchasing for General Motors, say, quote-unquote, ‘we’re absolutely convinced that this is a race, a zero sum game and resources are finite’,” Stover commented.

“That’s pretty heavy stuff for one of the largest consumers of these commodities. And this has really picked up M & A in the resources sector broadly.

“We’ve seen several billionaires in Australia that are currently undergoing mining M & A at the moment. You know, that’s something we really haven’t seen since the last China urbanisation boom.

“You saw Glencore looking to take over Teck Resources obviously very recently, so I think a lot of the, both strategics in the mining space and the EV producers have realised that the scarcity is actually moving to upstream.”

The market is showing tentative signs of awareness.

“If you look at where the 10 largest EV producers and the 10 largest tech companies, their market caps are down 30-40% over the past year,” Stover said.

“And if you look at the top 10 largest battery mineral producers, roughly flat in a pretty tough equity market, and actually some of the smaller producers that you see here at a conference this week, some of their share prices have gone up 200, 300, 400% in the past couple of years.”