Proactive Investors - Elon Musk’s Tesla (NASDAQ:TSLA) recently broke ground on a new lithium refining facility in Texas.
Musk acolytes took this development as simply another small step for mankind amid many more giant leaps that SpaceX and Tesla are taking elsewhere.
But the significance of the lithium refinery is strategic and not just local.
Musk knows, and has tweeted about, lithium supply chains.
Not everyone agrees with his assessment of the abundance and availability of lithium in the earth’s core, but there isn’t much debate about China’s control of the supply chain.
It’s generally reckoned that the Chinese control up to 80% of the world’s lithium refining capability, and that the reason they do so is because of long-term strategic thinking, of the kind Western governments have been incapable of since the days of Vietnam and Watergate.
Perhaps, though, the Chinese just got lucky.
Either way, Musk is taking no chances. He needs fully-refined lithium for the local production of Teslas in North America, and the only way to ensure that supply completely is create capacity himself.
Not every car company, of course, is going to build its own lithium refinery.
But they are, increasingly, cutting direct deals with lithium miners like Albemarle.
And there’s a trend that’s running in the other direction too. Many miners are now beginning to look at the battery and green energy metals not just as a mining opportunity, but as an opportunity to move their own product up the value chain.
One reason for doing this is margins.
You can sell refined product for a greater amount than unrefined metal. And if you can go all the way up to the end product, as Tirupati Graphite PLC (LSE:TGR, OTCQX:TGRHF) does with the graphite it mines in Madagascar and sells as fire-retardant end to the Indian railways, then you capture the margins all the way up.
Not all companies can go right the way from the bottom to the top of the value chain like Tirupati, but some are beginning to try.
And, it’s not just the likes of Elon Musk and Tesla who are setting the backdrop for such moves. The return of protectionism as a serious economic discussion point has focussed attention on supply chains. Those that can mine a product at the beginning of the chain and stick with it to the end are increasingly looked upon with favour by policy-makers.
It’s no accident that when governments come out with lists of so-called ‘strategic metals’ the junior miners are all over it.
After all, there’s a deeper issue involved here too – it’s not just about margins, it’s also about the valuation of the mining companies themselves.
It’s no secret that the rating the mining sector as a whole receives from the investment community is meagre. The major producers trade on paltry earnings multiples and yields, and the smaller ones do well to get any kind of attention at all.
That’s true even if the companies in question have in-demand future-proofing metals like lithium, cobalt, copper, nickel.
On the other hand, add on a refining operation, a recycling operation, or better still, an all-out battery manufacturing operation, and the investors start to take notice.
All at once, you’re no longer talking about mining, but about the green economy at large.
To be fair, there is an established pattern left over from the twentieth century to follow, and thus Horizonte Minerals is creating not only major new nickel mines in Brazil, but also new smelting capabilities.
That’s moving up the value chain as far as it goes, and has more appeal than just digging rock out of the ground.
Many lithium miners, in turn, are looking to build plants capable of producing advanced end-products like hydroxides.
But the companies that look really forward-facing at the moment are the ones that are specifically focussing on the technology at the other end of the supply chain.
It’s in this context that the Berkwood graphite project is currently being worked up by Green Battery Minerals Inc. (TSXV:GEM) The mine is step one, and it’s good as far as it goes. But Green Battery Metals is also in partnership with Volt Carbon Technologies (TSXV:VCT), a company that’s focusing on ‘carbon sciences and battery technology.’
Volt Carbon Technologies itself has several mining claims in Canada, but also owns SolidUltraBattery, which focused on the manufacture of lithium batteries in Ontario. It also has a proprietary processing technology to remove graphite from ore, referred to as the Air Classifier.
And it’s not the only company of its kind.
In the UK, Technology Minerals is set on creating what it calls “a circular economy for battery metals.”
The plan is for Technology Minerals (LON:TM1), via various subsidiaries in various countries, to work up cobalt, lithium, copper, nickel and manganese assets.
At the same time, it also owns 49% of the UK’s first battery recycling company, and given the hundreds of new gigafactories which are either being built or are in the planning stages, it won’t be long before there’s a surfeit of supply.
Technology Minerals talks idealistically about creating a new type of economy, but even without the idealism, something’s going to need to be done with all those old batteries. And so this idea of a circular economy goes one better than capturing value all the way up the supply chain – it takes the end of the supply chain, and brings it back round to the beginning.
Mkango is another company that’s taking this approach. Its Songwe project in Malawi will supply the rare earths that are used in the specialist magnets that go into, among other things, windfarm technologies. And upstream, Magnito Limited, a recycling arm of Mkango, will develop opportunities to recycle those same magnets.
Also getting in on the act is Pensana, which will mine rare earths in Angola which it will feed into a new processing plant at Saltend in the UK. Pensana also talks about developing “a circular economy” and plans to plug into as much green energy as it can.
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