3 major trends that battery metals investors must pay attention to in 2018
Over the course of the first six months of 2018, I picked up on three major trends in the metals exploration and mining sector that new energy and battery metals investors really need to be paying attention to, and they are as follows:
TREND # 1: Resource Nationalism
As it becomes more and more apparent, with each passing day, that the future truly is, as I like to say, electric, and that electric vehicles and grid-scale/home battery storage will go down in history as two of the most successful technologies ever invented, it has become equally apparent that countries with an abundance of the metals needed to produce these technologies, such as lithium, cobalt, nickel, and copper, are becoming increasingly leery of foreign corporations and international mining companies exploiting their resources solely for their (and their shareholders’) personal gain.
The first example of this trend, which comes most readily to my mind, is the Democratic Republic of the Congo, most commonly referred to as the “Congo” or “DRC”, which recently revamped its mining code, with the intent of keeping far more of its cobalt and copper-related revenues for itself, much to the chagrin of a cadre of foreign commodities traders and mining giants, including Glencore, China Molybdenum, and Ivanhoe Mines, which have been exploiting the country for decades.
Whereas the DRC prior to the advent of EVs seemed content to allow the aforementioned companies what was essentially carte blanche when it came to profiting from the Congo’s exceptional endowment of all things metal, the country has now taken the apparent position that said companies have, in hindsight, been raping and pillaging its lands, to the detriment of the DRC’s citizenry. Accordingly, and in spite of an epic amount of lamentation on the part of the players affected, the country has implemented its new mining code in what it publicly claims is an attempt to ensure the prosperity of its own people. Now, as to whether this move will benefit the average men, women, and children of the country or not, that is yet to be seen, however, for now one thing is certain: Congolese President Joseph Kabila and his associates are very serious about keeping more of the Congo’s income within its own borders.
Elsewhere in Africa, the governments of Mali, Sierra Lione, South Africa, Tanzania, and Zambia, just to name a few, have also been toying around, to various degrees, with their mining regulations, in an attempt to hammer out what they believe will be a more fair and equitable distribution of their nations’ respective wealth. Likewise, Indonesia has been, over the course of the last year or so, strong-arming Freeport McMoRan of Arizona, the world’s largest producer of molybdenum and second largest producer of copper, into reducing its stake in the world’s second largest copper mine, Grasberg, from 90.64% to 49%, which would lead to Indonesia’s state-owned mining holding company PT Inalum to take a 51% stake, thereby making Inalum the mine’s new owner.
Not to be outdone by their Eastern counterparts, when it comes to clutching their resources close to their chests, the countries of the Western world are also getting in on the nationalistic action. Most notably, it is likely that we will see, within the next six months, the government of the United States of America becoming at least as territorial, if not more so, than all the aforementioned nations combined, save for perhaps the Congo, as it seeks to reduce its reliance upon other, potentially adversarial countries for its supplies of 35 metals (or minerals) it recently deemed critical to its national security.
Being that the Administration of President Donald Trump has already made great efforts to find equal trade footing with everyone from its arch nemesis China to its allies in the E.U., Canada, and Mexico, via strategically-imposed tariffs and trade barriers, it would not be surprising to me if, at some point in the very near future, the U.S. government were to increase its own battery metals-related royalties and/or impose restrictions on the amount of such metals that can be legally exported in general, let alone to areas deemed adversarial to the United States, such as Russia, China, and even some parts of Europe.
TREND # 2: Environmentalism
Clearly, one of the biggest drivers of the “electric revolution” (which encompasses all things EV, energy storage, and wind, solar, and hydro-related) right now is the idea that we need to do better with protecting Planet Earth as a whole, as well as and our individual environments. Accordingly, and regardless of your stance on whether “climate change” is real or not (let alone man-made), it would make perfect, logical sense for humanity’s sense of “right” and “wrong”, when it comes to keeping our air and water clean, to trickle down into the mining sector—and lo and behold, it has done just that.
Take, for example, when, in April of this year, President Rodrigo Duterte of the Philippines, clearly fed up with miners prioritizing profits over the protection of the Filipino peoples and their environment, ordered an audit to determine whether the foreign firms operating in the country are in compliance with the country’s environmental protection laws, as well as the firms themselves to reforest the areas they’d hitherto been exploiting, lest he would personally see to it that their mining permits are revoked.
On the refinery front, the government of India’s Tamil Nadu recently ordered the permanent closure of a nickel smelting operation run by London-based Vedanta Resources, which has been at the heart of an environmental dispute and related protests for quite some time. The smelter, which locals claimed was poisoning the areas water and air, has been blamed for an outbreak of breathing disorders, skin diseases, heart conditions, and cancer. In spite of this, Vedanta, being motivated, as all corporations are, by profit, is now fighting tooth-and-nail to restore the smelter as expeditiously as possible. That fight, however, has born bad fruit thus far for the imperiled refiner, as the National Green Tribunal recently denied the company’s interim request to re-start the operation. Furthermore, it does not appear that the government will be giving Vedanta its desired green light any time soon.
On the exploration front, governments all around the world have also been putting extra pressure on both early-stage and late-stage metals explorers to protect both average citizens and their environments. Take, for example, the government of Quebec, Canada, where the Minister of Sustainable Development, Environment, and the Fight Against Climate Change recently declared that he would recommend Sayona Mining of Australia’s (ASX: SYA, OTC: DMNXF, FRA: DML) Authier lithium project be subjected to an unnecessary environmental impact assessment and review procedure, despite the company having released a very positive set of environmental studies nearly simultaneously, which revealed that the project would have no adverse effects on groundwater quality.
While the environmental is indeed important to us all, and while we should be taking appropriate precautions to ensure its protection (not only for us in the present but for future generations as well), I am of the opinion that our local, state, and federal governments are becoming unreasonable with their demands in many cases, especially when it comes to early-stage explorers and junior mining companies, which have absolutely no history of abusing (or otherwise mistreating) our environment, which is far more than I can say for their mega-corporate counterparts, who’ve been polluting our planet for over a century in some cases.
These small players, who are coming up in an era where the protection of our environment is a top priority, and who are thus well aware of the negative PR that comes with oil spills, groundwater contamination, destruction of wildlife, and the like, operate in direct contradiction to their forebears, who have have been—to put it bluntly—getting away with environmental murder by, for example, dumping potentially toxic tailings into rivers for decades, as is the case with the aforementioned Freeport McMoRan, which clearly cares more about making money than it does about public relations, let alone the public’s health and well-being.
TREND # 3: Human Rights
It’s no secret that some countries and companies treat their people a lot better than others, and it doesn’t take a rocket scientist to realize that in some parts of the world people are treated more like indentured servants or slaves than employees. Having said that, it would appear that the civilized world is just now beginning to awaken to the cold, hard, calloused truth that the metals we need to make the products we use every day—most notably the cobalt found inside the lithium-ion batteries that power everything from our smart phones to our laptop computers, and even our power tools and electric and hybrid vehicles—come, in many cases, from so-called “artisanal” (or small-scale) mines in “risky jurisdictions” like the aforementioned Congo, where children, sometimes as young as two to four years old, are made to slave way in the hot sun, for upwards of 12 or more hours per day, only for their overlords to sell the pieces of blue-grey metal they unearth to Chinese buyers at a deep discount.
This issue, which was recently brought to light via an undercover exposé by CBS News, has become a major sticking point when it comes to the purchase of cobalt by the likes of Apple, Tesla, and even the Chinese as a whole, who have recently decided that they, too, do not support (at least not publicly) the use of child labor in the mining of battery metals. Please note that this is not because they necessarily care about children, but likely because of the negative PR that has been, as of late, going hand-in-hand with getting caught in bed with corrupt, criminal regimes that care more about making a quick buck than about kids getting killed when their medieval mine shafts collapse upon them every time it rains.
The use of child labor in cobalt mining operations in Africa has become so big a problem that there are now companies and consortiums popping up left and right in an attempt to find a technological and/or governmental solution to it. Take, for example, Cobalt Blockchain (TSX: COBC, OTC: COBCF) and Circulor, two companies that are pioneering technology to track metals such as cobalt from the time they’re mined all the way through their end-use in, say, a lithium-ion battery, or even further, through their eventual recycling at the hands of a so-called “urban mining” outfit like American Manganese (TSX: AMY, OTC: AMYZF, FRA: 2AM), which just so happens to be partnered with Circulor. Or take, for another example, the Responsible Cobalt Initiative (PDF), an initiative spearheaded by the Chinese, which aims to improve both cobalt supply chain transparency and governance.
Add to the above the fact that on December 21, 2017, President Donald Trump of the United States of America signed an executive order declaring a national emergency over “human rights abuses” and “corruption”, the intent of which is to stamp out bad actors who engage in such things by cutting off their access to the American financial system, and we have a full-blown human rights crisis on our hands, which is currently being addressed by individuals, businesses, and nations all around the world, including the London Metal Exchange, which recently announced that it would be subjecting companies that get at least 25% of their cobalt from small-scale mines in the Congo to “professional audits” beginning in January of next year, as a means of ensuring that the metal on the exchange is sourced ethically.
THE TAKEAWAY FOR INVESTORS
The takeaway for new energy and battery metals investors here is multi-fold:
First, investors should carefully consider the jurisdictions they are considering investing in and take into account not only where their investments’ mining and exploration projects are located, but also where the companies they’re considering investing in are themselves headquartered. Having done that, investors would be prudent to consider the potential ramifications of any present or future royalties, tariffs, taxes, and/or restrictions (or changes to such things) that could apply to such locations, especially whereas the world is already deeply concerned about a global trade war.
Secondly, investors should be aware of the environmental attitude of the locals that live in the vicinity of any mining and/or exploration projects they are considering investing in. For example, rhetorical questions should be asked as to whether the locals are concerned about air and/or water quality, open-pit and/or underground mining remediation, and/or adverse effects upon local flora and fauna. Having asked of themselves all relevant environmental questions, investors should then do their own research to ensure that the companies they are considering investing in are 1) aware of the aforementioned environmental attitudes in the area(s) they wish to exploit, 2) prepared to produce (if they haven’t already done so) detailed environmental studies to prove that their projects won’t harm the environment, and 3) committed to keeping up-to-date on the latest and greatest technologies and strategies for staying in compliance with local, state, and federal laws, regulations, and environmental protection policies.
Lastly, investors should ensure that the companies they are considering investing in do not, in any way, shape, or form, use or support the use of child labor, indentured servitude, or slavery as a means of metals production. Similarly, investors should endeavor to confirm that said companies are not associated or in any way affiliated with individuals or businesses that have recently been on, or could soon be on, the receiving end of a “Human Rights Abuser” or “Corrupt Actors” designation by the United States of America, or any other nation for that matter. That said, if investors choose to disregard this advice, or endeavor to do business in any way with companies involved with such entities, said investors should be aware that the companies they are getting in bed with could be themselves sanctioned by global governments and/or cut off from global financial systems, which would, of course, be very bad news for both those entities and their associated stock prices.
Disclosure: I am long DMNXF and AMYZF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from/through New Energy Narrative, which I am the founder and owner of). I have no business relationship with any company whose stock is mentioned in this article.
Please note: This article covers one or more stocks trading at less than US $1 per share and/or with less than a US $100 million market cap. Please be aware of the risks associated with these stocks.
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