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On 5 August 2021, U.S. President Joe Biden signed an executive order aimed at making zero-emissions vehicles 50% of new car sales by 2030. Transportation Secretary Pete Buttigieg in a CNBC interview further emphasized that “We have got to act, the transportation sector is the biggest part of our economy emitting greenhouse gases, and cars and trucks are one of the biggest parts of that.”
Underemphasized amid this discussion is how much minerals, from our point of view, – such as lithium, nickel, cobalt, manganese, graphite, rare earths, copper, silicon and silver – play a key role in these and other decarbonization efforts, globally. The applications and technology that are driving the transition to clean energy and decarbonization are extremely minerals intensive.
A typical electric vehicle (EV) requires six to eight times more mineral inputs than a conventional, internal combustion engine vehicle. An EV requires 60 to 83 kilograms (132 to 183 pounds) of copper, compared with a conventional car which requires only 15 kilograms (33 pounds). Meanwhile, a single, fully-electric bus requires a whopping 370 kilograms (816 pounds) of copper. By 2030, it is estimated that total demand for copper from EVs and associated infrastructure could be as high as 2.6 to 3.2 million tonnes (7.1 billion pounds) or approximately 13-15% of 2020 global supply, according to U.S. Geological Survey.
The minerals intensity of clean energy technologies may accelerate demand by as much as four to six times, depending on the technology. An offshore wind plant requires thirteen times more mineral resources than a similarly sized gas-fired power plant. The use of individual minerals such as cobalt, graphite and lithium (to name a few) could jump some 21, 25 and 42 times, respectively, during the next decade as the result of an aggressive push for clean energy use.
As the energy transition continues to accelerate, it seems feasible that decarbonization becomes the leading consumer of minerals. In other words, the global economy is transforming from one that is highly dependent on fossil fuels (coal, natural gas and crude oil) for its energy needs to one that is reliant on minerals. However, that may raise even deeper concerns surrounding supply—not only with the industry’s ability to appropriately match projected supply and demand, but also with the security of future supply.
In June 2021, the White House published a report describing the global supply chain for a number of these minerals as “nominally distributed, diverse and at serious risk of disruption”. According to the International Energy Agency (IEA), mineral extraction and processing are more geographically concentrated than traditional sources of energy, such as oil and natural gas.
The geographic location of clean energy transition minerals raises geopolitical concerns. Rightfully so, too, as just the top three producers account for 50-85% of global supply, with a majority of these minerals processed in just a single country (China). The same White House-issued report referenced above goes so far as to encourage U.S. federal and local governments to incentivize new, responsible extraction of minerals within the country’s own borders. Development of lithium mining projects in North Carolina, which currently holds approximately 3.6% of the world’s known global reserves according to the White House’s report, are an example of such effort to bolster domestic production. In terms of processing, though, the U.S. is still at a significant disadvantage, despite recent efforts to increase its processing capacity of these critical minerals.
“Security” of supply also extends to how minerals are sourced. Auto manufacturers have made significant strides to increase the transparency of their materials sources and supply chains, for example. According to Drive Sustainability’s recent study on automotive and electronic industry supply chains, materials mass-processed in China, such as zinc, may be contributing to pollution in surrounding water resources, soils and crops of local communities and pose serious health hazards there. Says Ullrich Gereke, Head of Procurement Strategy at Volkswagen, in regards to the company’s recent partnership with a global supply chain analysis provider, "[we need to] better understand which raw material sources and suppliers are in our supply chain and to measure their responsibility performance".
The clean energy transition is at an inflection point, creating long-term investment opportunities across a variety of associated industries. Within mining, specifically, two companies that we believe are well positioned to benefit from this shift are MP Materials and Piedmont Lithium. Per the companies’ websites, MP Materials is the only integrated rare earth mining and processing site in North America, while Piedmont Lithium continues to develop its world class, fully-integrated lithium business domestically in North Carolina.
All company, sector, and sub-industry weightings as of 31 July 2021, unless otherwise noted. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.
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