February Newsletter – 24.02.2020
Tesla’s China surprise big blow for cobalt, nickel price bulls
Long-suffering cobalt bulls were dealt another blow on Wednesday after reports that the world’s largest electric carmaker is shifting some production of its most popular model away from batteries that contain nickel and cobalt.
In a surprise move, China’s top battery manufacturer CATL will supply Tesla with lithium iron phosphate (LFP) batteries for its Model 3 production at its newly built $2 billion factory outside Shanghai.
The Model 3 is Tesla’s most popular, and the US-made version uses the company’s nickel-cobalt-aluminum (NCA) cathode chemistry. Most other automakers favour nickel-cobalt-manganese (NCM) cathode chemistries.
COBALT MINERS MAY MAKE UP SOME LOST GROUND IF THE MODEL 3 PROVES POPULAR IN CHINA, WHICH ACCOUNTS FOR HALF THE WORLD’S EV SALES
LFP batteries are cheaper than batteries using NCA and NCM chemistries but lack the energy density, reducing driving range. LFP batteries power almost the entire electric bus fleet in China and are popular for smaller city runabout vehicles where range is not an issue.
According to Benchmark Mineral Intelligence, a battery supply chain and price reporting company, cobalt played no part in Tesla’s decision to use LFP cells:
The move is a specific strategy to balance the cost reduction of Model 3 with appropriate range and performance for China’s domestic market.
Benchmark believes LFP powered model 3s will qualify for China’s EV subsidies as range estimates with Tesla’s drivetrain efficiency will take it beyond the 250km (155 miles) threshold for the minimum subsidy payout of CNY 18,000 (roughly $2,600).
Benchmark estimates that the total cost saving for Model 3 made in the US using NCA cells will be in excess of 25%, but is unlikely that Tesla will produce LFP models outside China.
Cobalt miners may make up some lost ground if the Model 3 proves popular in China, which accounts for half the world’s EV sales. Tesla plans to use NCM 811 cells (~80% nickel, ~10% cobalt) supplied by LG Chem for its long-range Model 3s for the domestic market.
Benchmark domestic Chinese prices for cobalt sulphate jumped by more than 10% in January, to $6,900 a tonne. Measured from multi-year lows hit during the summer, prices for cobalt used in the battery supply chain have recovered 30%.
Chinese nickel sulphate prices fell an average of 5.8% on the previous month in January, according the Benchmark data, but at CNY24,500 ($3,500) ex-works >22% nickel content, prices are flat year-on-year.
Europe floors it in the race to dominate car batteries
Outside the German town of Arnstadt, workers for China’s Contemporary Amperex Technology Co. Ltd. (CATL) are hustling to build Europe’s biggest electric-car battery plant.
The site, which covers an area equivalent to about 100 football fields, previously housed one of the continent’s largest solar-panel factories. During a visit in October, wooden crates filled with surplus equipment were stacked up outside the metal-clad structure to make way for car-battery-making equipment. Roaring bulldozers swarmed a nearby lot to prep for construction of a new building.
EV SALES IN EUROPE ARE EXPECTED TO JUMP TO 7.7 MILLION IN 2030 FROM JUST UNDER HALF A MILLION IN 2019
The $2 billion project—one of about a half dozen battery factories under construction in Germany alone—worries European policymakers, who are desperate to ensure their auto industry doesn’t lose competitiveness in the transition to electric vehicles. EV sales in Europe are expected to jump to 7.7 million in 2030 from just under half a million in 2019, according to forecasts from BloombergNEF. Those vehicles will mainly be powered by batteries from Asian manufacturers like CATL, unless European companies fight back and build a local supply chain.
China’s Ganfeng to increase stake in Argentina lithium project
Lithium Americas has signed definitive agreements with Chinese firm Ganfeng Lithium with respect to their joint venture (JV) company Minera Exar, the holding company for the Caucharí-Olaroz lithium brine project in Jujuy, Argentina.
Ganfeng will pay $16m to increase its stake in the Cauchari-Olaroz project from 50% to 51% while Lithium Americas will retain a 49% stake and receive an additional $40m in cash.
In August last year, Ganfeng Lithium closed a previously announced transaction to increase its interest in the Caucharí-Olaroz lithium brine project from 37.5% to 50%.
LEGAL AND REGULATORY
Rio Tinto turns to arbitration to settle Mongolia tax dispute
Diversified major Rio Tinto said on Friday that its Mongolian unit, Oyu Tolgoi, had initiated a formal international arbitration process to seek a definitive resolution with regard to a dispute with that country’s tax authority.
The Mongolia Tax Authority issued Rio Tinto with a tax assessment for about $155-million in January 2018, relating to an audit on taxes imposed and paid by Oyu Tolgoi between 2013 and 2015.
Oyu Tolgoi only paid an amount of $4.8-million to settle what it accepted were unpaid taxes, fines and penalties.
“We have worked diligently with the government and tax office representatives in Mongolia to find a mutually acceptable settlement and came to the conclusion that arbitration is the best way forward to resolve this issue,” commented Rio Tinto copper and diamonds CEO Arnaud Soirat.
Brazil mining royalties jump 40% to record high
Even with Vale (NYSE: VALE) posting this week a loss of $1.68 billion in 2019, Brazil set a record on royalties received from mining companies.
Brazil received $1.03 billion in mineral royalties in 2019, according to the Brazilian Mining Agency. The royalties paid by mining companies were 48.3% or $700 million, higher than the previous year and 145% higher than 2017, when the government changed the way it charges the mining sector.
Until 2017, royalties were charged on net billing, discounting transportation and logistics costs, which decreased the amount owed. Royalty is now charged on the gross revenue from the sales.
Internal probe confirms Vale knew Brumadinho dam was unsafe
Brazilian iron ore miner Vale (NYSE: VALE) has published the results of an independent report into the Córrego do Feijão mine’s tailings dam collapse that killed 270 people last year, which reveals the company knew about the facility’s fragile condition since 2003.
According to the document, prepared by a committee formed by Vale last year, concerns about how unstable the main B1 dam was were raised at various points over the course of 16 years, but the miner failed to appropriately deal with them.
CONCERNS ABOUT HOW UNSTABLE THE MAIN B1 DAM WAS WERE RAISED AT VARIOUS POINTS OVER THE COURSE OF 16 YEARS, BUT VALE FAILED TO ADDRESS THEM
Last month, state prosecutors charged Fabio Schvartsman, the chief executive at the time of the burst, and 15 other people with homicide. Schvartsman left his position at the company in March 2019.
They also charged Vale and its German contractor, TUV SUD, with environmental crimes, as the burst unleashed an avalanche of muddy mining waste that polluted the nearby town of Brumadinho, water streams and agricultural land.
The independent committee, led by former Federal Supreme Court minister Ellen Gracie, concluded the tailings storage facility’s rupture was triggered by structural instability caused by liquefaction.
The situation, it says, was worsened by a series of other factors, including inadequate drainage of the reservoir and the fact the dam was not designed to contain liquefied material.
Gold price surges on pandemic shock to US economy
Seven straight sessions of gains lifted the gold price to a fresh 7-year high on Friday after renewed fears about the coronavirus sent investors scurrying for safe haven assets, equity markets fell and long-term US interest rates fell to a record low.
The gold price touched a new intra-day high of $1,652.10 on the Comex market in New York, up 2% or $32 an ounce from yesterday’s settlement and the highest level since mid-February 2013.
By midday, trade already hit the highest volume for the year with more than 43 million ounces exchanging hands. Bullion is up more than $120 since the start of 2020.
The yield on the US 30-year bond fell below 1.9% on Friday, a record low, after business activity in the US shrank for the first time in nearly seven years due to the pandemic’s disruption of global supply chains and travel.
The IHS Markit purchasing managers’ index measuring composite output at factories and service providers fell below 50 for the first time since October 2013. Readings below 50 indicate contraction and usually predict broader economic slowdown.
INNOVATION AND TECHNOLOGY
BHP studying autonomous haulage at Eastern Ridge, Daunia
Having previously said it was weighing up a project to automate around 500 haul trucks across its Western Australia Iron Ore and Queensland Coal sites, BHP has shed more light on its autonomous haulage plans.
The company made the ambitious admission in May 2019. It has since said it will introduce autonomous haulage at the BHP Mitsuibishi Alliance Goonyella Riverside mine, in Queensland, in a staged project that will see up to 86 Komatsu trucks converted to autonomous mode.
In its half-year results released today, BHP said of the 500 haul trucks it previously spoke of 150 are currently “under feasibility or execution” and 350 are included in its “medium-term plans”. Two projects in the former category include the Eastern Ridge mine site, in the Pilbara, which the company is currently using as its proving ground for innovation, and the 4.5 Mt/y Daunia coal mine, in Queensland, which BHP opened in 2013 and has a fleet of 16 226-t payload trucks (including Cat 793Fs).
In terms of capital expenditure, these projects were expected to cost less than $800 million, including $250 million for sites in feasibility and execution and up to $550 million included in the medium-term plans, it said.
Warrior Met Coal starts development of Blue Creek world-class 50 year longwall operation in Alabama
Warrior Met Coal, Inc says it is commencing development of its Blue Creek reserves into a new, world-class longwall mine located in Alabama near its existing mines. “Once completed, this transformational growth investment will reinforce Warrior’s position as the premier US pure-play producer of premium metallurgical coal products that are sought by customers throughout the global steel industry. Met coal, unlike thermal coal, has unique physical properties and is used solely for the production of steel.”
Based on the company’s final feasibility studies, the projected net present value (NPV), at an assumed met coal price of $150 per metric ton, significantly increased over prior estimates primarily due to higher expected production volumes and lower estimated production costs. Based on current market pricing of approximately $150 per metric ton, the projected NPV is greater than $1 billion over the life of the mine with a projected after-tax internal rate of return (IRR) of nearly 30% and an expected payback of approximately two years from initial longwall production.
“We are extremely excited about our organic growth project that will transform Warrior and allow us to build upon our proven track record of creating value for stockholders. Blue Creek is truly a world-class asset and our commitment to this new initiative demonstrates our continued highly focused business strategy as a premium pure-play met coal producer,” said Walt Scheller, CEO of Warrior.
The Blue Creek development will be a single longwall mine and is expected to have the capacity to produce an average of 4.3 million short tons per annum of premium High-Vol A met coal over the first ten years of production. It is one of the last remaining large-scale untapped premium High Vol A met coal mines in the US. Once fully developed, the Company expects Blue Creek to increase Warrior’s annual production capacity by 54% and expand its product portfolio to its global customers, offering three premium hard coking coals that are expected to achieve the highest premium met coal prices in the seaborne markets. Warrior controls approximately 114 million short tons of recoverable reserves at Blue Creek and has the ability to acquire adjacent reserves that would increase total recoverable reserves at the mine to over 170 million short tons. Blue Creek is expected to have a mine life of approximately 50 years assuming a single longwall operation.