Battery Metals Investment Needed, ESG Driving Decisions

Lithium prices have been holding at high levels for the past year, with battery costs rising for the first time in a decade, in part due to costs related to raw materials.

As demand from the electric vehicle industry continues to increase, the need for battery metals such as lithium will only soar, with industry participants emphasizing that the pipeline doesn't have enough supply to meet expected demand.

“The only way you can get oversupply into this market is if you have an overinvestment upstream, and we've yet to see it,” Rodney Hooper of RK Equity said during a panel discussion at this year’s Benchmark Week in Los Angeles.

“From a junior perspective, you could argue (whether) incumbents have enough brownfield expansion within their own portfolios to meet demand,” he continued. "The answer is no. This is an industry that this year will see demand growing over 40 percent. It's unprecedented, so they don't have that capacity."

Speaking with the Investing News Network on the sidelines of the show, Simon Moores, CEO of Benchmark Mineral Intelligence, said funding for battery metals supply is not happening at the rate needed.

“Funding has happened, but it's not happening still at a rate that anyone needs. Institutional money is still not as aggressive as it should be,” Moores said. “A lot of deals have been done with sort of development-stage junior mining, but a lot of them are very weak deals … the reality is these companies, these developers, need hard cash to get things up and running.”

For Arash Nazhad, managing director at Citi, the issue from a funding perspective is that, at least prior to the last 18 months, there was no forward curve or real offtake contracts.

“If you look at some of the big names in the space, you were functioning largely on the spot prices. What's happening, I think, outside of equity, is that there's a lot of strategic capital coming into this space … that capital is at lower costs, and able to understand technical risk and able to help fund the development of some of these assets,” he said at Benchmark Week.

When it comes to lithium supply in particular, buyers can't just secure supply or secure prices, they need both. For Hooper, locking in prices now means that there is a need to negotiate longer-term deals.

“I've always been a proponent of these streaming deals, which are effectively a version of pre-funding, where you can lock in a much better rate and get the money upfront. But obviously you need to take a leap of faith into the project,” he said.

Another trend seen in the sector in recent years has been increasing interest in lithium from major miners, including integrated oil and gas companies and large chemical companies that traditionally didn't have assets in the battery metals space.

“From my perspective, one challenge they all face is how do they price lithium … one thing we're seeing as a substitute for that is these prepayment contracts or offtake agreements that are being signed at the outset. Adding some transparency around that is actually helping people,” Nazhad explained during a panel.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.