This Week in Critical Minerals - #9
This Week in Critical Minerals - #9
Glencore bid for Teck, Lithium price freefall, and Tesla Master Plan Part 3
Welcome to the ninth issue of This Week in Critical Minerals, where I cover the mining and resource processing projects and technologies being built around the world. Let’s dig in.
Glencore submits $23B bid to acquire Teck Resources
On the 26th of March mining and trading giant Glencore submitted a bid to Teck Resources’ Board of Directors to acquire the company for $23B, a 22% premium to Teck’s valuation at market close on March 31st. Teck’s board has so far rejected the bid. Teck Resources produces copper and zinc from operations across the Americas and steelmaking coal in Canada. Norman Keevil, whose father founded Teck 60 years ago, retains control of the company through special class A which have 100 times the voting power of public class B shares. He is committed to keeping the company independent and out of foreign hands. In January a plan was announced that would dismantle the dual-class share structure over the next six years as well as spin off Teck’s coal assets into a separate company called Elk Valley Resources which would pay a royalty to Teck, while leaving the base metals assets under the original entity. Teck’s shareholders are set to vote to approve this motion on April 26th, with the motion requiring a two-thirds majority of class A and class B shareholders to pass. It is possible that the shareholders vote against this separation because they believe the Glencore acquisition could unlock more value, and Glencore stated that their offer would be dead if the separation were to move forward. A Glencore-Teck merger would combine the metals units of both companies and spin off the combined coal assets into a separate entity. This coal company would not owe a royalty to the base metals company, unlike the Teck proposal. The metals company would be the third largest copper producer in the world, just behind Freeport and Codelco, and Glencore predicts the merger would unlock $4.25-5.25B of post-tax synergy. Because the Keevil family is committed to keeping the company in Canada, Glencore’s proposal included basing the metals company in Canada. No other mining giants have come out with bids for Teck yet, though there is some speculation other companies may get involved if Teck’s proposal is voted down later this month. A Glencore acquisition of Teck would be the largest in mining since 2007, when Rio Tinto acquired Alcan for $38B, or Glencore’s 2013 merger which valued Xstrata at $39B.
Chinese lithium refiners shut down on low prices
Two producers in the lithium processing hub of Yichun, nicknamed “Asia’s lithium capital,” are cutting production due to the massive decline of lithium carbonate price over the last few months. Chinese battery-grade lithium carbonate prices are down from approximately 345,000 RMB/tonne to 210,000 RMB/tonne over the last month, a decline of 39%. Yichun has the capacity to produce 180,000 tonnes of lithium carbonate per year out of China’s total capacity of 450,000. With lithium carbonate prices still more than five times the pre-COVID levels, as well as a more than 6% decline in Chinese electric vehicle sales in January 2022, some analysts believe the price has further to fall before it is stabilized. It is possible producers across China continue to cut production which may mitigate the over-supply build-out and slight drop in demand. Over the last year the price of spodumene concentrate has fallen 23% and lepidolite 22%, both feedstocks for the production of lithium carbonate (the cheaper lepidolite is more commonly used in the Yichun plants). The quicker decline of lithium carbonate prices compared to the concentrated minerals demonstrate that the processing step has more capacity built out than the actual mining (both in China and especially the US). The US seems to be placing more emphasis on the processing part of the supply chain which is easier to permit and construct than mines, but may lead to a similar issue where refining is in over-supply but mining remains a bottleneck.
Ford to build Indonesian battery materials plant alongside Huayou Cobalt
Ford announced plans to invest in a $4.5B nickel processing plant in Indonesia alongside Huayou Cobalt and Vale. Ford recently announced a battery factory in Michigan partnering with Chinese battery giant CATL, but is coming under criticism from many lawmakers over it’s use of funds from the Inflation Reduction Act (IRA) designed to subsidize electric vehicles built without components or raw materials sourced from “foreign entities of concern” (i.e. China). When the venture was initially announced last July, it seemed like Huayou would control 53% of the venture, with Vale at 30% and Ford at 17%. Additionally, Indonesia is not currently a free trade country so battery materials produced there would not qualify for federal subsidies, but that could change with the recent announcement of a proposed US-Indonesia free trade agreement. This would strengthen ties between US automakers and Indonesian nickel producers, providing a reliable supply of the battery metal with low/no tariffs and potentially IRA benefits, but the Chinese involvement still has an unknown impact of the geopolitical and financial implications of Ford’s supply chain.
Tesla estimates $10T investment needed for energy transition
Tesla released their Master Plan Part 3, detailing the investment needed to transition away from fossil fuels. The company also highlighted the comparably higher cost of sticking with fossil fuels: $14T. The report noted that electric vehicles are four times as energy efficient as internal combustion engine vehicles, due to higher powertrain efficiency, regenerative braking capability, and optimized platform design. Though Tesla is an EV and battery storage company, they also stressed the importance of efficient electric heat pumps, electrified planes/boats, and clean steel production. Most relevant here, however, is their view of the raw materials required for this transition. Research firm Benchmark Mineral Intelligence indicated that Tesla is vastly underestimating the investment needed on the refining side, by up to $1.6T, while the analysis of battery gigafactory spending was in line. Tesla estimates 7 Mt of lithium hydroxide will need to be produced per year, a more than ten times increase in production compared to today. Estimates for many materials included assumptions that they would be phased out of products, including neodymium/praseodymium rare earth magnets in EV motors. No real plan was given for greater resource extraction, indicating Tesla’s continued desire to stay away from mining. Increased recycling was stressed as a major source of materials, particularly from the 2050s onward.
Tesla’s Master Plan Part One consisted of
Create a low volume car, which would necessarily be expensive
Use that money to develop a medium volume car at a lower price
Use that money to create an affordable, high volume car
And...Provide solar power. No kidding, this has literally been on our website for 10 years.
while Part Two involved
Create stunning solar roofs with seamlessly integrated battery storage
Expand the electric vehicle product line to address all major segments
Develop a self-driving capability that is 10X safer than manual via massive fleet learning
Enable your car to make money for you when you aren't using it
Tesla thus far has executed on Part One and is well on their way to completing Part Two (at least the first point), but Part Three is focused more on broad trends applicable for the whole industry. It is far less specific than the previous plans. Tesla is getting deeper into the battery game and is opening a lithium refinery in Texas, and this plan marks a renewed emphasis for the company on the importance of their supply chain.
Key Takeaways
Glencore wants to acquire Teck as mega-mining-M&A continues this year.
Chinese lithium refiners are decreasing production following massive price declines.
Ford is partnering with Huayou Cobalt to secure nickel supplies in Indonesia.
Tesla’s Master Plan Part 3 laid out massive mining needs of energy transition.