Demand for raw materials from the electric vehicle and energy storage segments is increasing, and market participants see opportunities that companies can tap into new sources of supply.
“There is definitely a huge demand-supply mismatch right now,” said Amerin Wong of Swiss Asia Capital during a panel discussion at Vertical Events’ Future Facing Commodities conference in Singapore.
“We’ve been banging the table for a long time saying we just don’t have a supply of key commodities because we haven’t invested enough capital to do the exploration,” she added. In the game of resources, you don’t just throw big bucks, you have a solution tomorrow.It takes a very long time.”
The European Union has set an ambitious goal to phase out all internal combustion engine vehicles by 2035. The U.S. aims to have at least half of all new car sales be zero-emission vehicles by 2030. But there are no electric vehicles without batteries. There is no battery without a stable supply of raw materials.
“The reality is that we will never meet these timelines.We need real incentive prices to bring more supply to market,” said Wong. “At the end of the day, price is the key factor. So we have to either reduce demand or increase supply. There are no two ways to do this, he said.”
Another key mineral trend over the past few years has been government involvement in building supply chains that are less dependent on Asia. China, in particular, dominates many aspects of the supply chain, controlling about 80% of the refining capacity of critical minerals.
Franklin Templeton’s Anthony Tse, former CEO of lithium producer Galaxy Resources, now known as Allchem, “doesn’t necessarily agree that the supply chain can be decoupled from China.” said. OROCF). “China started early, so we’ve come this far.”
For Tse, building stronger local resilience will help decarbonize. This is because the globalized supply he chain forces materials and components to travel great distances.
“I think it’s important to actually build resilience, but we also need to build resilience by having investors willing to deploy capital once the project is sufficiently derisked,” he said. said.
One of the main challenges for junior mining companies looking to get their projects up and running is tolerance.
“In Canadian conditions, it takes at least five years to approve a project, and that is after proving that the deposit is economical,” Wong said. “Then… then we have to get the royal capital. So it just goes on and on. That’s the real problem.”
For Tse, a key factor, apart from permits, is the limited availability of human capital.
“We don’t have enough technical expertise to develop these projects, the people who actually took charge of the project through its feasibility from development stage studies, construction, commissioning, operation and start-up,” he said. He said. “I believe partnerships are the way forward on an ongoing basis.”
How can investors make the energy transition?
Sadiq Currimbhoy of Vulpes Investment Management said his organization thinks long-term about sustainability when asked to share his thoughts on how to navigate today’s energy transition.
“We don’t really use ESG scores because what we’re interested in is portfolio resilience,” he said. “We spend a lot of time understanding the asset as best we can, understanding the inherent risks and opportunities that the asset enables.”
Currimbhoy also touched on the learnings that investing in the energy transition brings to generalist investors.
“Once you find industry experts and start working with them, you can understand how each industry transition is different,” he said. “There are some similarities and commonalities, but what is interesting is that different industries have different pressure points on how decisions are made and not made.”
Mr Wong shared that Swiss Asia Capital is looking at the energy transition and fulfilling its theme through the underlying metals needed to reach net zero. “We mainly look at metals like copper, nickel, lithium and uranium,” she said. “We run different investment mandates with different risk parameters. …For more risk-averse mandates, we only consider investing in companies with cash flow.”
The founder and head of wealth management explained that her company looks to top-tier companies to fine-tune these investments. “Corporate governance is important to us, good balance sheet strength, good margins and high free cash flow yields,” she said.
“For investment mandates that want to take a little more risk, we run what we call a barbell strategy.” In that strategy, Swiss Capital not only showcases cash flow firms, but also advanced exploration firms with Tier 1 deposits. doing.
“These are deposits in the right jurisdictions because political risk is really a problem for us and they could end up being bought out by majors if they don’t have their own development capabilities. Because,” said Wong.
David Aylward, who shares Tribeca’s view, said his firm tends to invest in quality institutional frameworks.
“A lot of what we’re talking about here is about development, so this is probably earlier than what we’re historically used to,” he said. “We have to agree to forge new partnerships and figure out a way that we can put capital in a little earlier in the development of the project. It doesn’t change too much the risk profile we offer the ultimate investor.”
He also talked about the investment horizon when considering the theme of the energy transition.
“This will take some time. There will be volatility along the way and I think the best returns will be for those who can have the most patient capital,” Aylward said.
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Securities Disclosure: I, Priscilla Barrera, do not make direct investments in the companies mentioned in this article.
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