Australia: The electric vehicle and battery revolution: Are our miners ready?

Recently we showed that mining is starting to look at powering their operations with the use of renewable energy and storage solutions. From the electric vehicle (EV) revolution, continuing battery development, production of photovoltaic (PV) solar panels and wind turbines and other renewable energy infrastructure, it has become very obvious there is an increasing international demand for lithium, graphite, cobalt, aluminium, copper, zinc and nickel. Throw in the rate of development of renewable energy technology as well as the focus on cleaner operational efficiencies for the resources sector and it is clear that the Australian minerals and metals producers are potential winners.

A pipedream no more, electric vehicles are now in big demand by retail consumers. In recent months there have been announcements from all of the world's largest carmakers. This revolution is not just about Volvo, Tesla and Chevrolet though. There is Volkswagen's announcement of a $10 billion investment in 30 models of electric vehicle's over the coming five years. In Europe there is increasing talk of a phase out of petrol and diesel powered vehicles by 2040, with France leading the way.

China is though positioning itself to dominate the EV market globally. The International Energy Agency recently reported in its World Energy Outlook that China accounted for 40% of EV sales in 2016 and that by 2040 one-in-four of passenger vehicles in China will be electric.

While in some respects this movement has gained overnight traction, back in 2016 BHP published a blog which looked at what the EV revolution would mean for oil demand.1 In that blog, BHP's Dr Huw McKay tellingly predicted that 2017 would be the year that the EV revolution takes off. He pointed to the release of the Chevy Bolt and Tesla's more affordable Model 3 EV's. He made some predictions about the EV light vehicle market share:

"Today there are about 1.1 billion cars in the world's light duty vehicle fleet, of which approximately 1 million are EVs. By 2035, we think there will be around 140 million EVs on the roads, or 8% of the total fleet of 1.8 billion. Our EV projections require sales to grow by around 25% per annum between now and 2035, lifting their share of sales from approximately 0.5% today to 13% in 20 years".

Fast forward to August 2017 and The Economist magazine's headlining article "Electric cars signal death of the internal combustion engine".2 According to that article: "The internal combustion engine has had a good run — and could still dominate shipping and aviation for decades to come. But on land electric motors will soon offer freedom and convenience more cheaply and cleanly".

Around the same time, back at BHP, the President of BHP's Nickel West business reported a very positive take on the EV and battery revolution.3 Using the same forecasts of EV growth as those used by Dr McKay in 2016 (25% compound annual growth), the Nickel West President, was very excited about this revolution (which includes plug-in hybrids or PHEVs). He told the Diggers and Dealers forum: "We see huge potential in electric vehicles, with falling battery prices playing an important role in higher adoption of EVs." He raised the (Chinese-owned) Volvo decision to go exclusively with EVs and PHEVs by 2019 and the Mercedes decision to bring forward by three years (to 2022) their launch of ten EV models and then pointed out that the dominant battery technology for EV's and in energy storage systems was the lithium-ion battery. Borrowing a quote from Tesla's Elon Musk, he repeated "Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide...[there's] a little bit of lithium in there, but it's like the salt on the salad".

BHP is not the only mining heavyweight to talk up the business opportunity in the EV and energy storage revolution. This is what Glencore CEO Ivan Glasenberg had to say in Glencore's media release on their half year results: "As we look forward, the potential large-scale roll out of electric vehicles and energy storage systems looks set to unlock material new sources of demand for enabling underlying commodities, including copper, cobalt, zinc and nickel. Our portfolio of Tier 1 commodities underpins our ambition to create significant long-term value for Glencore shareholders."

Not to be outdone, Rio Tinto is very excited about the opportunity offered by a lithium deposit in Serbia, having only recently entered into an MOU with the Government of Serbia,4 while Fortescue said recently that they were preparing a lithium exploration program in the Pilbara.

This enthusiasm for the opportunities presented by the energy revolution was already being reflected in the Resourcing Innovation campaign launched by industry peak body the Queensland Resources Council (QRC) back in August 2016.5 That campaign highlighted the essential role of the mining and resources industry in enabling renewable energy technologies and electric vehicles and pointed out, for example, that EV's use four times as much copper as an internal combustion engine vehicle. Little wonder that the likes of BHP, Glencore and Rio Tinto, are extremely focused on the EV revolution.

On a smaller scale, are companies like McCullough Robertson client Novonix (formerly GraphiteCorp) which are positioning themselves to be a reliable supplier of materials for lithium-ion batteries, including from their Mount Dromedary graphite deposit in north-west Queensland.

Throw in that Australia is the biggest producer of lithium worldwide and it is official – the EV and energy storage revolution is a huge opportunity for Australian miners. Notwithstanding this, will global interest be enough to drive the exploration required to capitalise on this boom?

Other local players that look to move on this increasing demand are New Century Resources Limited (the acquirer of the previously closed Century zinc-lead-silver mine in the north west minerals province of Queensland) and Altona Mining Limited with the Cloncurry Copper Project (also north-west Queensland). Both companies are pursuing highly prospective deposits and are well placed for success.

It is certainly the case that these developments bring welcome news to the struggling mineral exploration industry. It is commonly known that exploration had been in the doldrums in recent years. 2016-17 saw signs of revival, with the Australian Bureau of Statistics reporting that exploration spending for base metals such as copper, nickel and zinc was also up 17% nationally although still 66% below the 2011-12 peak. Australia can and should be doing better. After all, in the latest Fraser Institute global ranking of which regions have the best minerals prospectivity, WA ranks number one, Queensland number four and SA number 13.6

For Queensland specifically, mining research firm Austex reported that exploration spending by listed junior exploration companies increased by 23% in 2016-17 and the ABS found that base metals exploration spending in the September quarter recorded its strongest result in nearly five years and was nearly 80% higher than the previous September quarter. Against that backdrop, the Queensland Exploration Council's recently published 2017 Queensland Exploration Scorecard was entitled A Groundswell of Optimism. The Scorecard reported that 51% of junior exploration companies plan to increase spending in the year ahead, with another 35% to maintain current levels.

Given the size of the EV and battery storage opportunity, there is an urgent need for our national and state governments to focus on encouraging minerals exploration and in particular the junior exploration sector. New discoveries have been insufficient to replace major mines that have closed or are coming towards the end of their economic lives. Case in hand, Queensland's North West Mineral Province is one of the world's most highly prospective regions for base metals (copper, lead and zinc) and precious metals (gold and silver). It is also prospective for many other essential minerals such as phosphate, uranium and rare earth metals. However, exploration has not yet identified large mineral resources projects to replace the existing major deposits that have been mined and supported the region's prosperity in recent decades including the likes of the Mount Isa Copper, Cannington and Ernest Henry mines, all of which are in decline.

The Queensland Government has gone some way to recognising the challenges presented by closure of older mines (such as the Century Zinc mine and the Osborn copper and gold mine) and reduced exploration activity in the State's North West Minerals Province and established a Taskforce to identify issues affecting the Province's mining industry and to help plan a strategic way forward. The Taskforce was co-chaired by former QRC Chief Executive and now McCullough Robertson Strategic Adviser Michael Roche. In response to the Taskforce's report, in July the Queensland Government released its Strategic Blueprint for Queensland's North West Minerals Province.

There was obvious concern about the attitude of our national government when it announced earlier in 2017 the end of the Exploration Development Incentive. However, they listened to concerns from the junior exploration sector and announced a replacement incentive scheme, the Junior Mineral Exploration Tax Credit.

To wrap up, the EV and battery storage revolution opportunity for Australian mining is huge. Our mining majors now see that boring old copper, nickel and zinc are now front and centre of enabling this revolution.

The recent evidence from exploration trends suggests that our junior exploration sector also understands the opportunity.

But this is a global opportunity. The question is therefore whether our state and national governments are going to ensure we have a regulatory and policy environment and the investment in pre-competitive geo-science which positions Australia to be at the front of the pack.

McCullough Robertson has a strong history of assisting explorers to develop their projects from a plan on a piece of paper to product at the processing plant. As a member of the Queensland Exploration Council, we understand the approvals pathways and assessment requirements and regularly advise on all aspects of the mining legislation that is relevant to exploration projects, including tenement management issues, negotiating and drafting compensation agreements, advising on dealings for exploration permits, mineral development licences and mining leases, assisting with landholder objections, and government liaison and strategy. We are well placed to assist and look forward to engaging with the exploration industry in order to capitalise on this significant opportunity.








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