In the Mix

Updated: Feb 10, 2020

Lithium is grabbing all the headlines as explorers, investors and miners scramble to capitalise on the predicted exploding demand for raw materials in batteries. However, nickel, graphite, cobalt, manganese and other minerals also have a significant part to play. Geoff Edwards explains where these minerals enter into the equation and how they fit into battery infrastructure.

The existing and predicted future boom in lithium-ion batteries, fuelled initially by electric vehicles and then, later down the track, energy storage systems, creates remarkable opportunities for Australia’s mining and minerals processing industries. At the moment all the excitement (and short-term anxiety) is around lithium. A short while ago, cobalt was all the rage. And before that, if you weren’t buying stock in junior graphite miners, you were missing out on the biggest thing since sliced bread.

Now, we are all aware that certain stakeholders in certain companies aren’t averse to a little exaggeration when it comes to warming up investors with a smattering of well-aimed publicity. However, investors, company strategists and, hopefully, decision-makers in government, should be trying their utmost to eliminate the hype and make well-informed decisions. As Rio Tinto Ventures boss Andrew Latham put it in a 2018 presentation:

“We must be pragmatic, and we can only invest where opportunities arise but there are clear trends that will guide our approach.”

So what are these clear trends, and where are the opportunities? To start with, let’s take a look inside a lithium-ion battery.

The diagram below is a simplified graphic of the inner structure of a lithium-ion battery. The basic components are an anode, a porous polymer separator, a cathode and liquid electrolyte. During discharge, lithium-ions (Li+) move out of the cathode, through the electrolyte and into the anode. While charging, the lithium-ions go the other way. Hence the name “lithium-ion battery”.

The anode is made of a thin copper metal electrode, covered by a layer of anode material. Currently the overwhelming anode material of choice is graphite. The graphite may be ‘natural graphite’, which miners obviously adore, and ‘synthetic graphite’, which miners detest. Silicon is gradually making inroads but, at present, is only used in small quantities (Panasonic batteries used by Tesla are rumoured to have a few percent of silicon in their anodes).

Separators are porous polymers such as polypropylene/polyethylene. More advanced separators are becoming available, for example with added ceramic material to improve heat resistance and safety.

Electrolytes are typically a few percent lithium hexaflurophosphate in liquids such as ethylene carbonate plus some specialty additives.

The cathode is comprised of a thin aluminium metal electrode, covered by a layer of cathode material. There are a range of cathode materials used by cell makers. The most favoured for electric vehicles is called ‘NMC’, short for ‘nickel manganese cobalt’. These materials (and all cathode materials) contain lithium: indeed, this is where the vast majority of lithium is located in lithium-ion batteries. Tesla prefers ‘NCA’ cathode material, short for ‘nickel cobalt aluminium’. Some Chinese manufacturers still use ‘LFP’, or lithium-ion phosphate. Higher energy densities for nickel-based cathode materials have pushed the EV industry strongly towards these compounds.

Battery manufacturers therefore need to consider supply chains for copper, aluminium, polymer separators, electrolytes, graphite, and cathode materials (mostly NMC and NCA). Research looking at copper, aluminium, manganese, LiPF6 (electrolyte) and polypropylene/polyethylene (separators) has shown that there is little impact on battery production from these materials. They are generally commodities already used in large volumes and batteries represent only a minor portion of their markets.

This conclusion is consistent with a presentation given in 2017 by Tesla’s former battery guru, Kurt Kelty, in which he states “The cathode (NCA) and anode (graphite) active materials are the primary cost drivers of the cell.” So, how much of this stuff is needed for batteries, and how much does it cost?

The tables below show how many kilograms of anode and cathode materials are required for a 75 kWh lithium-ion car battery (one of the options for Tesla cars). Estimated costs for the materials are also shown. Li costs are shown for lithium carbonate (Li2CO3) as this is a common raw material for lithium.

A couple of points stand out immediately. Firstly, nickel is by far the main metal component in the battery, more than six times the amount of lithium. As Tesla’s Kurt Kelty pointed out in the same 2017 presentation, “Nickel, not lithium, is the single largest material cost in high energy lithium ion batteries”. Secondly, lithium, cobalt and graphite, while not at the same level as nickel, are still main contributors to cost. Thirdly, cell makers have a choice at the anode of natural or synthetic graphite (or a blend); there is significant price difference but how the price/performance ratios of these two materials change into the future will be critical to relative demand.

Cathode powders for Li-Ion battery

An interesting point about nickel is that at the moment, nickel for batteries is still only a small portion of that metal’s total market, with demand for stainless steel and other materials dominating. Yet, as the diagram below from McKinsey shows, this is expected to dramatically change with the expected explosion in EVs, to the point where McKinsey predicts a potential supply shortage in 2025. This is good news for nickel miners. However, a cautionary note applies - the diagram below shows that the demand/supply balance for battery materials is critically dependent on what actually happens with EV growth. If the predictions pan out, all good. If not, things can change dramatically.

One approach with nickel that is much less dependent on future demand is innovation in minerals processing. The aim of such innovation is to significantly reduce cost. As we’ve seen, with nickel contributing so much to battery costs, this approach seems to be a smart one. Pure Battery Technologies and A-CAP Energy Ltd are two Australian companies heading down this path.

Cobalt has undoubtedly grabbed a lot of headlines in recent years and, conversely, created plenty of headaches for battery and EV company execs. Cobalt supply is presently dominated by the Democratic Republic of Congo (DRC). This is steeped in both sovereign risk and controversy, with UNICEF estimating that 40,000 children are illegally employed in DRC mines, and Amnesty International stating that demand for cobalt has caused the DRC to lure more and more children into the mines, where conditions are extremely hazardous, for up to 20 hours a day.

This is good news for Australian cobalt companies.

BMW announced in April this year that it will buy cobalt for electric car batteries direct from Australia and Morocco in an effort to ensure it is not sourcing materials from countries that use child labour. No doubt other major users will follow BMW’s lead.

Unlike nickel, cobalt for batteries already makes up a significant portion of the market for cobalt. Similar to nickel, McKinsey predicts a large rise in cobalt demand leading to a potential need to double supply from current levels.

However, not only are such predictions dependent on what actually happens with EVs, they also rely on how much cobalt actually ends up in the batteries. Due to cost and supply issues, and also higher energy densities obtained with higher nickel contents in NMC, battery makers and end-users have been working hard to reduce cobalt in cells. Stage 1 Tesla batteries in 2009-12 contained about 11kg of cobalt. By Stage 2 (2016-18) this had fallen to 7kg. The most recent Stage 3 batteries are reported to contain only 4.5 kg of cobalt. This trend is likely to continue however, it is extremely unlikely that cobalt will ever be totally removed. Thus, if the expected boom in EVs materialises, cobalt will very likely be a major part of the mix.

Similar to nickel, targeting advances in the processing of cobalt that reduce cost would appear to be a good way to go. This is particularly interesting as almost all nickel deposits contain cobalt at some level. A prospective, high cobalt/nickel deposit combined with innovative minerals processing could be the backbone of a compelling prospectus.

Of the metals, lithium supply is probably the hardest to get a firm handle on. There are a number of potential sources for lithium (brine, salts and several types of mineral ores). Huge ore deposits exist in Western Australia and exceptionally large brine and salt deposits exist in South America (Australia is now the biggest lithium producer in the world, followed by Chile). China and the USA also host significant resources.

There appears to be plenty of lithium around.

The real question to ask is which of these sources is able to produce battery grade lithium at the right price? This is a complex question, and probably only really known by those that are involved hands-on in the individual projects (hopefully).

Minerals processing is also a key technology. Lithium Australia is one company working on new extraction technology that could potentially turn waste stockpiles into viable sources of lithium, and perhaps make previously non-viable deposits viable.

And then there is recycling. Technology to recycle lithium from used batteries doesn’t yet exist on a large scale. If such technology is successfully developed this could be a major future source of lithium.

As previously mentioned, the dominant anode material today is graphite, either natural or synthetic. Natural graphite has lower cost, while synthetic graphite has higher performance. How the cost/performance ratios of these two materials change in the future will critically affect which of these cell makers prefer. Currently Tesla uses an undisclosed blend of both natural and synthetic graphite in their cells.

Natural graphite is cheaper than synthetic but not as good 'performance'

A few years ago natural graphite mining and exploration companies were very much in vogue, many spruiking a lack of supply for lithium-ion batteries. Even now, there are close on fifty ASX-listed graphite companies (not all of these are targeting lithium-ion batteries, but many are). However, many of the graphite deposits discovered proved both to be large and a high enough quality for lithium batteries. Accordingly, there is probably only enough scope in the lithium battery market for a handful of these companies to succeed.

Syrah Resources is one of the very few to make it into production, yet they are now having to struggle through the difficulties associated with penetrating a Chinese-dominated market. As recently as September, a ‘sudden and material decrease in spot graphite prices in China triggered by depreciation of the Yuan and appreciation of Chinese inventory levels’ precipitated production cuts by Syrah and a significant slide in their share price.

Such difficulties have prompted many graphite companies to think outside the box. Several have moved back to more traditional markets for graphite. Others have recognised that downstream processing to a final anode material adds significant value and may represent a better business proposition.

Magnis Resources, Novonix (formerly GraphiteCorp), Talga Resources and Hexagon Resources have all announced serious moves into downstream processing. Historically, this processing has been conducted in stealth in China, Korea and Japan and little expertise existed outside these countries. Tesla put the proverbial cat amongst the pigeons a few years ago by announcing that their graphite suppliers needed to process on US soil, driving development and acquisition of this technology in the west.

Silicon is the ‘next generation’ anode material with potentially ten times the energy density of graphite. However, numerous problems with silicon (most notably a threefold expansion upon lithium-ion insertion) has limited its use despite more than twenty years of research. Emerging companies such as Sila Nanotechnologies seem to be making strides to achieving acceptable performance through development of advanced silicon carbon composite materials although cost is still a major concern. It will most likely be some time before silicon takes significant market share away from graphite.

Zinc might not be the poor cousin everyone assumes

Lithium metal is the ultimate anode material in terms of energy density but this seems so far away from a practical product that graphite company executives and shareholders won’t be losing too much sleep over lithium metal anodes.

There are some positives for the graphite companies that might make things easier in the future. These include recently introduced US tariffs on Chinese graphite, the strategic importance of non-Chinese suppliers for the US and also Europe and a potential decline in Chinese production.

Investors, miners and tech companies should keep their ears to the ground as batteries are only part of the new energy story.

Taking a step back or peeking outside the blinkers, EVs need electronic hardware (conductors, connections, chips etc.) to manage the batteries and the motors. Moving further away from the EV ‘clickbait’, what materials are needed for solar farms and wind energy?

Massachusetts Institute of Technology (MIT) recently took a broad approach looking at materials needed for a range of emerging new technologies (autonomous and electric vehicles, renewable energy, energy storage, IT and oil and gas). It was this study that Rio Tinto Ventures boss Andrew Latham referred to in a 2018 presentation, “We must be pragmatic, and we can only invest where opportunities arise, but there are clear trends that will guide our approach.” The result of the MIT study is shown below.

And the winner is …TIN! Tin? There must be some mistake. Tin isn’t in batteries (not much anyway). It turns out, electronics are the common factor in almost all emerging technologies, and electronics need electrical contacts. So electrical contact materials, i.e. tin, silver and gold, are destined to have a major part in the new energy minerals mix.

The International Tin Association also considers the imminent ‘technology super-cycle’ as good news for tin, with a similar distribution amongst new technologies (see figure below) and as early as 2017 was forecasting a gap in supply and demand.

There are a number of interesting aspects to tin supply. The figure below shows tin production by country in 2017.

China, Indonesia, Myanmar, South America and Africa make up 94% of tin supply. Given the preference of the US and Europe to source other strategic materials from politically stable western countries, new tin projects in such countries would seem to be appealing, if they can deliver at the right price.

Also of interest is that production in Myanmar has shown signs of having peaked, production in China is forecast to drop, and supply from Indonesia is unstable due to political regulatory issues. This should be more good news for tin projects based in the west.

Getting back to the battery materials, lithium, nickel, graphite and cobalt, the MIT study is optimistic. If the study is correct, combined demands in the other emerging technologies are forecast to be greater than EVs plus energy storage. The idea that these other technologies (advanced robotics, advanced computation and IT, and renewable energy) will also create booming demand for materials seems reasonable. At least, it could be worth considering these technologies in as much detail as batteries.

So where does all this leave us? At the risk of being repetitive, quoting Tesla’s Kurt Kelty again, “In the short to medium term the supplies of battery materials seem well matched to demand”. And the long term? “Depends what happens with EVs”.

But as the MIT study shows, it pays to consider other technologies, not just batteries.

No doubt opportunities will be a-plenty. Like everything, rigorous due diligence will help separate the gold from the sand.