Companies mentioned in this report (Edison clients in bold)

This report also includes an appendix of over 70 companies involved in the critical mineral space listed by mineral, exchange, and major activity.

The global transition away from hydrocarbons as an energy source means a new ecosystem encompassing renewable power generation, storage, transmission and use needs to be built. This ‘infrastructure’ needs investment, but we argue that the oil industry – and the large end of the minerals extraction industry – has been slow to embrace newer, smaller and high-growth commodities and this vacuum means slow supply growth and, inevitably, high commodity prices. Governments are beginning to identify the risk that there are not enough well-funded, permitted, high-quality companies in most capital markets focused on critical minerals.

The demand pull: More than EVs

This report is another in our series on two of our major global themes, namely energy transition and critical minerals. The demand is not just about electric vehicles (EVs). Renewable energy generation needs minerals such as rare earths for wind turbines, and graphite, lithium and nickel for battery energy storage systems for power grids, and silver for solar panels. Charging infrastructure will need large amounts of copper. The impact on energy systems will accelerate demand growth rates to over 20% for several years for some of these metals, with industries needing to be 4–5x as large by the end of the 2020s – an unprecedented demand shock. In this note we discuss why certain materials are critical, how their demand is affected by energy transition, how current and future supply could evolve and who the major listed producers are.

And the policy push: Decarbonising and security

Governments are rightly wary about swapping one set of geopolitical risks for another as energy systems change. Ambitious plans to decarbonise transport and industry through policies such as net zero by 2050 and mandated end of internal combustion engines need to be balanced with making sure the materials and supply chains can cope and new risks are not created. This catch up in critical materials policy is underway, with the past 12 months seeing explicit critical minerals policies being launched in the United States, Europe, the UK and Canada. Some key end users are beginning to identify long-run supply risk and backward integrate (egGeneral Motors, most notably in lithium and rare earth magnets). We argue that the missing link is the lack of fresh capital, with incumbent large energy and mining firms tied to capital returns rather than long-term growth investing.

Investors

We filter and list 78 companies in many jurisdictions that we believe are highly exposed to the structural acceleration in demand growth. The global distribution is uneven (c 48% ASX listed, c 40% North America) and is notably light in the UK/Europe (just 12%). Markets experiencing demand shocks are not for the faint- hearted. Prices for many of these commodities (nickel, lithium, rare earths) have already experienced peaks higher than 4–5x their recent lows. Investors need to consider timing and stock selection carefully, but early-stage companies with quality assets in safe jurisdictions should be prioritised in our view.  

Key conclusions

In this report:

• We estimate the current market size for critical minerals (in US$bn) and the potential for 2030 and conclude that while some critical minerals (such as graphite, lithium and rare earths) are smaller than the dominant, large mined commodities (iron and copper), they will be of reasonable magnitude in 2030, with far higher growth prospects and more exposure to energy transition trends.
• We argue that this high growth sector is not attracting capital from either the traditional energy producers (who instead are pursuing renewables such as wind) or diversified miners (who are paying dividends and not growing).
• We summarise the regulatory and policy environment, which has developed rapidly over the past 12 months. Governments are realising that their ambitions for net zero by 2050, and the accelerated electrification of transport, could potentially create shortages and new geopolitical risks.
• We summarise the key demand drivers from a fundamental end-use perspective, current mine production and geological endowment by major producing country. Most critical minerals are not in geological short supply, though many are heavily dependent on China, either for mining or processing. Consumers and governments are realising that deglobalising these supply chains is now urgent.

Critical minerals is not a well-defined term, but typically refers to materials exposed to energy transition or defence applications, with supply chains that are not well developed or that involve geopolitical risk. In this note we discuss lithium (used in batteries), rare earths (used in permanent magnets in wind turbines and EV motors), cobalt (used in some battery chemistries), nickel (which has a growing battery impact) and graphite (used in battery anodes).

We acknowledge this is a subset of a much wider group of minerals critical to both energy transition and national security. Metals not commonly thought of as critical play important roles in decarbonisation and energy transition (ie silver due to its use in solar panels). Notable other exclusions and major issues include copper, which is critical for electrification and charging infrastructure, but has its own complex and major issues, principally related to the decline in greenfield exploration spending and the scale of capital and planning needed for the industry to expand. Similarly, fertilisers are critical for long-run demographic development and food security and have a unique set of geopolitical issues.

What matters most: Sizing the market 

Some of the critical minerals markets are relatively small at present, which is contributing to a lack of investment. Below we show the relative market size in 2030 (in nominal terms at our long-run commodity price assumptions and 2030 levels of demand, using our projections of demand growth by metal). We also highlight the potential lithium market size at prices closer to recent peaks in spot prices (US$70,000/t rather than our long-run assumption of US$23,500/t) as the long-run equilibrium in lithium is particularly uncertain (see our recent note, Lithium’s adolescence, for a fuller discussion on the challenges of equilibrium pricing in a high-growth industry).

Most of these industries are smaller than the major mining industries such as copper (which in 2030 will be in the region of US$320bn (c 40Mpa at c US$8,000/t)) and iron ore (US$270bn in 2030, US$2.7bn at US$100/t), but not insignificant in scale. In fact, remarkably, if the lithium market grows to 3Mt by 2030 (our estimate, and some industry estimates are now creeping higher than this), at recent spot price peaks of US$70,000t it would be c US$210bn. The copper market in 2030 could be 13x the volume of lithium but given the spot price for lithium carbonate recently peaked at 9x spot copper prices, this brings their potential 2030 market size into similar orbits.

Exhibit 1: Market size, demand growth and energy transition relevance

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