The Battery Material Supply Chain

EV demand recharged for a promising decade ahead

Whenever an industry newcomer overtakes its entrenched incumbents it is a compelling story. In the case of Tesla, it now has a market cap topping the largest nine automakers combined (as of February 2021); a signal that the electric vehicle (EV) market is set to fundamentally transform the automotive industry in the coming decade.

In order to live up to this rich valuation, financial markets are anticipating an acceleration of EV adoption, with Tesla dominating sales. This means that demand for lithium, nickel, cobalt and other materials used in the makeup of batteries is set to spike substantially in unison. Unfortunately, in order to obtain the necessary battery materials, North American manufacturers are reliant on potentially adversarial countries, namely China.

Made in North America

In its Made in China 2025 initiative, Beijing identified a diverse array of industries with considerable emerging strategic and economic significance. This included autonomous and electric vehicles, along with the batteries that power them. As outlined in their strategy, the country that leads this transition will set the standards and terms of trade for the future of transportation. Key to leading the transition is ownership of the EV supply chain, from minerals to markets, and China has worked hard to exert vast control over the mining and processing of the critical minerals necessary for the batteries and components in EVs and other advanced fuel vehicles.

China’s lead is at present indisputable. More than 70% of global EV battery manufacturing capacity is in China and, of the 142 lithium-ion battery mega-factories under construction worldwide, China will be home to 107 of them, according to Forbes. China also produces more than 60% of the world’s cathodes and 80% of anodes for batteries, and the majority of the world’s permanent magnets used in EV motors.


If left unchecked, this dominance will become a strategic vulnerability for North America akin to the oil market being dominated by OPEC. There is also the risk of failing to capitalize on the societal benefits of a push toward zero-emission vehicles, which are anticipated to create an abundance of well-paying jobs.

For this reason, on January 9th 2020, Prime Minister Trudeau and President Trump announced the Canada-US Joint Action Plan on Critical Minerals Collaboration. The plan is an important step in diversifying the supply chain such that North America is no longer a bystander in the global battery arms race. It aspires to secure critical mineral supplies for defense and strategic industries and loop in private businesses. That involves working with industry to facilitate developing investment into Canada and parts of the US where the minerals are located. It is also about making sure that these materials are mined in a reliable, safe and environmentally friendly way.

Companies like Avalon Advanced Materials (TSX: AVL) have been pointing out that Canada’s current vulnerability is not caused by of a lack of adequate resources in the ground, rather it is a matter of having the right circumstances in place to be able to develop them. Avalon CEO, Don Bubar suggested: “The hard part is that there have not been any users or processors of battery materials that are resident in North America. You need the downstream to get established in order to justify the capital investment necessary to create the upstream part of it. Fortunately, it seems to be coming together now.”

“The hard part is that there have not been any users or processors of battery materials that are resident in North America. You need the downstream to get established in order to justify the capital investment necessary to create the upstream part of it. Fortunately, it seems to be coming together now.”

Don Bubar, President & CEO, Avalon Advanced Materials

Lithium’s sound fundamentals

In 2020, lithium prices managed to snap their multi-year decline and record a 22% rise thanks to ESG and electrification gaining serious momentum. The EV outlook improved even further for North America after the Democrats clinched control of the Senate and House of Representatives, opening the path for Joe Biden's government to implement an ambitious carbon reduction plan. The US president has pledged in his Build Back Better Plan to install 500,000 EV charging stations; a five-fold increase in the country's EV infrastructure. That scale of buildout could drive the sale of some 25 million electric cars and trucks by 2030, as per estimates by Bloomberg New Energy Finance. That kind of expansion will no doubt provide a huge lift for battery materials like lithium.

Ali Haji, president & CEO of Ion Energy Corp. (TSXV: ION), active in Mongolia with its Baavhai-Uul lithium brine project, noted that one of the silver linings of the pandemic has been a “reset” about how the world uses and consumes energy. Indeed, the decarbonization push is now becoming increasingly global and synchronized, buoyed by stimulus from the European Union’s €750-billion recovery fund which devoted €20 billion directly to EV subsidization and gigafactory development in the EU. The UK followed suit with £1 billion for a similar purpose, and the US decided to classify battery metals as metals of strategic importance.


Haji elaborated: “Government spending has caused a vertical integration in the battery metals space unlike anything we have seen in the resource sector, prompting the likes of Mercedes-Benz to invest in a battery manufacturer in China by the name of Farasis Energy, which then invested in an offtake agreement from a lithium producer in Australia.”

ION’s leadership maintains we are now entering into a green revolution period. “We do not see this as a cycle, but a shift from fossil fuels to cleaner, greener technology,” said Haji.

Avalon’s Advanced Materials Inc is similarly bullish on lithium and is prioritizing its advanced stage Separation Rapids lithium project. The company signed a letter of intent with Rock Tech Lithium in Northwestern Ontario in fall of 2020 and has stated that the plan is to collaborate on establishing a battery materials processing facility in a central location like Thunder Bay that could serve both companies’ needs. They also intend to work with other emerging producers of lithium mineral concentrates in Northern Ontario to convert into battery materials. "The opportunity is a big one for northern Ontario. There are at least 100 similar lithium hard rock deposits in northwestern Ontario that are known already,” said CEO Don Bubar.

“The objective is to retool Southern Ontario assembly jobs northwards and marry them to mining jobs. That linkage will require a midstream supply chain including refiners like First Cobalt and cathode manufacturers.”

Trent Mell, President & CEO, First Cobalt Corp.

ESG friendly cobalt

One signal of progress in the effort to build a more localized battery material supply chain is the federal government and Ontario’s pledge to contribute C$500 million to help the Ford Motor Co. upgrade an existing auto plant in Oakville to work on electric vehicles. In addition to this support, Canada's First Cobalt Corp (TSXV: FCC) secured C$10 million in government loans and grants, allowing it to accelerate startup and expansion of North America's first cobalt refinery.

The refinery will convert cobalt hydroxide into a pure, battery-grade cobalt sulfate material used by manufacturers of electric vehicle batteries. According to the company's timetable, construction will start in the second quarter of 2021 to boost production capacity at the plant to 55 tons per day, roughly five percent of the world's cobalt refinery capacity.

“The objective is to retool Southern Ontario assembly jobs northwards and marry them to mining jobs. That linkage will require a midstream supply chain including refiners like First Cobalt and cathode manufacturers,” said First Cobalt Corp CEO Trent Mell. Arguably, the timing for these investments is opportune because the World Economic Forum’s Global Battery Alliance estimates demand for cobalt used in batteries will grow fourfold by 2030 as a result of the EV boom.

Given that 70% of the world’s cobalt is produced in the Democratic Republic of the Congo (DRC), and 15 to 30% of the Congolese cobalt is produced by artisanal and small-scale mining, the commodity is often associated with human rights issues in mining operations. Furthermore, China controls 60% of the refinery supply. These dynamics make the cobalt supply chain inherently risky as companies become increasingly conscientious about how their product materials are sourced. Consequently, there will be attractive opportunities for companies in North America to redefine the supply chain.


Please mine more nickel

“Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way” were the words uttered by Elon Musk on Tesla’s Q2 2020 earnings call. Nickel makes batteries energy dense so that cars can run further on a single charge, and Tesla needs the metal more than ever as it looks to ramp up production of vehicles that are heavy users of nickel. There are fears that supplies of battery-grade nickel could run short as early as 2023, and BloombergNEF expects a tight balance in the next two to three years as lithium-ion battery demand picks up.

Canada Nickel Company (TSXV: CNC), which has a fast-growing, high-grade, advanced nickel resource at its Crawford project, north of Timmins, responded to Musk’s plea by outlining the capabilities of their newly established subsidiary, NetZero Metals Inc. Mark Selby, the company’s CEO, asserted: “More than 100% of the supply growth for nickel in the last five years has come from nickel pig-iron mined out of Indonesia, which needs a lot of electricity to be processed, and that electricity is generated from coal. In this context, you need to burn at least 25 tons of coal to produce one ton of nickel, which generates almost 90 tons of CO2 per ton of nickel.”

The solution then was to look into how to produce nickel, cobalt and iron with zero-carbon emissions and that is Canada Nickel’s intent at Crawford.

The company also feels that Canada and the Timmins region of Northern Ontario in particular is well suited to facilitate the rapid development of its project, which is ranked in the world's top 10 list of nickel sulphide projects. “The Timmins region of Northern Ontario is an established mining hub, which means large-scale mining operations can be permitted and built in a relatively timely manner. We are confident that coming out of the completed PEA and Feasibility Studies we would be ready to advance Crawford’s development in a rapid manner to deliver nickel sulphide to the market by the middle part of this decade,” said Selby.

Image courtesy of Canada Nickel Company