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Australian miners primed to ride boom in green energy metals

Nicki Bourlioufas  |  08 Feb 2022Text size  Decrease  Increase  |  
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Australian companies are tipped to benefit from surging demand for metals crucial to renewable energy generation and storage as countries seek to meet global climate change objectives, according to several analysts who spoke with Morningstar.

As the world increasingly swaps fossil fuel power for emissions-free electrification, batteries are becoming a vital storage tool to facilitate the energy transition. Demand for Lithium-Ion batteries to power electric vehicles and store energy has grown exponentially, increasing from just 0.5 gigawatt-hours in 2010 to around 526 gigawatt hours a decade later, according to the World Economic Forum.

Demand is projected to increase another 17-fold by 2030, helping bring down the cost of battery storage.

Seth Goldstein, a senior energy and resources analyst with Morningstar, expects lithium demand, in particular, to grow at a double-digit pace in coming years, as it is a key ingredient in the eponymous batteries that power electric vehicles.

“I forecast global demand will grow at an average of 20 per cent per year throughout the decade. In any given year, demand could grow more or less, but this is my long-term demand forecast based on growing EV adoption and the buildout of utility-scale energy storage systems,” he says.

“With new higher-cost production coming online, this should increase the lithium price floor over time. Our long-term price forecast for lithium carbonate is US$12,000 per metric ton, which is double the cyclical lows of 2020, but well below current prices."

Goldstein says Australian lithium miners set to benefit over the longer term include Mineral Resources (ASX: MIN), Allkem (ASX: AKE) and Pilbara Minerals (ASX: PLS), with Australia boasting the world’s largest supply of lithium.

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Mineral Resources has a 2-star rating from Morningstar analysts, meaning they view the stock as overvalued at the current price of $58.99. Pilbara Minerals and Allkem are not under coverage.

“I would expect all lithium and spodumene companies who are in production will benefit from higher prices leading to higher profits. This includes lithium producers such as Allkem, and spodumene producers such as Mineral Resources and Pilbara Minerals,” Goldstein says.

“All three of these companies have planned well and are low-cost resources , which should put them at least in the bottom half of the lithium cost curve and well below current prices and are in the process of ramping up production to be able to sell more volumes.

“Most other lithium companies are still in the project development phase, so while higher prices will make it easier to secure project financing, it won’t do anything for their financials until they enter production."

The World Economic Forum forecasts that prices for metals used in renewable energy generation and storage, like lithium, graphite, cobalt and copper, could surge for many years because current production levels are inadequate to meet expected demand.

A typical electric vehicle (EV) battery pack, for example, needs around 8 kilograms of lithium, 35 kilograms of nickel, 20 kilograms of manganese and 14 kilograms of cobalt, while charging stations require substantial amounts of copper.

For green power, solar panels use large quantities of copper, silicon, silver and zinc, while wind turbines require iron ore, copper and aluminium.

Minerals demand to buoy miners

Sam Berridge, portfolio manager and resources analyst with Perennial Partners says there is a "spectrum of metals required to decarbonise the economy". He says shortages are currently being felt most acutely in lithium.

"Within that sector we like Green Technology Metals (ASX: GT1) and Jindalee Resources (ASX: JRL) for their US lithium exposure," he says.

Luke Laretive, chief executive at Seneca Financial Solutions, also favours Pilbara Minerals as a pure-play lithium exposure, and he also sees value in Mineral Resources and Nickel Mines (ASX: NIC).

“In the developers, there is relative parity across the sector in terms of valuation, despite a large disparity in quality. Vulcan Energy Resources (ASX: VUL) is the clear pick of the bunch in our opinion. Outside of the miners, industrial names like Sims (ASX: SGM), Cleanaway (ASX: CWY) and De.Mem (ASX: DEM) look well-positioned to benefit from increasing corporate focus on waste management and recycling,” he says.

Companies that mine copper, such as Oz Minerals (ASX: OZL), are also exposed to the move to fully electrified road transport, because copper is a key metal for electric motors, says Will Baylis, portfolio manager at Martin Currie Australia.

He also noted that hydrogen energy is also going to be an important part of the transition to a low-carbon energy system. Local names such as Woodside Petroleum and Fortescue Metals are investing billions to scale up the new sector.

“Woodside Petroleum (ASX: WPL) is Australia’s largest producer and exporter of liquid natural gas (LNG). When Australia develops a fully integrated hydrogen industry, Woodside is well placed with existing infrastructure to produce and export hydrogen,” says Baylis.

On the funding side for renewable energy projects, Macquarie Group (ASX: MQG) too will be a beneficiary. The company provides finance, private equity for large scale renewable projects around the world, which will benefit.

"Macquarie will see significant growth over time with their focus on Green Energy," Baylis says.

"Macquarie Bank’s head of Green Energy has already described 2020-2030 as the decade of transition from fossil fuels to renewable energy."

is a Morningstar contributor.

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