Changing gears: accelerating demand for ev metals

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The NextGen Resource Fund was founded on a belief that the global transition to a low-carbon economy would create a wave of demand for the metals used in electric vehicles (EV) and clean-energy storage. What we didn’t recognise then, but are starting to see now, is that the transition is happening much faster and much sooner than expected. Two recent events highlight the drivers of this acceleration and a third cautions investors against some of the hype and momentum.

The inauguration of Joe Biden as President of the US was an important trigger in accelerating the transition to a low-carbon economy. Rather than perpetuating the combative rhetoric that it’s either economic growth or action on climate change, Biden sees decarbonisation of the economy as an opportunity to create millions of new jobs. This pivot on climate-change rhetoric comes at a time when governments, globally, are poised to unleash huge stimulus programs to restart their economies after the COVID-19 lockdowns. Although job seekers will be major beneficiaries of the stimulus, the global push to decarbonise economies will strengthen demand for the metals used in electric vehicles and clean-energy storage (e.g., lithium, copper, nickel, the rare earth elements and graphite).

Another recent event that will help to accelerate the global transition to a low-carbon economy was the open letter sent by Larry Fink, the chief executive of BlackRock. In his letter, Fink proclaimed “climate risk is investment risk”, then warned the leaders of carbon-intensive companies to lift their game and work on strategies to decarbonise their industries. Fink’s actions highlight how investors are joining governments to accelerate the pace of decarbonisation and thereby make the transition happen as soon as possible.

The third event of 2021 that I want to highlight is one that provides a cautionary tale to investors seeking to capitalise on decarbonisation of the global economy. In late January, Andrew “Twiggy” Forest announced Fortescue’s bold plan to pursue green hydrogen and green steel making. One option the company was considering involves the replacement of coking coal in the furnace with green hydrogen. The other option was to eliminate the blast furnace and “just zap the iron ore with renewable electricity”. Have no doubts, this is visionary stuff and Twiggy should be admired for pursuing such lofty goals. However, many organisations have worked on green hydrogen for many decades and it’s still a long way off being applied at a commercial scale. For big companies like Fortescue and billionaires such as Twiggy, to wait 10 or 15 years to get a return on an a ‘small’ investment is acceptable. But I’m sure those investing in the NextGen Resources Fund are seeking a quicker return on their money. While the NextGen Resources Fund does assess hydrogen projects, we are careful not to be swept up by the romance of the biggest and boldest ideas in the space. Instead, remember it is a ‘transition’ (not a giant leap) to the low-carbon economy and there is money to be made in every little step along the way.

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