Critical Minerals for the Clean Energy Transition

Video Transcript

Overview

Our world is always changing, and is constantly in flux with new developments, innovations and improvements. In humanity’s mission to reduce our reliance on fossil fuels and move toward cleaner and renewable energy, great strides are being made as countries around the world are pledging their support for a carbon neutral future.

At the same time, by 2040, global electricity demand is expected to increase by 52% from 2020 levels,¹ and a rising middle class in the East, along with developing technologies in the West, are driving electrification like never before.

At the heart of this energy transition are the critical minerals that are essential for moving away from high CO2-emitting energy sources and toward cleaner energy technologies.

Sprott has identified these critical minerals as uranium, lithium, copper, nickel, silver, manganese, cobalt, graphite and rare earths.

In addition to cleaner energy generation and technologies that produce low-carbon electricity, minerals are essential for the batteries used in electric vehicles, or EVs, which are growing in demand and may eventually replace internal combustion engine vehicles.

Significant investment in energy infrastructure will be required over the coming decades as we evolve how we generate, transmit and store energy. Demand for the critical minerals essential to the clean energy transition are expected to increase significantly — along with government incentives, policies and regulations that help to spur the mining and processing of these minerals. 

We believe that the clean energy transition may offer attractive investment opportunity in the following critical minerals and in the companies that produce them.

Uranium

Let’s begin with uranium.

There are many misconceptions about nuclear energy, but as the cleanest, most reliable and safest form of baseload power generation, nuclear is essential to complement renewable sources of energy such as wind and solar, which operate intermittently.

In fact, you could say nuclear energy and by extension, uranium, is the key that holds the clean energy transition together and without it, our vision of a global transformation to a low-carbon economy will be near impossible to achieve.

Nuclear reactors create very high temperatures as a result of the splitting of uranium atoms, a process known as nuclear fission. This creates steam that powers turbines and generates a clean, carbon-neutral form of energy that is incredibly efficient.

One single fuel pellet of uranium, measuring around the size of your average USB stick, or about the size of a gummy bear, contains the same amount of energy as a ton of coal, 126 gallons of oil, or 17,000 cubic feet of natural gas, and a full fuel bundle of uranium is capable of powering the average home for 100 years.

The world is beginning to embrace nuclear power as a clean energy alternative, and nuclear power is no longer on the sidelines of international energy and climate conversations. And while uranium is fairly abundant in the earth’s crust, there isn’t sufficient production now to meet the needs of current and planned nuclear power plants. Greater investment in new mine development and uranium services is needed as a growing number of governments worldwide embrace nuclear energy and propel the demand for uranium higher.

Lithium

Now, let’s dive into lithium.

When it comes to battery metals, lithium is the first element that most people think of, and with good reason. Lithium-ion batteries are the energy source of choice when it comes to powering both electric vehicles and hybrids, as they have one of the highest energy densities of any battery currently in use.

Lithium-ion batteries are also low maintenance and have no need for scheduled cycling to maintain their battery life, unlike many of their counterparts. All this means that if you believe in the clean energy transition, lithium needs to be near the top of your list of essential metals to power a shift from traditional internal combustion engines to cleaner electric motors.

In addition to being the battery of choice for best-selling electric vehicles, lithium-ion batteries are also used to power electrical systems for certain aerospace applications, including the Boeing 787, a new model of aircraft with a design that reduces emissions and lessens its impact on the environment.²

When it comes to demand, McKinsey & Company estimates a rise from approximately 500,000 metric tons of lithium carbonate equivalent in 2021 to some three million to four million metric tons in 2030, making lithium a much sought-after commodity with a limited supply currently.³

Copper

Next up is copper.

Copper is one of the more unassuming yet incredibly vital metals powering the global energy transition. Copper is an absolute force when it comes to electricity generation and transmission. With both high electrical and heat conductivity, copper can be found in the vast majority of transformers, electrical wiring cores and conductors and is a key component in wind, solar, hydro, and thermal renewable energy structures, as well as in electric vehicles.

Additionally, copper is one of the few materials on the planet that can be recycled over and over again without any loss in performance, making it an ideal material for cleaner energy technologies. You may be surprised to learn that there is seven times more copper in many renewable energy systems than in traditional ones, meaning that despite its reusability, we will need a lot more copper to achieve our renewable energy goals.

This increased supply will be very difficult to bring online in a reasonable time frame and copper supply is expected to struggle in the face of growing global demand for cleaner energy technologies.

Nickel

Nickel is up next.

Although for most people nickel is associated with stainless steel production, it is a very critical component of lithium-ion batteries for many electric vehicles. Lithium-ion battery cells are composed of three layers: a cathode, an anode and a separator. The cathode contains lithium mixed with nickel and other minerals but the real kicker here is that over the last few years, EV battery manufacturers have found that adding more nickel to the cathode than with previous battery models boosts the energy density and increases the vehicle range.

Traditional EV batteries use approximately half nickel in their mineral mix, and today many companies are boosting that to 80%.

Although there is plenty of nickel in the earth’s crust to support a major EV battery ramp up, the purity of nickel required for EV batteries must be quite high. EV batteries require class 1 nickel instead of the class 2 nickel used for stainless steel. Class 1 nickel is more difficult to find, and mining nickel is capital intensive and takes many years to get going.

In addition to batteries and stainless steel, nickel is also needed to ensure the durability, integrity, and life of nuclear power stations and is also needed to build solar, wind and geothermal energy sources.

Silver

Time to take a look at silver.

Though many people are familiar with silver as a monetary metal, some would be surprised to learn that silver is one of the most used industrial commodities in the world, and one of its main uses is in the construction of solar panels. Specifically in solar cells used for photovoltaic solar panels.

The silicon wafers of solar cells are coated with a silver paste on both sides. These coatings collect and carry electricity for use and storage. Researchers estimate that silver use in photovoltaics will rise to a whopping 96% of silver used for energy technologies by 2050 as the solar industry continues to expand. Currently, about 10% of annual silver production is used for photovoltaics.⁴

And the Silver Institute estimates that over 1.5 billion ounces of silver will be consumed in crucial green technologies through 2030.⁵

Here’s another statistic for you: The automotive industry uses 55 million ounces of silver annually, and that number is expected to rise to 90 million ounces in 2025 given EV growth. Silver is used in electric vehicles as it is vital for many systems that allow EVs to operate efficiently.

Add to this its 5,000 year plus history as sound money, and we can see silver is a superstar with massive potential.

Manganese

Let’s take a look at manganese.

Manganese is a lesser known but essential battery metal for electric vehicles and electricity grid storage, whose demand is expected to rise as zero-emission targets continue to be adopted by more countries, companies, and governments around the globe.

Manganese is an important stabilizing ingredient in the cathodes of nickel-manganese-cobalt lithium-ion battery cathodes widely used to power EVs, and it has an important role in terms of the safety of battery cells, one of the most important factors when selecting battery materials.

Manganese is also used to manufacture hybrid vehicle batteries, specifically nickel-metal hydride batteries and solar panels as, according to the U.S. Department of Energy, manganese atoms provide a 300% increase in the electric current produced by solar cells.⁶

The global manganese market is projected to register a compound annual growth rate of around 4.2% from 2022 to 2027, and the increasing demand for manganese in lithium-ion battery production is expected to drive the market's growth.

Cobalt

Let’s dive into cobalt.

Cobalt is another essential ingredient in lithium-ion batteries that provide EVs with the range and thermal stability to compete with traditional internal combustion engines. Nickel-manganese-cobalt, or NMC lithium-ion batteries, have cathodes requiring 10 to 20 percent cobalt.

NMC batteries have a high cycling rate, high capacity and high power, along with the lowest self-heating rate among the different varieties of lithium-ion batteries, making them ideal for use in EVs.⁷

In 2022, electric vehicle batteries overtook smartphones and personal computers as the main source of cobalt demand, signaling just how important this mineral is to the energy transition. This has led to concerns about a potential cobalt supply shortage as EV adoption ramps up. The Cobalt Institute has forecast that demand could skyrocket from 175,000 metric tons in 2021 to 320,000 metric tons annually within the next five years.

Graphite

Next is graphite.

Graphite is indispensable to the global shift towards electric vehicles. The average electric vehicle contains between 70 and 90 kilograms of graphite, and it is the largest component of lithium-ion batteries by weight, with each battery containing 20-30% graphite. Graphite is used in the anode of EV batteries due to its high natural strength and its ability to conduct heat and electricity. There is currently no substitute for graphite in EV battery anodes, making it perhaps one of the most essential minerals for powering EVs, outside of lithium.

According to Mineral Benchmark Intelligence, demand for graphite for battery anodes could jump to seven times the current demand within the next decade, setting the stage for an epic increase in demand for this critical mineral.⁸

Rare Earths

Up next is rare earth elements.

Rare earth elements are a collection of 17 metallic elements that are essential in many high-tech products due to their strong magnetic properties, including electric motors, with 90% of EV models using them as part of their drivetrain.

Electric motors use the force produced when two magnets with opposing poles repel one another, causing the axle to spin rapidly, creating sufficient torque to power the wheels of the EV. Without certain rare earths, this process would be very difficult to replicate. In addition, the magnets required to build wind turbines require a sizable supply of rare earth minerals.⁹

Despite its vital importance in the manufacturing of electric motors and wind turbines, the supply of rare earths is currently in a vulnerable position, with China producing the vast majority, causing other countries to scramble for more reliable sources of these minerals.

The Biden administration has made securing a domestic source of rare earth elements a major priority and although this will take time to play out, the need for onshore production is getting more and more obvious as the global EV fleet expands.¹⁰

Closing

For more than 100 years, the energy and transportation sectors have depended on fossil fuels. While fossil fuels will likely continue to be part of those sectors, the move to cleaner energy forms that help reach net-zero carbon emission goals is well underway.

Investment opportunities presented by the clean energy transition will likely center around the critical minerals that are vital to powering the planet through low carbon energy sources and revolutionizing the transportation sector through electrification of the world’s vehicle fleet.

Sprott Energy Transition ETFs are designed to give investors access to the critical minerals driving the global energy transition. To learn more, please visit the website sprottetfs.com or call 888.622.1813.

Footnotes

¹ Source: IEA World Energy Outlook 2021 Stated Policies. Demand and Generation.

² Source: http://www.cei.washington.edu/education/science-of-solar/battery-technology.

³ Source: https://www.mckinsey.com/industries/metals-and-mining/our-insights/lithium-mining-how-new-production-technologies-could-fuel-the-global-ev-revolution.

⁴ Source: https://www.statista.com/statistics/1230069/global-silver-energy-demand-share-forecast-by-technology.

⁵ Source: https://www.silverinstitute.org/1-5-billion-ounces-silver-forecast-consumed-crucial-green-technologies-2030/.

⁶ Source: https://science.energy.gov/bes/highlights/2017/bes-2017-04-g.

⁷Source: https://www.cobaltinstitute.org/essential-cobalt-2/powering-the-green-economy/batteries-electric-vehicles.

⁸ Source: https://www.mining.com/web/graphite-deficit-starting-this-year-as-demand-for-ev-battery-anode-ingredient-exceeds-supply.

⁹ Source: https://www.mining.com/web/graphite-deficit-starting-this-year-as-demand-for-ev-battery-anode-ingredient-exceeds-supply.

¹⁰ Source: https://www.idtechex.com/en/research-article/rare-earths-in-evs-problems-solutions-and-what-is-actually-happening/25071.

Special Note: Jesse Day is not an employee or an affiliate of Sprott Asset Management LP. The opinions, estimates and projections ("information") contained within this content are solely those of the presenter and are subject to change without notice. Sprott Asset Management LP makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Sprott Asset Management LP assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Sprott Asset Management LP is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.