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Metals of the future are revolutionizing the way we generate and store energy. New technologies are redefining the renewable energy and battery industries, driving advances in energy storage, electric mobility, and clean power generation, thus presenting a new set of challenges and opportunities for investors.

The International Energy Agency (IEA) estimates that there will be a minimum four-fold rise in overall mineral demand for clean energy technologies so that global climate ambitions can be met. It also forecasts particularly high growth for EV-related minerals such as lithium, which will see demand rise nearly 42-fold, graphite (nearly 25-fold), cobalt (over 21-fold), and nickel (almost 20-fold)²

Figure 1: Growth in demand for selected minerals in the IEA Sustainable Development Scenario, 2040 relative to 2020

LHS absolute (Mt), RHS indexed to 2020 = 1; mmt = million metric tons.

Note that the IEA has not included aluminum demand in its outlook for transition metals. According to Bloomberg New Energy Finance (BNEF),³ demand for aluminum is set to more than double by 2050 under the Economic Transition Scenario (ETS) and Net Zero Scenario (NZS) in its BNEF New Energy Outlook 2022.

We believe the energy transition brings a tremendous opportunity for investments in critical materials as supply growth will have to rise significantly in the coming decades. However, this opportunity does not come without risks: many of the critical materials needed for the energy transition are in a handful of countries,⁴ bringing considerable political and geopolitical risks (such as trade wars,⁵ resource nationalization,⁶ and tax and royalty risks⁷).

Figure 2: Mineral reserves and mining production in 2021

Note: Solid spheres represent production, the outer circle represents the total reserves. Sphere and circle sizes denote the proportionality of the resource between countries.

Apart from the traditional resource-related and project development risks, bringing new mineral resources onstream takes time, and tight supply-demand balances or supply deficits can easily arise when lead times for new projects, from discovery to production, increase. Stricter permit-related standards, tougher environmental licensing (water stress, biodiversity impacts, energy intensity of smelting operations, greenhouse gas emissions), greater emphasis on safety and sustainability standards (governance, human rights, and labor laws), and tight mining equipment supply chains are all putting upward pressure on the delivery timeframes of new resource-related developments.

However, thanks to government initiatives such as the US Inflation Reduction Act (IRA) and the EU Critical Raw Materials Act (CRMA), western economies are rapidly pushing ahead with the development of domestic resources and increasing local capacity to source and refine critical raw materials for the energy transition. This also means reducing dependence on key players such as China, which dominates the EV battery supply chain with two-thirds of global battery cell production as well as around 80% of the production of cathode and over 90% of anode material.⁸

As strong demand is set to be met by limited supply, we expect production gaps and supply deficits to trigger higher prices, incentivizing investment in new developments. According to IEA, a total cumulative investment of USD 360 to 450 bn in mining and critical material production is required to bring the necessary capacity online in just four key transition materials by 2030, compared to just USD 180 to 220 bn of anticipated investment, implying an investment shortfall of USD 180 to 230 bn.⁹

Figure 3: Anticipated and required investment in mining critical minerals by region/country

Based on investments required to meet mineral demand between 2022 and 2030 in the IEA Net Zero Energy Scenario

Notes: CSA = Central and South America; ROW = rest of the world. Other Asia Pacific excludes China. Anticipated investments cover four critical minerals (lithium, nickel, copper, and cobalt) (see Note 3). Neodymium not included due to a lack of data. Cobalt production being mainly a co-product of copper and nickel, the additional capital investment needed to open a copper-cobalt mine compared with a pure copper mine is considered. A range is quoted for anticipated and required investments, considering the range of available cost estimates for diverse feasibility studies of mining projects.

The global energy transition is a physical one: it must actually be built. Whereas massive investment in clean technology manufacturing and clean energy supply chains and networks will be required, no energy transition is possible without investment in the critical material building blocks needed to move toward a cleaner economy and society. We believe that investments in critical materials companies should be part of a full-value-chain energy transition strategy.

¹ÌýIn a lithium-ion battery, positively charged ions flow from anode to cathode when discharging, and vice versa when charging. The need for each critical mineral in a lithium-ion battery varies considerably depending on the cathode and anode chemistries. For example, nickel manganese cobalt oxide (NMC) batteries typically require more nickel, manganese, and cobalt than lithium iron phosphate (LFP) batteries, which do not contain these minerals, but in turn need a lot more copper.
²ÌýThe Role of Critical World Energy Outlook Special Report Minerals in Clean Energy Transitions, IEA (2022 version).
³ÌýBNEF Transition Metals Outlook, January 2023.
⁴ÌýUSGS, Mineral Commodity Summaries 2021,Ìý
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^8ÌýIEA, Energy Technology Perspectives, 2023 (p. 96 to 97).
⁹ ÌýIEA, Energy Technology Perspectives, 2023 (p. 165 et seq.).