Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Investors are missing a big opportunity to profit from the energy transition because they have an outdated view of the metals and mining industry, according to one of the sector’s most influential investors.
“Our view from speaking to our clients and investors at large is that the opportunity within this space has been massively overlooked,” Evy Hambro, global head of thematic and sector investing at BlackRock Inc., said in an interview. “If you’re focused on sustainability, if you’re focused on the energy transition, don’t overlook this area. There’s a huge value opportunity.”
Hambro said that recent changes in the mining industry meant that most investors needed to update their view of the sector. He pointed to a growing focus on reducing carbon emissions in metals production, a more disciplined approach to spending than in previous booms, and a rapid decrease in the cost of capital as governments throw money at miners amid concerns about supply security.
Industry executives, analysts and specialist investors have for several years been predicting a bull market as the shift to a lower-carbon economy drives a wave of demand for the metals needed for electricity grids, electric-vehicle batteries and solar panels. Yet while prices rallied sharply in the rebound from the Covid pandemic, they have stagnated in the past year.
“The story isn’t about now, the story is about what’s happening over the next 10 to 15 years,” Hambro said, arguing that the sector is undervalued. “If you wanted to rebuild the copper industry globally, you couldn’t do it for the market cap of the copper companies out there today. So, I think there’s a huge gap in that regard.”
Hambro was an influential critic of miners’ overspending in the last boom, and he doesn’t want them to restart the era of profligacy even as he predicts a coming supply shortage.
“We’re not saying companies must go out there and build: we don’t want them to verge away from capital allocation models that have helped rebuild trust within the sector over the last eight to nine years,” he said.
BlackRock is also calling on metals companies to invest in decarbonization. “People pay premiums for companies that are lower carbon producers,” said Olivia Markham, who manages BlackRock’s mining investments together with Hambro. “If you look at the US steel industry, which is a much lower carbon intensity versus say the European steel industry, there’s a higher premium that is paid for that,” she said.
“If we’re just simply stopping burning fossil fuels for the production of energy and continuing to burn them for the production of materials, and we need a lot more materials, then we’re not actually going to solve the challenge that we face,” said Hambro.
(By Jack Farchy)
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