The global mining view from Rio Tinto
S&P Global Platts interviewed Bold Baatar, chief executive, energy and minerals, Rio Tinto about how the transport revolution is creating opportunities and challenges for global miners.
What does the growth of EV transport and alternative forms of mobility mean for global mining companies such as Rio Tinto?
When you unravel the numbers on a global scale the fleet is 1 billion cars so by 2030 we’re assuming about 1.2 billion to 1.3 billion cars. There are annual sales of about 100 million cars per year so that potentially grows to about 120 million by 2030 and that’s not far off. It’s going to come around really fast. Of the new sales that are going to occur per year over that time the range of estimates for electrical vehicles is anything from between 10 to 30 million so the penetration of the global total is anything between 15% and 25%.
In the mining space that’s very important context. Iron ore is globally about a $120 billion industry. Copper is about another $120 billion industry. There is gold, which is probably another $100 billion. Then the next is probably aluminum, which is a little less than $100 billion. So these are four mega products. The next material is nickel and that’s only $20 billion so when you think about the global mining wallet share those four big commodities take such a big space in an $800 billion total industry.
Then you look at lithium today and it’s probably only worth around $2 billion. I know there is a lot of excitement around lithium but in the global mining space even if lithium quadruples it’s only going to be $10 billion of an $800 billion industry. So the largest growth is probably going to be in copper. Electric vehicles are going to take on 90 kilograms of additional copper compared to an internal combustion engine car. What is an additional driver are the recharging stations, which could add another potential 50 kilograms. Electric vehicles are actually more about copper.
What are the dangers of shortages in supply of key battery and EV materials such as cobalt, lithium, rare earths and copper for prices and investment?
Copper prices will be volatile. The challenge with copper unlike iron ore is that you have to invest in drilling to prove out the reserves. In iron ore you already know the largest formations in the world. In copper it’s harder and is a bit like looking for a needle in a hay stack so the supply in copper in the future is a question. The other one is aluminum. Batteries themselves will take an additional 40 kilograms of aluminum because the casing and the light structuring of EVs will mean it has more of the metal than cars today.
Will growing demand for these minerals trigger a new super-cycle in metals commodities?
It’s very difficult to see. There is a certain demand upswing coming for sure for copper but is it a super-cycle coming for some of the other commodities I just don’t know. If you look at what happened in the previous super-cycle it was the mass urbanization of China and we don’t so another China scenario emerging. Electric vehicles are more about a very special group of commodities rather than a broader mining super-cycle that you saw across all commodities previously.
How is Rio Tinto positioned to meet rising demand from EV production and how will these new forms of transport inform the company’s strategy going forward?
Our strategy is very consistent. It’s low cost, long life and expandable. Lithium is the second most common element in the earth, it’s like iron ore. We’re the leader in iron ore because we’re the lowest cost. So our strategy is very simple. It’s not about deficits of the actually commodity is about the cost position of that commodity verses the demand fluctuations. So it’s very important in Lithium for Rio to be the lowest cost producer.
We do have an initiative within Rio Tinto Venture where we’re looking at the low carbon future for metals and minerals and what will be in high demand. Of course that includes lithium, which is an extension of our existing portfolio. The other types of metals are high-purity nickel and then of course there is demand for cobalt but reliance on DRC (Democratic Republic of Congo) is a risk for the industry. However, having said that there are other battery technologies that are looking to reduce cobalt not completely but reducing the average graded content. We’re looking at a number of areas but again it has to be consistent with our overall strategy and create value for our shareholders. We want to be in the long life, low cost and expandable category in any scenario.
How important a role will coal play in meeting energy requirements for EVs through to 2040?
We have exited our thermal coal business so it’s not part of our portfolio currently and we don’t have any particular insight into its future as part of the energy solution. But the reality is that you probably can’t completely replace it in the energy mix. However, a lot of people talk about battery recycling. Before it gets recycled after being taken off your car it becomes a storage unit and goes into a recharging station. In theory, when you drive up in your EV you’re not going to be drawing power from the grid at peak rates, you are going to be drawing power from the storage units. So the lithium-ion batteries have a second life in storage, which creates a new source of power in that mix. It could help to manage the peak to trough volatility of power generation and hopefully reduce the volatility we have today.
What other investment opportunities do you see opening up for mining companies to meet rising demand from EVs?
We have products like monazite which we’re selling out of Madagascar. It’s a bi-product of our mineral sands. Monazite contains neodymium which is a heavy magnet component that’s used in EVs. So suddenly we have a portfolio of smaller minerals that currently are already in our existing mining operations which we need to make sure we see through to capture the full value.
What are the risks the EV industry poses for conventional metals such as iron ore?
For steel I think it’s going to have some impact but steel is also always growing with population growth. We’re not seeing any kind of structural decline. Two things will offset any possibility of decline. One is the total number of vehicles on the road. Secondly, the penetration of electric vehicles will still be pretty low at 25% of the global eet and the rest are still going to have heavy steel components and then the other part of it is that the world will need infrastructure.
Will growing EV mineral demand see changes to the way some commodities are traded?
The pricing of nickel could definitely change. The way it’s priced today, there is a heavy pig-iron component that is more of a steel pricing mechanism and obviously it’s heavily in fluenced by the steel industry. Battery nickel though is absolutely high-purity nickel and at some point there will be a bifurcation of high-purity nickel in pricing verses nickel pig-iron because you’re pricing the same something that is 18% nickel as something that is 99% pure and these are really two different products.
Will there be new greenfield projects to meet demand from next year?
The board is going to be approving Jadar, our potential lithium project in Serbia, next year so I think at some point that could be fully up and running in five years. So greenfield projects are certainly going to come in that space. But we have to finish the feasibility study first which determines the size of the operation. We hope it could be up to 50,000 tonnes of lithium carbonates in a world of currently 200,000 that potentially grows to 500,000 or 800,000 tonnes. It’s not a small operation so in lithium we’re going to have to make a decision but there is no question about the reserves.
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