Jack Lifton of Jack Lifton LLC
- China will dominate the OEM automotive Industry’s demand for critical materials for EVs
- Capitalism with Chinese Characteristics outdoes free markets in sourcing critical materials
- China is openly seeking EV technology in any way it can
Over the coming decade 2017-2027 the driver of demand for critical materials is most likely to be China’s industrial policy, known as China Manufacturing 2025. The phrase, “industrial policy,” is political-speak for the governmental direction and “control” of a nation’s industrial sector, or any portion of it. The United States does not have any such policies, and indeed even talk of such a policy is met immediately with (justified) derision of the “Washington, DC, wouldn’t even know how to make a good or economical (here place anyone of many failed politically driven attempts by Washington, DC, to drive an industrial development. Solar cells by Solyndra comes to my mind, for example).
Even more fundamentally Washington, DC’s interpretation of the free market economy and its intellectual driver, neoliberal economics, simply does not allow for an “industrial policy.” China, on the other hand, is a nation ruled by a single party, the “Chinese Communist Party, the CCP. Among Communism’s core tenets is the command economy, where government bureaucrats dictate the economy’s direction, focus and production goals and implement them through selective funneling of resources.
The PRC is currently trying a variation of free market capitalism it calls “Capitalism with Chinese Characteristics.” One of those characteristics is that all manufacturing in China, both the majority State Owned Enterprises, SOEs, and those the Chinese consider “privately owned” MUST conform with the PRC’s industrial policy. Nowhere will this policy be more felt than in the global OEM automotive industry as it enters an era where the largest manufacturing nation for cars, trucks, and individual motorized vehicles (motor cycles, motor bikes, etc.) is the People’s Republic of China, the PRC.
China has now succeeded to this title held since the end of World War II by the USA. And so if we want to see what critical materials will be most sought after by the global automotive industry we need to look at the single nation that today comprises nearly 1/3 of global OEM automotive production, the PRC. Without any further ado I will tell you that the most critical materials for the Chinese OEM automotive industry are those that are used to manufacture batteries for the powertrains of electrified vehicles, EVs. These are today lithium, cobalt, nickel, manganese (for lithium ion batteries), the rare earths (for nickel metal hydride batteries), and palladium, platinum, and scandium (for fuel cells). Also critical are the alloying elements for light weight high strength steel, aluminum, and magnesium alloys. These include niobium, the rare earths, and potentially scandium, if enough of it can ever be brought into production.
Interestingly the CCP has deemed the electrification of motor vehicles to be so important-to reduce air pollution in cities-that it has openly pushed for foreign carmakers with electric models to turn over their battery technology to Chinese partners in exchange for being able to produce and sell in China. The Financial Times reported recently that this goes hand in hand with a pronouncement made in 2015, when Beijing announced a plan known as Made in China 2025. Modeled on Germany’s “Industry 4.0” program of smart manufacturing, the plan identified 10 sectors for China to dominate locally but in which it should be competitive globally. These included robotics, advanced medical technology, semiconductors and “new energy vehicles.”
The plan, the Financial Times reported, was met with skepticism by some who said that it specified precise targets for market share, both domestic and foreign. That awoke concerns in Europe and beyond of “steroid-fed” state companies swamping lucrative sectors with Chinese production, similar to what has happened in other low-end manufacturing sectors over the past two decades. In order to implement Made in China 2025 the CCP has mandated that Chinese natural resource mining and refining companies aggressively become efficient and economical (profitable) as soon as possible. This mandate includes favorable financing for such companies, almost entirely SOEs, to acquire ownership and control of foreign (non-Chinese) mines, refiners, and even fabricators and undeveloped “deposits” of critical materials for the “new energy vehicle” industry within China.
This industrial policy by the PRC is in fact what is right now driving the critical materials for OEM automotive commodity market globally. China has thus thrown down the gauntlet to neoliberal free market nations. Can private equity on its own compete with capitalism with Chinese characteristics in the OEM automotive industry? I personally do not think so, but for investors in critical materials it doesn’t matter there will now be an at least one decade long daily increasing demand for critical materials for the OEM automotive industry’s EV changeover just in China.
Europe is far ahead of the USA in recognizing this. Japan and Korea are so far ahead of both the US and Europe that they are now the primary targets of the Chinese new energy OEM automotive industry for acquisition of battery technology and battery materials by any means necessary. Until and if China signals that it has enough critical raw materials for new energy vehicles the investment opportunity is right in front of you.
I find that many small investors in their questions and observations don’t distinguish between “junior miners” (JM), which are companies that have found, or are looking for, deposits of minerals that can be developed into producing mines, and producers (P), which are operating mining companies that produce mined materials and often process such materials into downstream products by refining and fabricating.
To avoid this critical confusion I will from now on designate companies involved in mining about which I write as junior miners, JM, or producing miners, P.
To further assist small investors I will only mention or describe JMs that I believe have a good probability of advancing to become Ps. Note here that the goal of many JMs is to develop a project to the point where a P will take it over and bring it into production.
For the critical materials mentioned in this article, which I believe are now being actively or passively cornered by the Chinese, the following, publicly traded, JMs have, in my opinion, a good probability at the moment of going inot production either themselves or through their acquisition by a P. For the production of lithium within 3 years I have looked at the business models and spoken with the management and have a positive view of Lithium Australia NL (NYSEARCA:LIT) and NeoLithium Corp (CVE:NLC); for Cobalt in North America, I like eCobalt Solutions (TSE:ECS) and Green Swan Capital (CVE:GSW); I do not personally know of any nickel based JMs; For manganese in North America I think American Manganese (OTCPK:AMYZF) has a chance; for Rare Earths, globally, I like Northern Uranium (OTC:NOURF); Rare Element Resources (OTCQB:REEMF); and Texas Mineral Resources (OTCQB:TMRC). I don’t have any current JM choices for Platinum Group Metals, Scandium, or Niobium. My list is certainly not exhaustive. My overview is finite. I am myself looking at JMs as opportunities for new and newly applied chemical processing technologies, which to me are the major overlooked factor by both professionals and amateurs in evaluating the probability of success of a new mining operation. In fact my choices above are really of JMs that I think can greatly benefit from evaluating non-traditional methods of mineral processing.
Finally please note that there are publicly traded companies that are hybrids of JMs and Ps. An outstanding example is Australia’s Alkane Resources Limited (OTCQX:ANLKY) which is today producing gold, and will shortly be adding rare earths; zirconium, and hafnium to its production output.