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Dow Jones Newswires: Major miners are missing energy-transition boat, industry veteran warns

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As much of the world aims to move toward a greener economy, some companies are trying to position themselves to deliver the resources needed for such energy transition.

Among those is TechMet, a U.S. government-backed company that invests in resources such as cobalt, lithium, nickel, tin, tungsten, vanadium and rare-earth metals.

TechMet’s Founder and CEO is Brian Menell, a South African executive with more than 25 years of experience in the mining industry. In an interview with Dow Jones Newswires, Mr. Menell warned that the world is on the verge of a massive metals supply-demand imbalance and that the major mining houses aren’t doing their part to make sure soaring consumption is met.

The world will need to multiply production of resources such as cobalt, lithium and nickel, but major miners are missing the boat, Mr. Menell says.

“We’re not looking to have a problem in five to 10 years. We are looking to have a big problem in two or three years,” he said.

Here are some edited excerpts from the conversation:

Dow Jones: What is TechMet doing? What is its mission?

Menell: We are busy expanding our tin and tungsten mines in Rwanda. We’re building the first phase of a substantial nickel-cobalt project in Brazil. We have a vanadium specialty chemicals business in Arkansas. We have been the primary funders of what has become the biggest lithium-ion battery recycling company in North America, Li-Cycle. And we have Techmet Ventures, which invests in rare earths processing technologies and other early-stage projects.

In my view, the scale of the metals supply-demand dislocation is still radically underappreciated by the investing community and by the end-users of these metals.

For instance, even in a very conservative base-case scenario, we could see electric vehicles going from 8 or 9 million in the world today to 100 million in 10 years’ time. This forecast has now become inconceivably pessimistic, but say that it comes true and we only reach 100 million EVs. That would still require three times the present total global annual supply of cobalt, five times the present annual global supply of lithium, and 12 times the present annual global supply of class-1 nickel.

That’s a dislocation that we haven’t seen for any set of natural resources since the impact of the industrial revolution on demand for coal and iron. It’s really epic and very, very daunting.

And our industry is very ill-prepared to meet that challenge, particularly with high ESG [environmental, social, and governance] standards and low carbon footprint–which the Volkswagens
VOW3,
+0.37%
,
or the Teslas
TSLA,
+0.66%
,
or the General Motors
GM,
-0.33%

of this world will be judged on and will require.

So we have a massive challenge which does not only require a total transformation from our side in the metals industry, but a massively enhanced level of government engagement.

If the U.S. is going to be at the forefront of the energy transition–relative to China who has had a 15-year ahead start, because they’ve seen this coming–the U.S. government is going to have to become much more active in the metals and mining space.

We received direct equity investment a year and a bit ago from the DFC [the U.S. development finance institution], who are now a major shareholder of TechMet. That remains the only time in history that the U.S. government has taken a direct equity interest in a metals and mining company. In the context of how our industry has to transform, that’s tiny, but at least it’s a start. But we need that times 500.

How that’s going to happen remains to be seen. I think the government’s agencies have got all the data and analysis. They know what the scale of this challenge is, how essential it is for the next phase of America’s technological and industrial revolution. They know how important it is in order not to have a next generation of energy and mobility dominated or controlled by China. But there’s still a long way to go before there is an understanding of what to do about that and how to engage in a way that defines that landscape.

Dow Jones: When will we start to see that metals supply-demand imbalance?

Menell: We already are. Luckily, about two years ago there was a premature speculative boom in demand and prices for lithium and cobalt, which resulted in some increase in short-term production. So for the next one or two years we are fine.

Beyond that, this supply-demand dislocation will accelerate much quicker than anybody anticipates. We’re not looking to have a problem in five to 10 years. We are looking to have a big problem in two or three years.

How many hundreds of billions of dollars today are going into new lithium-ion battery manufacturing capacity growth? Maybe 70-80 billion. Likewise, across all of the big global auto makers, the program to electrify their fleet is accelerating. Every day 10s and 10s and 10s of billions of dollars are being committed. This all requires the ingredients.

The big players, the battery manufacturers, the automakers, have realized this is an area that they have to engage in order to be competitive, grow and succeed. But, like the U.S. government, they haven’t quite figured out how, and they got a lot of work to do to come to the realization that they’re going to have to be exposed financially to production in order to have preferential access to product.

This problem is immediate. It’s not medium-term, it’s two to three years out.

Dow Jones: There are some industry analysts who are saying that, at this time of big profits, major mining companies aren’t investing enough to deliver the metals needed for the energy transition.

For instance, Julian Kettle from WoodMac has said that “we’ll most likely see a continuation of the classic boom-bust cycle as underinvestment begets shortages, which beget high prices, which beget overinvestment. In that scenario, miners, who should be the custodians of the energy transition, could instead end up inhibiting it.”

Do you agree?

Menell: I think it’s absolutely right. The big mining companies, sadly, are not proving to be the solution, or part of the solution, that they could be.

They, as we all do, see the metals that are going into the energy transition. There is BHP
BHP,
-2.26%

BHP,
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talking a lot about nickel, and Anglo American
AAL,
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trying to do nickel. Glencore
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+0.93%

is a very important player in cobalt because of its mines in the Congo.

But, generally speaking, the big global miners are not in our space, and that’s because projects aren’t big enough, and the markets aren’t big enough–or at least haven’t been historically.

You can’t deploy a billion dollars in rare-earth metals, or in tungsten, or in vanadium. You can to an extent in nickel, you increasingly can to an extent in lithium, but a lot of our metals are dominated by small and medium projects which don’t justify the time, attention and focus of the BHPs and Rio Tintos
RIO,
-1.30%

RIO,
-0.98%

of this world.

And therefore they are missing out on what will prove to be the biggest mining boom in our generation. They’ll try and catch up, they’ll try and buy people like us in two, three, four years. But they are missing the boat, and it will be very difficult to catch up because they are big, bureaucratic, slow and conservative companies, and find it very difficult to reposition.

They’re making tons of money on iron ore, and therefore they are going to have to focus on it too much in order to keep their shareholders happy next quarter and the quarter after that. And therefore, sadly, they are not proving to be contributors to this challenge to the extent that they should be. And I’m not sure what is going to change that.

I think some are better than others. Glencore, for instance, is an outlier because of their positioning in cobalt, and is quite a dynamic organization relative to some. But they are doing a fraction of what they could do. I suspect they’ve spent a lot of time worrying about their regulatory and compliance exposure in the Congo, relative to how to double production in the Congo.

They’re all very bureaucratically constrained.

Dow Jones: So, are you forecasting that the energy transition-driven increase in demand for metals will also change the array of top mining houses that dominate the industry?

Menell: Absolutely, there is no question.

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com@JaimeLlinaresT

(END) Dow Jones Newswires

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