Mining Headwinds

In 2022, the U.S. government passed the Inflation Reduction Act (IRA)

It proposed to “fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40% by 2030”. It invests $369 billion into Energy Security and Climate change. And it encouraged investment in electric vehicles (EVs) by offering a $7,500 tax credit to consumers.

But that credit comes with some strings attached.

To fully qualify for that credit, the EVs battery must be built in North America with minerals mined or recycled on the continent. And that’s a high bar considering the metals needed.

U.S. was the only lithium producer in North America. And it produced just 1% of the world’s lithium in 2021. Copper production for all North America amounted to just 12% of the world’s copper supply in 2022.

Here’s what makes up an EV car battery by weight:

• Graphite – 32%
• Copper – 26%
• Nickel – 19%
• Cobalt – 6%
• Lithium – 4%

Here’s the problem. North America doesn’t source much (and in some cases any) of these metals. Here’s what I mean. According to the U.S. Geological Survey data (Mineral Commodity Summaries 2022), North America accounts for the following global volumes of mined metals:

• Graphite – 1%
• Copper – 12%
• Nickel – 5%
• Manganese – 1%
• Cobalt – 3%
• Lithium – 0%
• Rare Earths – 15%
• Zinc – 13%

In order to bring EV manufacturing onshore, manufacturers need to import a lot of metals. That means consumers won’t get the full $7,500 tax credit. Whoops.

At the same time, there are headwinds to building new mines. For example, in 2022 the Mexican government nationalized the lithium mining industry. I have zero confidence that a Mexican government mining company will do a better, faster job of bringing lithium to market than a private company. Zero!

And here in the U.S. the big problem is permitting. According to an S&P Global research report, a typical mining project loses 33% of its value due to bureaucratic delays. Delays increase costs and risks in an already fraught industry. A prolonged permitting process can cut the expected value of a mine in half before it goes into production.

Here in the U.S., new mines are tough to bring to market. In total, the U.S. accounts for 11% of the global spending on mineral exploration.

In Canada, it takes about 2 years to get a mine permit. It can take five times that long in the U.S. And that’s if the mine is permitted at all.

The giant Pebble copper/gold/molybdenum deposit was discovered in 1988 in Alaska. The permitting process began in 2005. The giant miner Anglo American paid $1 billion to acquire half the Pebble project. Anglo withdrew from the project in 2013 at a huge loss.  In 2022, the Environmental Protection Agency effectively killed the proposed mine.

And while not all projects should be permitted, this was an egregious and political process that resulted in more than a billion dollars of investment capital wasted.

And while some of you may say, “Good! We don’t want mining”, I’d argue that you can’t have both an electric vehicle future and a country that has no mines.

If you are pro-solar and wind power, you have to allow some mining. We can’t expect to reap the benefits of an electric society without making some sacrifices. And that includes mines.

Good Investing,
Matt Badiali

Numbers to Know

53.2

The kilograms (Kg) of copper required for an electric vehicle. In comparison a traditional car requires 22.3Kg. (IEA)

41000 BC

The date of the oldest mining operation. The Ngwenya Mine is considered to be the world’s oldest. (Wikipedia)

40,000

On average, every American uses nearly 40,000 pounds of newly mined materials each year. (Department of Natural Resources)

What’s New in Sustainable Investing

The global impact investing market grew from $420.91 billion in 2022 to $495.82 billion in 2023

And the impact investing market is expected to grow to $955.95 billion in 2027 at a CAGR of 17.8%.. (Globe News Wire)

Earth Day comes around once a year, but can investors put their money to work for the planet?

Investing is about generating a return. When it comes to sustainable investing you need to think long term. (Cheddar News)

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