Tesla’s bull run- prospects for Zim’s lithium & nickel mining sectors

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  • Tesla soars 200% in 7 months
  • Increased demand for EVs puts pressure on lithium & nickel prices
  • Zim, the world’s 5th largest lithium producer
  • Nickel hits 5 year high in Sept, indicative of days to come

Tesla’s stock has enjoyed a rare strong rally on the New York Stock Exchange and the NASDAQ so far this year. Already the counter is trading just below $900 from about $178.97 in June 2019. This deduces to a gain of over 200% within a 7 months period, a staggering gain in US stocks. Such gains are common only on the ZSE which is presently soaring on the back of currency depreciation and hedging against inflation. But what has stimulated the strong rally and how it is affecting value chains, is an area that is of interest to Zimbabwe.

Driving the gains is  an increasingly bullish sentiment from Wall Street analysts, who are looking at the prospects of the company’s new plant in Shanghai to drive future vehicle delivery growth. Tesla indicated last Wednesday that it had posted its first quarterly operating profit in its 10 years as a public company, beating analyst expectations. This gave a clue that General Motors (GM) will also be coming in strong for the Electrical Vehicles (EV) market. EV run on the back of lithium powered batteries a rare mineral which is in its infancy in terms of production in Zimbabwe. The surge in EV spells increased demand for lithium and nickel, vital minerals used in the lithium-ion batteries used In the manufacture of EVs.

There is a boom in the battery metals mining space, owing to a global focus on environment-friendly power initiatives, or ‘green’ energy. Moreover, there has been a significant surge in international demand for minerals used in green energy production, which include battery metals, such as graphite, nickel, cobalt, copper, zinc and, in the last two years in particular, lithium.

Lithium

Manufacturers commonly use lithium carbonate or lithium hydroxide in these batteries rather than lithium metal. Although lithium is a key ingredient in lithium-ion batteries, they also include other metals, such as cobalt, graphite and nickel.

According to the most recent stats issued by US Geological Survey, Zimbabwe is the World’s fifth largest lithium producer after Australia, Chile, China and Argentina respectively having produced 1 600 Metric tonnes in 2019.

The country’s privately owned Bikita Minerals is currently the only lithium producer, and reportedly holds one of the world’s largest-known lithium deposit at over 11 million tonnes, while three other miners are working towards production. Total reserves stand at 70,000 metric tons, as per the US Geological Survey.

The Kamativi lithium tailings project, in Zimbabwe, for Canada-based mineral exploration company Chimata Gold is an example. The project is under way at the old Kamativi mine that had previously been mined for tin; none of the lithium was ever recovered and now sits in the tailings dumps as spodumene. South African Based MSA will complete a mineral resource estimate based on the results of the assays from the recently completed drilling programme.

The Arcadia Lithium project which is the flagship of Prospect Resources, holds a 15,5-year mine life that increases its exposure to the long term EV demand. The mine is estimated to hold proven and probable reserves of 29,8Mt grading 1,31% Li2O.

Winston Chitando, Zimbabwe’s mining minister, is on record saying “ (Zimbabwe has) the potential to actually account for 20 percent of global lithium demand when all known lithium resources are being exploited.”

Lithium spot prices fell more than 70 percent in 2019 over concerns that supply was out growing demand, according to spot prices for lithium carbonate, 99.5% Li2CO3 min, battery grade, traded in China. Investors expect that new supply from Argentina, Australia, and Chile, could add 500,000 tonnes of lithium to the market per year by 2025

However due mostly to the rapid adoption of EVs, lithium is seeing incredible growth in demand, which should reach 1.637 million tonnes in 2025. As such, by  2025, lithium carbonate is forecasted by experts to surpass a price of $13,000 per tonne while hydroxide north of  $16,500 per tonne as demand will outgrow supply.

With mounting demand coming from electric carmakers like Tesla and smartphone producers like Apple and Samsung demand is expected to drive prices higher.

Nickel

As the electric vehicle (EV) industry continues to boom, nickel prices have recently been soaring. Rapidly rising use of nickel in the batteries that power electric vehicles over coming years means higher prices are needed to incentivize the development of new projects to boost supplies of the metal.

Nickel, which was trading at US$12 841 on Monday, firmed in 2019 averaging US$12 880 in 2019 and is expected to balloon in 2020 and beyond as the demand for the metal intensifies.

Notably, on the London Metal Exchange (LME) nickel surged to a five-year high of $18,850 on Sept. 2, from $12,000 per tonne at the start of July, as Indonesia brought forward to a ban on exports of nickel ore to January. But the exuberance has dissipated with short-term fund money pulling out to leave LME three-month metal around $13,000 per tonne currently.

Demand for nickel is expected to soar as governments, companies and individual consumers aim to cut the noxious fumes emitted by fossil-fuelled vehicles. With the commodity continuing to grow, companies and countries alike have been eager to jump on the production bandwagon.

According to the latest figures by statista.com, Zimbabwe is among the top 5 nickel producing countries in Africa having produced an estimated 19 000 metric tonnes of the now vital mineral, a third of Madagascar, Africa’s largest nickel producer in 2019.

Bindura Nickel Corporation (BNC) is Zimbabwe’s largest nickel producer having sold Nickel concentrate amounting to 6 410 tonnes in 2019 versus 2018 figure of  6 470 tonnes. Notably, Bindura has a nickel smelter which is 83% complete. As prices firm, the entity intends to complete the smelter which would boost their revenues with beneficiation.

While the full value of Zimbabwe’s nickel deposits remains largely unknown government reports: “There are nickel deposits in several serpentinite areas in greenstone belts with igneous complexes around the country. The country has got huge potential in komatiite and laterite and more than 30 nickel deposits are known.”

This spells enormous opportunities for Zimbabwe for both Nickel and Lithium mining. Policy consistency is key, power supply imperative and an investor friendly business environment. If well harnessed these could be game-changers for Zimbabwe’s economy.

EQUITY AXIS NEWS

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