Chris Berry | Profit Opportunities in Battery Metals & the Emerging Electric Vehicle Revolution

A growing world-wide trend from which investors can profit is the electrical vehicle revolution and the corresponding increased demand for battery metals such as cobalt, lithium, graphite, nickel and copper. In this interview, Chris Berry shares his outlook for the battery metals, the growing electrical vehicle market, vanadium and the vanadium redox battery.

Chris Berry is the President of House Mountain Partners, LLC. He has been an independent analyst since 2009 with a focus on Energy Metals including lithium, cobalt, graphite, vanadium, and rare earths. His research provides strategic insights to institutional clients and has a specific focus on how disruptive trends in energy, strategic metals, and technology create opportunities. Before shifting focus to analysis of these trends, Chris gained twelve years of capital markets experience on both the buy side and sell side.

0:05 Introduction of topic and guest
2:29 Vanadium market outlook
5:22 How does a retail investor locate & research niche metals price trends?
7:43 Thoughts regarding the Vanadium Redox Battery (VRB)
9:25 Comparing the lithium-ion battery vs. vanadium redox battery
10:45 Will we see VRB’s installed in electric vehicles (EV)?
11:36 How soon will EV’s achieve price parity with internal combustion vehicles?
13:26 What % of EV’s will be on the road when price parity is achieved?
16:24 Thoughts on the future profitability of EV manufacturers
18:08 Discussing the growing demand for battery metals
19:25 Strong Demand for Cobalt & Lithium in next 24-30 months & beyond
20:39 Concluding advice regarding investing in battery metals

Note: Transcript edited for readability and clarity

Bill: This is Bill Powers with Mining Stock back with another expert interview of significant pertinence for investors looking to gain insight and invest ahead of the pack in a growing worldwide trend. My guest today is Chris Berry. Chris is the President of House Mountain Partners and we will be discussing his outlook for battery metals amidst the Electrical Vehicle revolution. I also want to get Chris’ thoughts regarding his outlook for vanadium and the vanadium redox battery.

Chris has been an independent analyst since 2009 with a focus on Energy Metals and he has a host of other financial experience. Chris, I would like to welcome you on to the program.

Chris: Thanks, Bill. It’s great to be here.

Bill: Chris, can you begin by sharing with listeners a little bit about your background, what you do with House Mountain Partners, and how you became an independent analyst focusing on battery metals?

Chris: Sure. You covered a lot of it. I am based here in New York. I have actually been here for about 19 or 20 years now and have had various roles all across the capital market spectrum. About 7 years ago, I put together what I wanted to be an independent research platform that focused on what I call energy metals, those metals used in the generation or storage of energy. So that would include lithium, cobalt, graphite, copper and nickel—a lot of the metals and minerals that are obviously on an investor’s radar today. So to just finish up, I am an avid reader—or perhaps an avid student—of economic history and social science. And throughout all of my studies I realized that any self-sustaining society is sustained or lead by a strong middle class. So one of the ways to build that middle class is through access to cheap energy, and so I have focused on those metals or minerals that make energy cheap or make it efficient. In terms of who I do this with, I do a lot of advisory work and consulting for corporations, investment managers, banks and also other raw material companies all over the world actually. It has been an interesting couple of years. And so I really focus on these themes that we will talk about today and opportunities along the energy supply chain.

Bill: Pre-interview we were having a nice conversation about the vanadium market. Can you share your thoughts with listeners right now regarding the vanadium market, your outlook and specific supply and demand issues that are going on?

Chris: Vanadium has been interesting because it’s been probably one of the more bullish markets, if you will, or one of the more exciting places to invest that a lot of people have not really ever heard of or paid attention to. Just by way of background, the growth of vanadium is really dependent on the steel market because about 90 percent of vanadium that is produced goes directly into the steel market. So watching growth or contraction overall in the steel market over time, watching those dynamics unfold is really, I think, one of the ways to get a sense for where we are going to be in terms of vanadium supply and demand in the next three to five years. Vanadium demand overall, because it is really intertwined with the steel market, which is obviously an industrial commodity, a bell weather, it is growing at 3 to 3.5% per year so that kind of tracks global GDP. So growth in vanadium is a little bit less volatile or perhaps less exciting than lithium or cobalt, which are growing a little bit faster now. Nevertheless, I think that the vanadium market is one that your listeners should learn as much as they can about it, because it really does fit under this umbrella of a new age metal. And one of the things that you find with these technology metals, these new age metals, scientists are finding unique ways to use them in all sorts of different industries every single day. I have a Google alert set up for energy technology and I feel like every week I get a new alert about some breakthrough that makes it really exciting and gives me a pretty positive feel for the metals like vanadium. I would say as a word of caution: none of these breakthroughs of these disruptive discoveries happen overnight. They do tend to take longer, perhaps a decade or more, to really make themselves felt. But the more educated you are now, generally speaking, the better off an investor is going to be. I think one of the reasons why people are so excited or intrigued by vanadium is, of course, the vanadium redox battery (VRB). Which we can perhaps get into here in a couple minutes, but right now that is a very small part of the overall vanadium demand story but it could one day be something much more substantial.

Bill: I mentioned to you pre-interview that Largo Resources is one of the companies on my watch-list, and from July to September—in an about an eight to nine week period—quadrupled in price, which then caused me to try to seek out what was going on in the vanadium price. And it was a little frustrating, as I’ve previously shared, trying to locate the price. Could you share with listeners some advice regarding trying to research these niche metals and how to discover the price and price trend because it is not widely reported?

Chris: That is a real challenge when you look at vanadium or lithium or cobalt or any of these niche metals as you have mentioned before. There really is no specific price. A lot of these metals are priced based off of what I call relationships: relationships between buyers and sellers over handshake agreements. The price can vary based on the grade or the purity of the material and also the amount of material, typically per ton, that is bought and sold. So just in terms of getting a handle on the vanadium price, outside of subscribing to a pricing service, your best bet is to try and stay close to the existing producers of vanadium in terms of press releases or financial disclosure documents. Or also some of the juniors out there do a pretty good job of trying to keep investors clear or focused on what the current price trends are. To sort of finish up a little bit on vanadium, it is a little bit challenging because it is really an oligopoly. You have a metal that is both geographically concentrated—I think about eighty percent of the overall production comes from South Africa, China and Russia—and amongst those countries it is also concentrated based on the number of companies that actually produce vanadium, typically as a byproduct from steel slag. Looking at those companies in particular is a good place to start in terms of getting an idea or a feel for specific pricing trends.

Bill: Vanadium is used to strengthen steel and another use, as you have mentioned, is its use as a battery metal. What are your thoughts regarding the vanadium redox battery and how that factors into an increase in demand for vanadium?

Chris: The real vanadium bulls out there are sort of pinning their hopes on widespread adoption of the vanadium redox battery. I think that is certainly not misplaced by any stretch of the imagination. I have been focused on this niche for the last seven years and much of that time has really been spent understanding and learning about different battery chemistries; not just lithium-ion but, of course, but vanadium redox as well. And so what you come to realize after looking at these markets is that every battery has its own set of advantages and disadvantages. Lithium-ion and certain lithium-ion chemistries would be ideal for certain applications like consumer handheld devices or electric vehicles, whereas vanadium redox battery based on its specifications, if you will, is really ideal for energy storage. So again, longer-term trend, as you start to see more and more renewable deployment, typically solar and wind, it stands to reason that VRB’s, based on the fact that they have exceptional cycle-life and also really very strong operating characteristics relative to lithium-ion, should become more of a factor as renewable become a larger part of the energy pie. Everybody says, ‘Well, what about cost?’ That is really, I guess, the reason why lithium-ion is on the tip of the tongue, if you will, of every investor these days. Lithium-ion has been around commercially for at least thirty years. It is, of course, the lightest of all metals. It has the highest energy density. So those two factors and also just the track record of safety generally speaking is why you are seeing all these gigafactory-scale plants center on lithium-ion. And, of course, the scale really pushes the costs down. So right now if lithium-ion on the pack level is $250 per kw/hr and that’s a rough estimate, (Some will be lower. Some will be higher.), VRB’s are somewhat higher—maybe $300-500 per kw/hr. And so the bet is that as more renewable deployment takes place around the world, more vanadium redox battery scale is added to the overall mix that will push the price down and then ultimately make VRB’s cost competitive with lithium-ion going forward. So it is really just a matter of time. It is not so much that one technology is absolutely better than the other.

Bill: When might we potentially see VRB’s installed in electric vehicles?

Chris: You probably would never see them in electric vehicles. I shouldn’t say never, but certainly not anytime soon. And that has to do with some of the issues that I’ve mentioned before really around cost. Also, the VRB is quite large. It is the size of a couple of shipping containers. Trying to, I guess, minimize that and create the same amount of energy density that you’d find in a lithium-ion battery and match all of the benefits of lithium-ion is just not worth it right now. So my personal bet is that VRB’s would never be a focus of or a part of the electric vehicle space. They are really going to stick more towards grid-scale and large-scale energy storage.

Bill: How soon do you see electric vehicles (EV) approaching price parity with internal combustion engine (ICE) vehicles?

Chris: This is a really interesting question and I think that is because so much in this space—the automotive space in particular, actually the whole battery supply chain—so much is happening so much faster than we previously thought. I mean demand estimates for the metals are being jacked up. EV adoption rates are being jacked up. But to answer your question specifically: most of the estimates I have seen with respect to parity believe we are going to be there on a non-subsidized basis between, sort of, 2022 and 2023. That has everything to do with different incentives in different countries—China versus the EU versus the USA, other parts of the world—and so I think a big part of pushing those costs down is, of course, successful build out of all of this gigafactory-scale lithium-ion production. By my numbers you are going to have at least 265 gigawatt, maybe closer to 300 gigawatt hours of capacity, by 2022 or 2023. And, of course, scale plus small incremental technical leaps in terms of energy density overall help to lower the cost of the EV relative to the ICE. So my sense is that the build out of the scale by 2022 or 2023 gets us to that magical $125 kw/hr or maybe $100 kw/hr which is thought to be the parity level.

Bill: At that time, what percentage of cars on the road do you think would be electric?

Chris: This is another great question because depending upon who you speak with there are numbers that are all over the map. I am actually pretty conservative. My own numbers estimate, and this is actually for 2025, but I can work backwards. I think you probably have an EV penetration rate of 6-7 percent by 2025 so let’s say that by 2022 its half of that maybe 3 or 4 percent. A lot of people think that is too low. I have seen research from banks and think tanks that have it as high as 12-15 percent. I just don’t think it can be that high and I think that is based on potential raw material constraints with lithium and cobalt and some of these other metals and raw materials as well. So 6 percent EV penetration rate by 2025 means you’ve got 6 or 7 million EV’s on the road every year which is still a huge leap from where we are today. So that is still very positive and I think it is realistic. I think just to add to that you have a situation where you’ve got a number of countries in Europe like the Netherlands, Germany, I believe, France, and the UK that have all voiced support for the ban of sales the ICE. Now, it is just talk at this point in time. But the fact that there is seemingly a head of steam to do something like that whether it is by 2025, 2035 or 2040 is very positive because what that is going to do is force all of the OEM’s to accelerate all of the shifts in their supply chains. And, of course, the one elephant in the room that I have not yet discussed is China. And China has yet not come out and publically said anything yet but many sort of industry watchers believe any kind of an announcement in China of a ban on ICE’s—meaning going all electric—would completely revamp all of the demand estimates. It would really super-charge it. And even what you are seeing now is the Chinese have said we want to have 7 million EV’s on Chinese roads by the early 2020’s, and so that is obviously a lot more than my specific estimates. But, you know, a lot can happen between now and then. So anyway you look at it, it is very, very positive for EV’s; and by extension it is very, very positive for the metals that are used in the batteries because you are not going to electrify your economy without a secure supply of these raw materials.

Bill: What are you general thoughts about the future profitability of EV manufacturers?

Chris: Well, again, I think a lot of that depends on what we see in terms of leaps around battery technology. Right now, the only pure EV player in the market is, of course, Tesla. And they have lost and burned through a large amount of money and it looks like as they try and build out their charging infrastructure and the gigafactory and, perhaps, multiple gigafactories that they’ll be burning through even more cash as they try and ramp up Model Three sales. So I am not sure if they are necessarily the best proxy when you then maybe turn the table a little bit and look at the legacy OEM’s: Ford, General Motors, some of the European guys, Daimler and BMW…they are all going to lose money on EV’s at the start. The question is can they scale it up and can they encourage consumers to make the shift from traditional ICE’s to full EV’s? And that has a lot to do with reliability and just the general feel of the car. My sense is that a lot of people just have not driven an EV yet. I have and it is an amazing sort of shift. You can sort of see how it can happen. But I think the more people that get behind the wheel of an EV that is really potentially going to accelerate the tipping point and hopefully not erode the profitability of legacy automotive manufacturers.

Bill: So do you see with these battery metals—lithium, cobalt, graphite, nickel, copper—the demand coming from the battery applications sufficient enough to keep these metals in a bull market for some years to come?

Chris: Yeah, I do. I think that what you want to do as an investor is you want to look at each metal individually. And what I do is I break it down and sort of look at it as a pie chart. And you say, Ok based on, for example, lithium today when you look at it in terms of lithium carbonate equivalent units because you have a number of different lithium products that are produced and sold, it is about a 200,000 ton per year market. And I will say about 40% of that goes into the battery business. I think that by 2025, lithium will be a 600,000 ton per year market. So I think that it is going to triple in the next 8 years. And I think 2/3 of that approximately will be spoken for, if you will, by the battery business. So when you look at these metals—when you look at lithium and when you look at cobalt—they are going to be driven by the battery business. Period. End of story. Right now, in the cobalt side, again, it is another small market. It is about 105,000 tons in size. I think that by 2025 that it will grow by about 60% –again, driven by the battery business. And the challenge there is that you are looking at a situation by 2025 in cobalt that just the battery sector could consume all of global cobalt production today. So obviously you need to see either a wave of supply come on stream quickly or you need to see recycling. Again, you need to see some sort of a technological leap, which is very difficult to forecast. Look, it is an exciting time to be involved in these metals. I see market tightness in particular for lithium and cobalt certainly for the next 24-30 months. And that has everything to do with just my own knowledge of how long it takes to bring mining projects on stream and try and match supply and demand. So I see market tightness and a real interest in the battery metals market for the next couple of years at least until the dust settles.

Bill: Chris, are there any concluding thoughts you’d like to share with the listening investors regarding investing in these metals?

Chris: Well, I think that one of the things just in terms of how I tend to look at the markets and what I think is important as an investor: yes, certainly having a world-class asset in a reliable jurisdiction is important, but when you start really focusing in on lithium and cobalt and vanadium and these other niche metals, what really matters is two things in my opinion. Number one is management expertise and the ability to navigate the financial market, if you will. So a management team that is going to succeed in this energy metals market has been there before, if you will. In other words, they are not just into the lithium space; they are not just into the vanadium space. They understand the technical challenges that are involved in building a vanadium project, for example. A lot of people, just focusing on lithium for a second, don’t realize that lithium is really a specialty chemical. It is not a commodity. And you can perhaps make the case for some of the vanadium out there that is produced as well. So the parting shot, or the parting advice, is really to focus on the management. Really make sure they understand the financial and technical challenges of building one of these projects to feed this energy metals supply chain.

Bill: Chris, I have learned a lot today and I have benefited from it and I know our listeners have as well. Thank you very much for joining me.

Chris: Thank you.

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