Heavyweight Investors Discover Battery Metals

The new year has started with a real blast: Erik Prince wants to launch a fund that invests in future producers of battery metals in Africa and Asia. Strictly speaking, it’s about cobalt, copper and lithium. To recap: Mr. Prince is the founder of the well-known American security company Blackwater, which he sold to a group of investors in 2010.

Mr. Prince’s goal now is to collect around $500 million and invest in deposits that have hardly been explored to date. Mr. Prince appears to be targeting early-stage explorers. The investments shall then be sold after four to five years. The former Navy Seal is the first well-known investor to focus on battery explorers on a large-scale.

So far, Chinese companies in particular have appeared to secure battery metals. No wonder: with the exception of Tesla’s Gigafactory in Nevada, the vast majority of battery cell production facilities already in production or under construction are located in the People’s Republic, which is also the world’s largest sales market for electric vehicles. In the past year, Chinese companies have mainly invested in mining companies already producing, in Congo, Chile and Australia. They are currently hardly interested in explorers. Mr. Prince wants to exploit this gap. A high-risk undertaking – however, unfortunately, according to the information currently available, his investment vehicle is not planned as a mutual fund.

Profitability is the Decisive Factor

Private investors who want to get involved in the field of battery metals must therefore pick their securities themselves. Basically – explorers, developers and producers of battery metals have to be distinguished. Explorers are at the very beginning of the “food chain”. They are still looking for deposits or have acquired them at a very early stage and have yet to prove their size and quality through extensive drilling work. Experience shows that most of them never go into production because it is by far not enough to have an occurrence of a metal in the ground: it is crucial to be able to mine this economically.

One step further are the so-called developers. They have deposits in their portfolio that they would like to put into operation within a period of one to two years. As a rule, the business plan is based on profitability studies of various types and quality, which evaluate the deposits and their development potential. These studies are particularly interesting if they do not – as usual – come from pure consulting companies, but from service providers who themselves operate a mine and (can) set up the corresponding production facilities. This practical experience makes their studies much more relevant.

In the case of Rock Tech Lithium, for example, the German TÜV subsidiary DMT takes over this part. It prepared the economic study published in the fall. In the past, DMT has also put various projects of the German mining giant Ruhrkohle into production.

Finally, there are already producing mining companies such as SQM and Albemarle, which last year, however, lagged well behind their increased production targets.

Opportunity for Investment

In general, the timing for investments in battery metals currently seems favourable. After the euphoria in 2017, investor sentiment in 2018 has turned to the opposite – sentiment is extremely negative. This applies to the stock markets as a whole and to companies in the battery metals sector in particular. This is interesting because the financial markets have completely decoupled themselves from the real economy. This year more electric and hybrid cars will be produced than ever before. The demand for batteries, battery cells and the metals they require is correspondingly high. Erik Prince sees this as a great investment opportunity.