With an estimated fortune of over $260 billion, South African-Canadian entrepreneur Elon Musk often gives the impression of living on the moon, with his futuristic space businesses such as the rocket company SpaceX and Starlink satellites. But at the same time, he’s concerned about keeping his feet increasingly grounded—and underground—when it comes to, say, more earthy business. In a recent tweet, the businessman expressed interest in getting into the mining business, in particular lithium extraction, as a way to keep the flow of the metal needed to produce the batteries that power the vehicles of his automaker, Tesla. According to him, the price of raw material is so out of control that the company would have to go into mining and refining the material on a large scale, “unless prices improve”. “There is no shortage of the product, as lithium is in almost every part of the Earth, but the pace of extraction and refining is slow.”
Musk’s concern is justified and involves one of the essential commodities for the operation of electric vehicles. The same happens with other products such as copper, nickel and cobalt, all of which are fundamental, especially in a scenario in which the use of electricity is proposed as a substitute for oil in the propulsion of automobiles around the world. Musk is betting that the purchase of battery-powered vehicles will expand exponentially in the next few years. The most unequivocal proof of this is that, in a period of less than a month, he promoted the official openings of two new factories of his automaker, one in Berlin, at the end of March, to serve the European market, and another in Austin, in Texas this month to supply the United States. Called “gigafactories” by their eccentric owner, they have facilities the size of 100 football fields and the ability to double Tesla’s current output to 2 million electric vehicles a year.
Although recognized for its size and avant-garde, Musk’s automotive colossus is not alone in exploring this new market. The Volkswagen group announced last month that several of its electric models are sold out by 2023. Last year, sales of this type of vehicle by the German conglomerate doubled, to more than 450,000 units. And the ambition goes beyond the companies’ business plans. In the United States, President Joe Biden aims for half of the country’s vehicle fleet to be electric-powered by 2030.
Such plans and their superlative numbers underlie the concern about the commodities of this new industrial branch — and they are not restricted to Elon Musk alone. Lithium, which has more than 80% of its destination for the composition of batteries of various types, is traded today at the level of 80,000 dollars per ton, an increase of more than 400% in price in one year. Copper, nickel, cobalt follow in the same wake of highs. The movement was especially accentuated with the imbalance in the price of oil resulting from the invasion of Ukraine by Russia.
This is an opportunity for Brazil, which has reserves and has already explored these minerals at some point. “Global supply of all these commodities lags far behind demand. Investments in mining are timid all over the world”, says Gilberto Cardoso, CEO of Tarraco Commodities consultancy. With the third largest nickel reserve in the world, behind only Indonesia and Australia, Brazil currently has modest extraction rates of only 100,000 tons per year. Much of the mining today takes place precisely in the city called Niquelândia, in Goiás, where there are also deposits of cobalt.
Vale, the largest Brazilian mining company, also produces nickel and cobalt in the mines that belong to its subsidiary in Canada, and copper in Carajás, Pará. Currently, around 5% of the high-purity nickel produced by Vale is used in the manufacture of batteries for electric vehicles, but the goal is to increase this share to 30% to 40% in the medium term. Tesla, by the way, closed an agreement of secret clauses with the Brazilian, revealed last month, for the supply of the metal. “The agreement between Tesla and Vale is much more strategic than commercial. It makes sense for companies that will be large consumers of nickel in the future to make agreements to guarantee this supply”, says Daniel Sasson, mining analyst at Itaú BBA.
As befits him, Musk displayed acumen in signing this contract. This year, the price of nickel even surpassed the mark of 100,000 dollars per ton, almost double the historical high in fifteen years, forcing the London Metal Exchange to suspend the negotiations, after the value had risen 250% in two days. After that, the price settled down and the metal is trading at the level of 32,500 dollars. Still, that’s up 95% from last year. Vale, which was among the three largest nickel producing companies in the world until 2020, is now the largest in the market. Last year, it produced 168,000 tonnes, surpassing Russian giant Nornickel. The estimate for this year is up to 190,000 tons of nickel and 355,000 tons of copper, compared to 300,000 in 2021. A great revolution is coming in this field. With the popularization of electric cars, the decline of fossil fuels and the emergence of a new race in search of minerals that were not so precious until then are foreshadowed. But now they are gold.
Published in VEJA of April 20, 2022, issue nº 2785