Forget Lithium: The ‘New Gold’ is This Metal


Oh my, look at this. Did you see the news?

It’s come to light that Tesla is warning of a potential supply crunch when it comes to the minerals it needs for its rechargeable batteries.

That may not even be the most compelling angle here. Apparently, the company’s Global Supply Manager told an industry conference there was ‘huge potential’ for Tesla to partner with Australian mines.

Can we expect bidding wars and takeovers to happen?

This supply crunch might prove a crisis or difficulty for Tesla down the track…but it screams ‘opportunity’ to me.

I’ll have more on this below.

Politicians want you to drive green!

Let’s get back to today’s idea.

Tesla may be the one who made electric cars cool again, but EVs have been around since the 19th century.

Today, they’re touted as the better alternative to the combustion engine. The major difference between yesteryear and now is that lawmakers are actively involved in the global push to green energy.

And it is this push that could see the mineral supply crunch hit sooner than anyone expected.

Australia has a big role to play here. After all, we must now satisfy the critical mineral agreement that will see a large supply of our minerals shipped to the US, UK and EU.

And if that wasn’t enough, Aussie politicians are now pushing the EV agenda.

Take the Labor Party’s latest policy as an example. It has vowed to see at least 50% of all new cars sold by 2030 powered by electricity.

You can only imagine the potential growth that is going to come from the miners who are sitting on the right patch of dirt.

It could set off the next great Aussie mining boom!

Okay, no doubt you’ve heard the phrase ‘Follow the money’. Right?

Well…keep reading.

What’s going on between Wesfarmers and Kidman Resources?

Right now, it’s the perfect time to be following the money. I’m talking big money.

Last week, Wesfarmers informed us it was offering Kidman Resources a $776 million cash bid to acquire it.

Why is this a big deal?

Kidman owns 50% of the Mt Holland lithium project. And not only that, but according to Kidman, this project is ‘one of the world’s most significant hard rock lithium deposits.’ The project is estimated to contain a whopping 189 million tonnes of 1.5% lithium oxide.

It’s not as confusing as it sounds.

Simply put, the mine has roughly 47 years of life, with an estimated worth of an astounding $47.5 billion.

It makes sense why Wesfarmers wants its cut.

Wesfarmers would then be a key supplier of ‘battery-grade’ lithium to Tesla if the deal does go through. A deal between Kidman and Tesla was established in May 2018 as a fixed-price take-or-pay agreement. So if Tesla does not purchase the product, it’s still liable to pay for it.

This sounds like excellent news for Wesfarmers and Kidman Resources. And I am sure Wesfarmers won’t be the only large-cap company entering this space.

I am now interested in finding out how you can profit from this news.

While lithium seems like the obvious play on the EV future, there may be a better way. There are four major minerals in the lithium-ion battery: Lithium, graphite, nickel and cobalt.

Much of the media’s attention has been on lithium. And as a result, investors piled into lithium in late 2017 and early 2018.

I’ve found little that excites me on lithium following the minerals peak in late 2017.

So, I decided to look elsewhere.

And you won’t believe what I found…

Why nickel is more important than lithium

You see, nickel now represents 50% of an NCA lithium-ion battery. That’s a significant ratio.

One nickel producer, Mr Michael Rodriguez of Poseidon Nickel Limited [ASX:POS], recently asserted there is a lack of new nickel projects and demand is already outstripping supply.

To make matters worse, over the last four years even warehouse supply has been dramatically decreasing. That’s put stored nickel at levels not seen since 2010.

Look for yourself.

Historical Nickel LME Warehouse Levels - Nickel Levels Chart

Source: Kitco

Two plays for your watch list

If Tesla and Mr Rodriguez are correct in their analysis, then a nickel supply crunch may be on the horizon.

That signals opportunity around nickel mining companies.

But you don’t need to stray too far. These companies are on the ASX!

And today, I am going to highlight two companies which you may want to put on your watchlist.

The first is OZ Minerals Limited [ASX:OZL], which is doing pre-feasibility studies on a project in the Musgrave Province. This is a joint venture with Cassini Resources Limited [ASX:CZI], and the mine is looking to produce 20-25 million kilograms of nickel every year for the next eight years. There’s potential of extending the mine’s lifespan beyond 15 years.

Another miner that could benefit from a rising nickel price is Independence Group NL [ASX:IGO], with its nickel Nova mine in Western Australia.

The Nova mine is focused on producing metals that are critical to clean energy. And as a result, it has produced record amounts of nickel and copper.

If Independence Group can increase its supply and outpace its competition, it should be in an excellent position to profit.

Well, there you have it.

While the world is focusing on lithium, EVs have the potential to put nickel in a major supply crisis zone and create an opportunity for you.

And unless miners can keep pace with demand, the law of ‘supply and demand’ will boost nickel prices.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch