American Battery Metals Initiative

Hi, I’m Rob Gray. I’m the Chief Commodity Strategist at Resource Capital Funds.

What does the American Battery Materials Initiative mean for investors?

Last month, a number of our LP’s heard me say it’s time to get ready. It’s time to get ready to invest in metals and mining. With the award to 21 different projects of $2.8 billion dollars. Yeah, that certainly is a sign that we’re moving past get-ready.

There’s a really exciting development this week in the United States. The Biden administration announced that 21 different projects were to receive a total of $2.8 billion dollars in grants and funding. And what’s really interesting is we’re finally starting to see some investments starting to flow. We’re moving beyond the rhetoric. 2.8 is a big number, but at the same time you know this is less than 1% of what the Department of Energy has been recently granted through the Inflation Reduction Act. The Department of Energy, the Loans Program Office, they have four years to deploy this money. Now four years is a really quick period of time, certainly within mining time frames.

What does the legislation mean?

So, with the 21 projects that have been announced, there are two key benefactors, the auto OEMs who have been wondering how the supply chains were going to reach their battery factories in the United States, as well as the metals and mining sector who want that certainty of offtake and the ability to sell their product locally over shorter distances. So, with this critical midstream onshore development in the United States, it’s unlocking some of you know the metals and mining development potential in the US and it’s giving the OEM’s certainty around local supply of critical lithium, nickel, graphite, cobalt inputs that they need to locally construct, well to produce battery cells in the United States, as well as, take those cells and put them into packs, and eventually those packs make their way into full battery electric EVs.

So, what will be interesting is how will the UK, How will Australia, and how will the European Union react to the passage of the Inflation Reduction Act in the United States? Now what we have here is there is a competition for scarce resources. Other governments are going to have to react to what the United States has done. We expect to see a reaction from certainly the European Union and equally upstream in in Canada and Australia.

Which metals are affected?

The metals and minerals that are predominantly going to benefit by the projects that have been sanctioned are nickel, lithium, graphite and cobalt. Now nickel, lithium, and cobalt are important in terms of the cathode portion of the battery and having a US sourced processing supply chain is going to enable local processing, which is exciting, and shortening supply chains and allowing for domestic processing of these critical battery metals. Now with graphite, graphite goes into the anode of the battery. Most of the world’s graphite is processed in China, but with this grant from the Department of Energy and into the state of Louisiana, it allows for local processing of graphite that will enable the manufacturing of anodes and critical supply material into the formation of battery cells and battery packs in the United States.

How is inflation impacted?

It’s the latent impact of what we’re seeing here, that’s actually going to reduce inflation in the United States over time. So, as we build these projects, that actually might be inflationary. But when we get to the other side and once they’re built, it’s similar to what happened in the 1970s with the massive CapEx boom that we saw then. It’s only when you get to that point of material abundance that we’ll start to see inflation come down and will truly address some of the supply side pressures that are frankly frustrating on the inflation picture.

What does this mean for RCF portfolio companies?

Across the 21 projects that received funding from the Department of Energy, one of these companies is an RCF portfolio company, Talon Metals. Talon received a grant under the bipartisan infrastructure law that’s going to enable them to kick-start the development of the nickel processing facility in the state of North Dakota. Why this is exciting is that it enables the project to essentially process nickel in a common infrastructure facility. It even potentially allows for Talon to process other nickel ores, and it’s an endorsement from the Department of Energy that what Talon has with the nickel sulfide deposit in Minnesota can be developed and processed here in the United States.

So, from an RCF perspective across our portfolio, certainly across mature funds which has a diversified exposure to battery metals, this sort of funding is going to secure offtake agreements and it’s going to help catalyze some of the development that we’re seeing. It’s a dangerous time to remain on the sidelines because this is starting and it’s important for everyone to realize that this is just 1% of the money that the Department of Energy has to invest over the next four years.

Thank you for your attention and I look forward to seeing you sometime soon.