Annual sales of electric vehicles (EVs) globally are expected to rise from 2 million in 2018 to 28 million in 2030 before hitting a vast 56 million by 2040, according to Bloomberg. To put this another way, the service stated in its latest EV outlook report that it expects 57pc of all passenger vehicle sales and more than 30pc of the global passenger vehicle fleet to be electric by 2040. AIM-listed Red Rock Resources (LSE:RRR) is seeking to capitalise on this exciting opportunity through its battery mineral exploration projects in the prolific Democratic Republic of the Congo (DRC).
The growth in EV usage is being driven by an ongoing, worldwide movement away from internal combustion passenger vehicles in the face of tighter emission regulations alongside a drop in the price of the batteries that power EVs.
With interest in their long-running, traditional products dwindling, automakers are responding to this step-change in their sector with a surge of new EV model launches over the next five years. Most plan to go completely electric by 2050.
Whether or not this will be enough remains to be seen. However, one clear beneficiary of the anticipated growth in EV usage are the metals used in the construction of the vehicles, their related infrastructure, and – in particular – the batteries that power them. Notable examples include well-known metals like copper as well as arguably lesser-known beneficiaries such as cobalt, lithium, and nickel.
According to the Copper Development Association, while conventional cars contain between 18-49lbs of copper, hybrid EVs contain 85lbs, plug-in hybrid EVs use 132lbs, and battery EVs carry 183lbs. A battery-electric bus contains an impressive 814lbs, most of which is used in the battery.
Meanwhile, according to Fortune Minerals, consumption in batteries has driven a more-than-20-year, 6pc compounded annual growth rate in cobalt use. The firm says that batteries now account for 60pc of a 125,000-tonne market, up from 1pc of a smaller 35,000-tonne market in the nineties.
Perhaps obviously, Bloomberg expects battery demand for EVs to proliferate alongside EVs themselves- passing 1,758GWh annually by 2030. Naturally, alongside this, associated metal-use in the sector is also expected to soar. What’s more, many of these metals are expected to experience additional upward price pressure due to supply issues.
Although supply is, in many cases, currently chasing demand, many analysts believe that it will be a very different story, indeed, once EV penetration passes the 10pc mark. With a lack of projects due to come online in many battery metals markets, growing demand is expected to lead to a shortage of raw materials, prompting a considerable increase in prices.
A critical factor in this dynamic is the DRC, which is estimated to contain an estimated $24trn worth of untapped mineral deposits. Much of this is held in battery metals, with the country currently responsible for more than half of the world’s supply of cobalt and large amounts of its copper and lithium.
However, the DRC has long been plagued by political uncertainty, concerns over human rights violations in its mining industry, a sizeable artisanal mining market, and poor infrastructure. Matters were made worse in 2018 upon the introduction of a punishing new mining code by then-president Joseph Kabila. The rules, the development of which dates back over a decade, sent shockwaves through the industry due to their inclusion of a taxing new royalty scheme on domestic metal production. This included a 1pc royalty on iron and ferrous metals and a 3.5pc royalty on precious metals and both non-ferrous and base metals.
Despite this, Andrew Bell, chairman of Red Rock Resources (LSE:RRR), says the DRC has demonstrated a marked improvement on many fronts against this backdrop of negative media attention:
‘The number of new mines opened in the DRC in the last five years and the last ten years dwarfs the number opened in any other African country, perhaps any country in the world. There is MMG’s Kinsevere, Barrick’s Kibali, Banro’s Twaqngiza, Ivanhoe’s Kamoa-Kakula, and Glencore’s Mutanda. And that is just to mention the names that come first to mind. So, ignore the Press chatter; look at the facts. Not all of these are copper or copper-cobalt mines, but if you want these battery metals you cannot be a significant force without being in the Congo. Difficulties exist, but are there to be overcome.’
‘It takes time in the Congo, but the effort is worth it. We need to convince the world that this is a place to do business, so that projects become easier to finance. Then their value will start to become properly reflected in the capitalisations of the companies that hold them. That transition, which is occurring, is what we are there for.’
Red Rock is currently one of the very few businesses offering UK-listed exposure to DRC metal production. The firm owns a 50.1pc interest in a DRC-focused joint venture called VUP, which it bought in exchange for a $700,000 cash payment and a £490,000 share payment in 2018. The JV holds three copper and cobalt prospective exploration licences in the Katanga segment of the Central African Copperbelt, where it is surrounded by active majors like Glencore and FE Limited.
The first of these licences is Kamukongo, which covers 5km2 within a structural trend called Kansuki and Kamikongwa – host of some of the most productive high-grade cobalt-copper deposits in the Katanga region. The second is Kasombo South, which lies at the mid-eastern part of the Kasonta anticline where numerous mines have produced considerable volumes of both copper and cobalt in the past.
However, the third and most advanced prospect is Musonoi. Covering part of the ‘Musonoi Super Deposit’, this licence sits in a district called the Kolwezi Klippe that boasts 80 years of mining history and supplies a considerable portion of the globe’s annual cobalt requirements. According to Red Rock, typical grades in the area range from 3-5pc copper and 0.5-1pc cobalt. Perhaps most notably, the region contains Glencore’s Katanga project, which remains the world’s largest cobalt mine despite being due to enter care and maintenance – something that Bell expects to increase cobalt prices.
Musonoi was drilled in the 1930s and 1940s with a cut-off grade of 2.5pc copper. Production took place down to a maximum depth of 105m, and the pit was partially backfilled after production ceased. However, Red Rock believes that high-grade ore, alongside additional orebodies, could remain in place. Its consultant geologists have provisionally identified deposit potential of up to 400,000ts of contained copper and more than 25,000ts of cobalt at Musonoi based on a review of historical work and reports.
This year has seen the VUP JV begin work to build on this potential, creating 3D models and identifying and assessing the old drill core from previous exploration activity. This work is the first stage of validating the results of historical drilling, something that will allow the JV to bring the existing non-compliant resource to the modern ‘JORC’ standard. More updates are expected over the coming quarters.