These metals are key to future tech and the energy transition. Here’s how to invest in them

Published Sun, Feb 27 20229:21 AM EST

The transition toward green energy has revealed a host of new opportunities for investors: the metals needed to fuel the renewable world. Clean energy generally requires more materials than fossil-fuel power generation. Different green technologies call for a mix of metals and minerals. A typical electric car, for example, requires six times the mineral inputs of a traditional internal combustion vehicle, according to the International Energy Agency . An onshore wind farm requires nine times more minerals than a gas-fired power plant. All told, the Paris-based agency forecasts that mineral inputs will need to rise sixfold by 2040 if the world is to reach net-zero emissions by 2050. "[T]he data highlights that future technological solutions depend heavily on raw material markets that are comparatively small, raising the risk that minor shortages can cause severe dislocations," Bank of America said in a note to clients. "The strategic dependence on quite a few relatively small commodities is a major issue, along [with] the likelihood of potentially exponential demand growth," the firm added, noting that a typical solar photovoltaic system contains 17 different commodities. The bank even coined a new term to describe these materials: metals important for future technologies or MIFTs. 'MIFTs' Bank of America counts 27 so-called MIFTs, including zinc, tin, rare earths, indium, manganese, nickel, cobalt and boron. Aluminum and copper, which have much broader applications, are also necessary for the energy transition. Goldman Sachs has called copper "the new oil." Copper's electrical conductivity and low reactivity are among the factors that make it the most cost-effective material for use in storing and transporting renewable energy. It can be used in cables, batteries, transistors and inverters. Lithium is another one of the MIFTs, and prices have surged amid a boom in electric vehicles. Battery-grade lithium on the spot market in China surged nearly 500% in 2021. The metal is currently trading at record highs, according to data from Benchmark Mineral Intelligence. The majority of lithium is contracted on a longer-term basis, so the spot market is not necessarily indicative of what producers are earning. But the sudden jump in prices speaks to the scramble to secure supplies as automakers announce new electric vehicle models. Experts say prices are going to keep climbing this year as demand outstrips supply. These markets can be difficult for investors to access. Miners can be the only way for investors to gain exposure, but shares of upstream players don't always follow the price action of the underlying commodity. How to invest Albemarle is one of the largest U.S.-based lithium miners. Shares of the company hit an all-time high in November, but have come under significant pressure since. The stock slid more than 17% the week the company issued its latest quarterly report. Higher costs for raw materials and freight weighed on results, as did labor and Covid-19 issues. Other lithium miners include Livent Corporation and SQM , which are down 21% and about 0.1% over the past three months respectively. Cowen managing director David Deckelbaum attributed the recent underperformance to trends playing out in the broader market – namely the rotation out of growth and into value names. Additionally, he noted that in some cases mining stocks rallied ahead of the spike in lithium prices. "There's obviously a compelling investment case, but I think the market's kind of taking more of a wait-and-see approach… do these companies all come back to the equity markets and raise capital to try to finance growth projects," he said. Nickel and cobalt are also at multi-year highs. Aluminum is trading around its highest level on record going back to when the CME began tracking the data in 2014. Copper hit a record in May 2021 based on data going back to 1988. While prices have come down since then, the contract is still trading elevated compared to historical prices. The Biden Administration has emphasized the need to secure domestic supply chains for metals that will fuel the energy transition, and on Feb. 22 the White House announced new funding for critical materials. The only operating lithium mine in the U.S. is controlled by Albemarle. Lithium Americas and Piedmont Lithium are two other names in the space, although neither has mined any lithium yet. MP Materials mines rare earths at its facility in Mountain Pass, California, while Talon Metals is working on developing nickel production in the U.S. However, the company is still in pre-production mode. VanEck recently launched a green metals exchange-traded fund in an effort to gain broad exposure to the many minerals and materials required to fuel the energy transition. "Demand is going up in reality, and future demand in terms of the addressable market – potential market – is absolutely huge," said VanEck portfolio manager Shawn Reynolds. "People are starting to get really worried about, you know, where they're going to get the supply of all these minerals." Reynolds noted that smaller companies tend to dominate markets for the smaller metals, since the economics don't necessarily make sense for larger companies. "There's room for everything," he said. "There's got to be the large guys, mid-size guys and the small guys because there's so much needed – so many mines needed. It's going to take so long for it to happen that whoever can do it the fastest is going to win the most early." With this in mind, the fund is diversified across all minerals, looking to include everything from large cap to micro-cap names. As of the end of January, the fund's top holdings were Glencore, Freeport-McMoRan and Ganfeng Lithium. Cowen's Deckelbaum noted that the lithium market has proven challenging for some of the larger names to break into, although Rio Tinto has made strides and is also active in nickel. Glencore is active in copper, nickel and cobalt, while Vale has nickel and copper operations. "All of the major miners are positioning in some way to participate in the EV mobility supply chain thematic, not to mention the benefits of showcasing some ESG positioning," he said. Calls for new mines are based on estimates that project a huge spike in demand. But some note that these are merely projections, and new mining activity should not be pegged to mere projections. Payal Sampat, mining program director at Earthworks, noted that focus should be placed on utilizing mines that are already in existence. Environmentally friendly drilling practices should also be employed, with the impact on the surrounding community always the primary concern. She pointed to the dual need to "make a rapid transition away from fossil fuels and toward renewables…and at the same time, also doing that in a way that doesn't trample on human rights or the environment or community."

An aerial view shows the brine pools of SQM lithium mine on the Atacama salt flat in the Atacama Desert of northern Chile on Jan. 10, 2013.

Ivan Alvarado | Reuters

The transition toward green energy has revealed a host of new opportunities for investors: the metals needed to fuel the renewable world.

Clean energy generally requires more materials than fossil-fuel power generation. Different green technologies call for a mix of metals and minerals.

A typical electric car, for example, requires six times the mineral inputs of a traditional internal combustion vehicle, according to the International Energy Agency. An onshore wind farm requires nine times more minerals than a gas-fired power plant.

All told, the Paris-based agency forecasts that mineral inputs will need to rise sixfold by 2040 if the world is to reach net-zero emissions by 2050.

"[T]he data highlights that future technological solutions depend heavily on raw material markets that are comparatively small, raising the risk that minor shortages can cause severe dislocations," Bank of America said in a note to clients.