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Despite reports of its imminent demise, the internal combustion
engine-powered vehicle isn’t going away any time soon.
In the United States, electric vehicles (EVs) only make up about 1% of new
vehicles, it's a little better in Canada, at 8%. Things are moving much
faster in Europe and Asia.
Norway is the world leader in terms of EV market penetration. In 2018
one out of every three cars sold was a zero-emission vehicle,
states Elektrek. That’s just for electric plug-ins. If you add hybrid
plug-ins, the penetration rate climbs to 50%. In other words, half of all new
car buyers in 2018 in Norway bought an EV or hybrid. That’s 50 times more
EV/hybrid purchases than in the US!
But the really impressive numbers come out of China, which
commands half of the global marketshare of EVs. In 2018 the Asian monolith
grew its EV market by 83%, selling 1.1 million EVs at 4.2% of
country marketshare, twice higher than in 2017, reports
InsideEVs. This is greater than the 1 million in global EVs sales in
2017. Chinese citizens are buying more EVs than the whole world combined.
The electrification of the global transportation system is one important
way of reducing greenhouse gases that most scientists say is causing global
warming. (We think natural climate cycles are playing a major role too)
As the numbers above show, society has made a start. But it’s nowhere
close to where we should be. Whatever you believe with regard
to global warming there is no arguing that a reduction in our carbon
footprint – by the electrification of the global transportation – would
benefit us all.
Politicians know this but the pace of change is glacial. The current US
government has shown no interest in promoting electric vehicles or forms of
energy not powered by fossil fuels. The White House has backed away from EV
income tax incentives. Oil interests have coalesced to try and end the
federal tax credit for EV purchases. The gutted Environmental Protection
Agency has been directed to loosen fuel-economy and emissions requirements
for new cars. In February California’s Air Resources Board agreed
to pass its own zero-emission rules.
In Canada we have a duplicitous prime minister who on the one hand says he
is for environmental protection and tanker bans yet on the other has approved
a $4.5-billion oil pipeline paid for by taxpayers, and a $40-billion climate
disaster known as LNG Canada - the first of many liquefied natural gas plants
planned for “Beautiful British Columbia”, as license plates brag.
Britain’s Conservative government declared a “climate emergency” but has
taken no action to address the issue. Reacting
to an “Extinction Rebellion” protest, Conservative MP David Davies said:
‘A rise of less than one degree, partly due to the end of the little ice age,
doesn’t mean we should ban cars, flying and everything else which makes the
21st century so great to live in.’
Granted, some progress has been made towards what should be a no-brainer
move for governments of all stripes to stamp out fossil-fueled powered
vehicles and energy sources, like coal and natural gas, and replace them with
EVs, hydro, nuclear, wind and solar power.
Stuttgart, Paris, Mexico City, Athens and Madrid are all banning diesel
fuel by 2030. Norway, the Netherlands, France, Germany, UK, China and India
have indicated they will outlaw cars running on fossil fuels.
Ideally, we could move right away to electric cars, buses and trains, but
that is neither practical nor realistic. In a recent article we calculated
what “going electric” like Bob Dylan did would cost us in terms of raw
materials. The numbers are as mind-blowing as when Dylan strummed the first
note of Maggie’s Farm at the Newport Folk Festival in
1965.
At a conservative 40% market penetration of EVs to total vehicles by 2050,
we found in the United Kingdom alone, providing 12,520,000 electric vehicles
with 20kg of cobalt per EV, we are looking at 250,400 tonnes of cobalt, or
nearly twice the world’s current production.
Globally, 40% electric vehicles gives us 477,760,000 EVs by
2050. 20kg of cobalt per EV requires 9,555,200 tonnes of cobalt, or 68.2X
current annual production.
At 83kg of copper per EV, the electric vehicle market would need
39,654,080 tonnes of copper, or 2.2X 2018 global production. At 63kg of
lithium per EV, supplying EVs worldwide in 2050 would require 30,098,880
tonnes of lithium carbonate equivalent (LCE), or 100X current annual
production. And at 2kg of rare earth elements per EV, supplying all the EV
permanent magnets in 2050 would require 955,520 tonnes of rare earths, or
5.6X current annual production.
For more read It’s
not easy going green
Clearly, we need something to serve as a bridge to widespread
electrification, and the answer is, hybrids and palladium.
Why hybrids?
We are talking here about hybrid electric vehicles (HEVs) and plug-in
hybrid vehicles (PHEVs) versus battery-powered electric vehicles (BHEVs). Not
to state the obvious but these terms
can be slightly confusing. A BHEV, or just EV, is equipped with
rechargeable batteries instead of a gasoline or diesel engine. The battery
pack is used to run the electric motor and all the on-board electronics. Only
a BHEV is capable of being charged at a Level 3 fast charge rate, which can
recharge a battery for up to 90 miles in about 30 minutes.
A plug-in hybrid’s battery is recharged either by being plugged into an
electrical outlet, or “regenerative braking”. The latter charges the battery
when the brakes are applied. PHEVs usually go 20 to 50 kilometers before
their gasoline engines take over from battery power. The PHEV can be thought
of as sitting between a full hybrid (an HEV) and a conventional gas vehicle.
Many “EVs” on the market currently are actually PHEVs, including the
Chevy Volt, the Hyundai Sonata and the Toyota Prius.
An HEV is similar to a PHEV but it uses both the gasoline engine
and the batteries at any given time while driving. However, it is different
in a couple of ways. First, an HEV is not plugged in for recharging, all the
power is stored in the battery. Second, an on-board computer decides which
propulsion source to use and when, unlike a PHEV which does not have this
capability. For example, the battery might kick in when climbing a hill or
when merging. The vehicle can be run on electric power only, for short
periods with the gas engine turned off, allowing for better fuel economy than
a PHEV.
Air pollution standards tightened
The “diesel-gate” scandal at Volkswagen has put tailpipe emissions on the
radar of policy-makers especially given that the rigging of diesel
cars to fraudulently meet emissions came amid reports of the dangers of air
pollution to human health.
A 2017 study in the journal Nature found that emissions
from diesel vehicles which exceeded certification limits were associated with
about 38,000 premature deaths. The following year, a German court ruled that
smog-belching vehicles will be banned from the centers of Stuttgart and
Dusseldorf.
Concerns over air pollution led the EU to set a target of cutting
emissions by at least 40% by 2030, from 1990 levels. According
to Euractiv, the mayors of 10 European capitals are urging a switch to
zero-emissions vehicles within the next 20 years - something the British
Columbia government has pledged to happen by 2040 according to a new climate
plan.
The Euro 6 standard currently in force sets a limit of 80mg of nitrogen
oxide (NOX) per kilometer.
The need to comply with stricter European standards spawned an unusual
partnership earlier this year. Fresh EU regulations require that new vehicles
emit no more than 95g/CO2 per kilometer. That caused a problem for Fiat
Chrysler Automobiles (FCA), which doesn’t yet produce any hybrid or electric
vehicles. To comply with the rules, and avoid millions of dollars in fines,
FCA agreed to pay Tesla, the luxury EV maker, up to $2 billion to pool its
fleet sales with Tesla’s, to avoid over two billion euros (US$2.3 billion) in
fines, according
to Oilprice.com.
The United States under President Obama embarked on a path of restricting
auto emissions significantly, but the plans have skidded to a halt under the
Trump administration. In February, Global
News reported, the administration ended talks with California over its
plans to roll back fuel economy rules considered to be too strict. But 17
automakers recently called on Trump officials to compromise on a proposal
somewhere in between the Obama-era standards requiring a 5% annual decrease
in emissions, and the Trump administration’s proposal to freeze emissions
requirements at 2020 level through 2026.
China, whose major cities are often cloaked in a thick fog of air
pollution, has also begun to implement tougher vehicle emissions
standards. Xinhua,
the state news agency, reported earlier this month that several
regions will start rolling out “China VI” standards, after official data
showed emissions from 6.2 million vehicles were responsible for 45% of
Beijing’s particulate matter in the air.
The country is targeting a reduction of between 26 and 28% of emissions
from 2005 levels by 2030.
The new rules demand that vehicles emit fewer pollutants such as nitrogen
oxides, particular matter and ammonia. They were initially supposed
to take effect in July 2020 but have been pushed ahead due to heavy pollution
in the Pearl River Delta region, Sichuan province and the city of Chongqing,
Xinhua stated.
Survival of the cleanest
The tighter emissions standards that are being rolled out worldwide in
response to worsening air quality, have affected automakers’ selection of
vehicles and the components of their engines.
A recent
Reuters article reports that “The auto industry has all but stopped
developing next-generation combustion engines as limited resources are
directed towards building electric and self-driving cars.”
However, the news agency quotes analysts saying it won’t be until the
middle of the next decade before electric vehicle overtake their gas and
diesel-powered predecessors, noting that EVs only accounted for around 1.5%
of the 86 million cars sold last year.
Moreover, car-makers that can offer vehicles that comply with
tighter emissions standards will do much better financially than those
struggling to do so. In fact, cleaner and greener automakers are likely to be
the survivors after a round of consolidations occurs, Reuters quotes Goldman
Sachs managing director Axel Hoefer:
“The profit pool of companies with combustion engine-related technology –
once the envy of the industry – is shrinking with the rise of electric vehicles
and the digitization of the industry,” he said. “You would expect someone to
come in and consolidate to benefit from economies of scale.”
Interestingly, in that way, environmental progress is being made not at
the behest of regulation-wielding governments but the industry itself, which
is demanding change from within its ranks. Volkswagen for example is one of
the largest manufacturers of gas and diesel engines, but it has plans to
retool its 16 factories to build 33 EV models. Its rival Ford reportedly said
last month it will close two engine factories in Europe, with its final
generation of combustion engines rolling off the line in 2026.
Life still left in ICEs
These developments seem to indicate a shift in the industry that will
eventually mark the end of the combustion engine, as EV adoption becomes
mainstream. Before we write the epitaph of the ICE, however, we need to
appreciate that it’s a long road to 40% market penetration, or even 10%.
Consider this: most electric cars as noted above have a hybrid component to
them. Only BEVs are pure-electric vehicles with no combustion engine. That
makes hybrids a natural bridge between a conventional vehicle and an EV - not
a bad thing considering that motorists still have a hard time grappling with
the “range anxiety” associated with a pure EV, not to mention the logistics
of finding a charging station and the high sticker prices.
If we are stuck with conventional vehicles for several more years, we are
also stuck with catalytic converters. These pollution-control devices employ
both platinum and palladium, but more platinum is used in
the autocatalysts of diesel engines, and more palladium is found in
the catalytic converters of gas-powered vehicles. Autocatalysts are
the largest markets for both precious metals.
According to Norilsk Nickel, which controls 40% of the world’s palladium
production, palladium demand is intensifying. Bloomberg
says a market analyst at the Russian miner is forecasting that
combined palladium use in hybrids (HEVs) and plug-in hybrids (PHEVs) next
year will be nearly triple that of 2016. JP Morgan & Chase is equally
bullish on the precious metal. In a report,
the investment bank predicts by 2025, hybrids will represent over 25 million
vehicles, close to a quarter of all vehicle sales, compared to just 3% in
2016.
These numbers appear to jibe with the sentiment in the field. The Reuters
article above mentions the CEO of drivetrain supplier Dana saying he believes
demand for combustion engines will persist for several years.
“People are overbaking a little bit on how much the internal combustion
engine is just going to go away,” said James Kamsickas. “If anything,
I’m a very strong advocate that it’s going to be a world of hybridization for
the next 15 years. Last time I checked, that still requires an ICE.”
Why palladium?
As noted, palladium is an ingredient in catalytic converters for
gasoline-powered cars, vans and trucks; platinum is in the catalytic
converters of diesel vehicles.
Autocatalyst demand accounts for three-quarters of palladium demand.
Demand for the metallic element has surged since 2016 with the movement
away from more polluting diesel-fueled vehicles, aided by “diesel-gate”. The
price has more than doubled over the last three years (+124%) and ran up 18%
in 2018. That compares to declines in spot gold, platinum and silver last
year.
As drivers shift from diesel to gas-powered cars or hybrids, the market
for palladium used in gasoline engines has buoyed the price. In 2017
palladium raced past $1,700 an ounce for the first time since 2001.
Despite automobile demand slumping in China last year, palladium finished
2018 at $1,262 an ounce - almost catching gold’s year-end close of
$1,282/oz. At present, the spot price of palladium is $1,566/oz,
about $150/oz higher than gold.
As mentioned, the combined palladium use in hybrids (HEVs) and
plug-in hybrids (PHEVs) next year will be nearly triple that of 2016.
Not only has demand bounced up, palladium is also facing constricted
supply. 2018 was the seventh year in a row that palladium was in deficit
because of strong vehicle sales.
According to a report from Sprott Asset Management, “Supply
shortages continue to support palladium’s performance, with strong multi-year
growth in palladium demand now straining a fixed supply.” Indeed, there is
limited scope for producers to increase supply, in the near term.
South African palladium is a by-product of platinum mining and palladium
from Russia is a by-product of nickel. Between them, the two countries
control 75% of the palladium market.
Citigroup said in December that production is expected to trail
consumption by 545,000 ounces this year.
Among the factors in favor of palladium are a 3.6% forecasted rise in auto
catalyst demand, driven by tighter emissions standards, and increased market
share for gasoline vehicles in Europe.
In the near future, palladium is likely to see a major surge in demand due
to a widespread recall by Fiat Chrysler. In March FCA issued a voluntary
recall of nearly 900,000 gasoline-fueled vehicles, due to defective catalytic
converters. The recall is expected to create a need for another 77,000 ounces
of palladium, thereby putting upward pressure on prices.
“The demand could be impactful on this market, and if nothing else could
hold these prices at these levels, which we haven’t had ever before,” according
to Peter Thomas, senior vice president at Chicago-based metals
broker ZanerGroup, quoted
in Automotive News.
Palladium One (TSX-V:PDM, FRA:7N11)
One company that stands to reap the benefits from the transition period,
led by hybrids, between conventional and electric vehicles, is Palladium One
Mining (TSX-V:PDM). The Vancouver-based junior is exploring for platinum
group elements (PGEs) in north-central Finland, and for nickel, copper and
PGEs near Marathon, Ontario, on the shores of Lake Superior.
The two projects have languished in recent years but Palladium
One plans to raise enough capital to breathe new life into them. Three ways
to do that are a board and management change, announced on March 28, through
a name
change, announced on May 1, and a previously announced share
consolidation, whereby the number of outstanding shares were cut in half. A
week later PDM completed an oversubscribed private placement, raising $1.352
million, up from the previously planned $640,000.
LK Project
Palladium One is currently focused on its LK
(Lantinen Koillissmaa) Project.
The geology dates back to the
early Palaeoproterozoic era, ~2.4 billion years ago, during which
rift-related igneous activity produced mafic-ultramafic rocks containing
palladium-rich copper-nickel-platinum group elements (Cu-Ni-PGE) sulfide
minerals, chromium, as well as iron-titanium-vanadium. This rifting event
produced a several mafic-ultramafic intrusions throughout central Finland and
northwest Russia
Geologists think the deposit is a “basal Cu-Ni-PGE bearing sulphide
accumulation within the larger Koillismaa Layered Mafic-Ultramafic
Complex”.
Ninety kilometers northwest of the LK Project, another of these
Paleoproterozoic intrusions hosts the Suhanko Arctic Platinum
Project which has a resource of 5.4 million ounces measured and indicated
palladium, plus 4.4Moz inferred with platinum, gold, copper and nickel
by-products.
Nine exploration permit applications at LK feature three prominent
mineralized zones: Kaukua, Murtolampi and Haukiaho. Only
about four kilometers of the 25 kilometer basal contact covered by
the LK project has been drill-tested by LK’s pervious operators. A huge
advantage of the LK project is that e the entire basal contact was
reconnaissance drill tested by the Finish geological survey with widely
spaced short (typically ~ 30 meters depth) drill holes and has demonstrated
anomalous Cu-Ni-PGE mineralization along the entire contact.
A 2013 historical resource estimate (not NI 43-101-compliant) came up with
10.2 million tonnes graded 0.73 grams per tonne (g/t) palladium, 0.26 g/t
platinum, 0.15% copper, 0.1% nickel and 0.08 g/t gold (cut-off grade 0.1 g/t
palladium), plus an inferred resource of 13.2 million tonnes.
A 0.1 g/t Pd cut-off grade seems aggressively low. At AOTH we believe the
0.3 g/t cut-off numbers are more credible and still demonstrate the deposit
‘hangs together.’
Conclusion
The global transportation ecosystem - trains and buses, trucks and cars -
will eventually go all-electric, but it probably won’t be in our lifetime.
The two biggest challenges are range, and charge periods. Until EVs progress
to the point where they can compete with conventional vehicles on both, we
are looking at limited EV market penetration.
We see two markets for EVs during this transition. The first is
fully-electrics for urban environments, maybe plug-in hybrids for drivers
with longer commutes, and the second is full hybrids for longer journeys and
commutes that don’t need to depend on battery-only power or charging
infrastructure.
If the future is EVs, the near future is hybrids. Even a significant
penetration of hybrid vehicles into urban markets would be a great start. As
drivers get more comfortable with battery power, and technology advances, we
see a gradual shift from hybrids and plug-in hybrids to battery EVs.
With hybrids as the bridge, we also see a path forward to stopping the
advance of the global warming shadow. And we see an investment in Palladium
One and its flagship LK Project as an excellent way to leverage the
attractive fundamentals of palladium right now, as demand
for autocatalysts looks set to outstrip mined supply for the
foreseeable future, insulating the precious metal’s price as it continues its
march towards $1,600/oz.
Palladium One Mining
TSX-V:PDM, FRA:7N11
Cdn$0.085 July 12th
Shares Outstanding 43.7m
Market cap Cdn$3.7m
Palladium One website
*****
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he
believes to be reliable but which has not been independently
verified. Richard Mills makes no guarantee, representation or warranty and
accepts no responsibility or liability as
to its accuracy or completeness. Expressions of opinion are those of
Richard Mills only and are subject to change without notice. Richard Mills
assumes no warranty, liability or guarantee for the current relevance,
correctness or completeness of any information provided within this Report
and will not be held liable for the consequence of reliance upon any opinion
or statement contained herein or any omission. Furthermore, I, Richard Mills,
assume no liability for any direct or indirect loss or damage or, in
particular, for lost profit, which you may incur as a result of the use
and existence of the information provided within this Report.
Palladium One Mining (TSX.V:PDM), is an
advertiser on Richard’s site aheadoftheherd.com. Richard owns shares of PDM
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