The Exchanges

Q exchange had to shut down for a minute because nickel prices went through the ceiling and there's some crazy trading activity there. So what the hell's happening? Like, why are, why are all of a sudden, given that we sort of have been able to watch this vehicle electrification transformation, the electrification of everything, it didn't show up overnight. So what happened in these markets that are driving them insane?

A Yeah, no, it's a, it's a super good question. Um, I mean, I think if you, if you, if you do look from a wider lens, temporal lens, it, it is, uh, quite, uh, predictable. It's, it's why we're in the business we're in, uh, right? We started our company in 2018, specifically because we, because you could do some really simple arithmetic and come to the realization that, uh, that a critical bottleneck for the electric, uh, vehicle revolutions and the, and The energy transition more broadly would be the supply of these key materials. Um, and in fact, the price of nickel has been, has been moving up very steadily, uh, for the, for the past four years. Um, when we started the company, I think nickel was about eight dollars a kilogram, and now it's over 30. Um, there have, lithium has, has been volatile for sure. It is on a, it's had a very dramatic spike over the last, um, Six months, and I have, I'll speculate a little bit on the cause of that spike. The nickel, craziness in the nickel market that you refer to is, is, is acutely related to Russia. Um, The Nik, Russia, as I mentioned, is the lowest, is the second largest nickel producer behind Indonesia, but here's the key, is that Nik, uh, Indonesia is really a high-cost producer. Uh, they produce out of a type of deposit called laterites, which are almost like metallic dirt, uh, low concentration, kind of high processing costs. It c…

AI assessment note: “craziness in the nickel market that you refer to is, is, is acutely related to Russia”

Q alluded to some of this, right? But there's, There are folks who are pursuing alternatives to lithium in the anode. There are folks who are pursuing alternatives to nickel and cobalt in the cathode. Uh, what do you think is the sort of future trajectory of, of battery chemistry? And then what does that mean in terms of what we need to discover in order to supply all of that?

A Yeah, no, so it's a super good question. So, um, the, uh, If you, we should go through those kind of, again, maybe in a, from a slightly different angle, but the, the challenge of, the reason I sort of harped on the challenge of substitution for lithium is that it's, it's really built into the universe. Like, lithium is the best, the best atom for, uh, the best anode material for really, really deep reasons. There's not another element out there that happens to be the lightest metal and the electropositive, most electropositive metal, which also happens to complex very effectively with transition metals. Instable layered oxide crystal structures. Like, there isn't one. We know this. Uh, we understand the periodic table fairly well. And that, you know, techno-optimists roll their eyes, uh, at stuff like that, because they think, oh, well, there's always something to discover. But the periodic table really is, really is an amazing achievement of mankind, that we really do understand the building blocks of the universe. Lithium really is the best andode material. So you can make a battery with sodium, no problem. Right, for sure. It's just gonna be three times as heavy and maybe 85% the voltage, which means you end up with about a 45, you know, 40% energy density. That, for stationary applications, uh, probably kind of fine, and lithium and, and sodium's a lot cheaper. So I think …

AI assessment note: “Lithium really is the best andode material. So you can make a battery with sodium”

Q Uh, is it pretty simple? We've just picked the lowest hanging fruit. And so we're just climbing up the tree basically.

A So there's, there's two components to that. That is, that is the first order, uh, problem for sure. The easy things have been discovered. But you might ask, like, what is an easy thing? Well, an easy thing is, is actually well, well, well defined. It's something that's sticking out of the ground. So it's like there's an outcrop, and a skilled geologist can walk up to it and look at it and say, those are warm minerals, and we should, we should explore this outcrop. We should drill here. We should dig here. We should, whatever. Uh, because there's, because there could be something. That's, Or the second would be a, just a geochemical anomaly. You're looking for copper, and you're measuring soil, you know, copper in soil, and sure enough, you find a, uh, you know, an X increase in copper in a particular soil sample, and you think, oh, that's interesting, what's below this soil? Those are the easy things. The inventory of those easy things has been largely cold. Uh, so, uh, the second component to Eroom's Law, so that, that alone doesn't quite give you Eroom's Law, right? Because, you know, Fastballs in the Major League Baseball keep going up, right? But batting averages don't really go down. Why? Well, because batters get better as pitchers get better, right? Um, and so if you were getting, if you were investing in technology, right, and getting better at finding things, you know,…

AI assessment note: “That is the first order problem for sure. The easy things have been discovered.”

Q Why is there no nickel in my phone, but there is in my EV battery? I don't know. You tell me.

A Okay, so the question, so the answer is that your phone costs something like a thousand dollars, and the amount of, the amount of cathode metal in your phone, cobalt, costs 50 cents, something like that. So Apple, when they're designing their battery, they make the absolute best battery possible for the specific performance that they're looking for, which, you know, has a variety of specs. Um, In your car, ah, you will have, you will have a lot more, ah, a lot more battery metal, you'll have a few thousand dollars of battery materials, right? And so, if you double the price of cobalt, you add 30, 40, 50 cents to the cost of your phone, it doesn't matter, performance matters. If you double the cost of cobalt, and you're using cobalt only in your car, you will add thousands of dollars to the price of the car, and that really matters in terms of demand elasticity. So what you start to do is you start to titrate between the two. It's a performance cost optimization. Um, and, uh, and a blend of nickel and cobalt can perform really, really well, almost as well as, as a pure cobalt battery. And, and the demand, the, the, uh, specifications are slightly different between the two, but overall that's, that's the principal reason.

AI assessment note: “It's a performance cost optimization. Um, and, uh, and a blend of nickel and cobalt”

Q copper is a really big existing market, lots of applications that have been around for a long time. Lithium is a different story, right? Where the size of the existing market prior to the vehicle electrification is, or prior to, you know, the rise of lithium ion batteries outside of consumer Applications. Uh, is, is a much smaller current market, right? So the trajectory of growth is a little different.

A Totally. It's a fantastic point. Uh, fantastic point, Sheldon, and, and you're spot on. So, so here's a good way to think of it. Uh, copper, uh, current production, current total mine production, um, is 25 megatons a year or something like that. We think it needs to grow by mid-century, including other uses to something like Yeah. Uh, the, the number one, the, Principal use of lithium in that year was lubricants, additive to lubricants, right? It's a very small market, idiosyncratic market. Lithium is a, is a brand new, sort of a brand new need, and, and the need is, is, is stunning. So current lithium production is right around, I'm doing this from memory, but it's right around a hundred, 50 kilotons, something like that. Um.

AI assessment note: “copper, current production, current total mine production, is 25 megatons a year”

Q Um, yeah, well, we'll, we'll come back to some, you know, sort of evolution of battery chemistry in the future, because we could talk about, I don't know, stuff like silicon anode and things like that. But, um, I want to let you finish the top five. So we, we got to copper and lithium. What's next?

A And one, one more point on lithium, just to keep it in context. So the, so it has to grow by a factor of Uh, uh, but the total value of the new discoveries, we'll come back to that D word, uh, later, but the new discoveries, about three trillion, or maybe four trillion, as opposed to five trillion. So it's actually on the same order, like the market opportunity for, for new lithium discoveries is about the same order of that as, as copper, which is, is actually a really important point, and it has some interesting implications for market structure and what the incumbents are doing, which we'll get back to, I'm sure. So the, so the next two, and we'll talk about these in pair, uh, is copper, I'm sorry, is nickel and cobalt. These are what happens when the electron, uh, this, uh, uh, reaches the, uh, the cathode. Exactly. You can think of, you can think of an, uh, like your iPhone or you can, you can think of it. Yeah. You can think of your iPhone. The reason, the reason it works is because there's a chemical reaction between lithium and cobalt oxide. In, in your iPhone, there's no nickel, and I'm gonna explain why in a second. It's lithium and cobalt. Um, the, uh, uh, The key, there's several key and very somewhat technical points here as to why nickel and cobalt, uh, why nickel and cobalt are so good, but I'll give kind of a, a simple explanation. So the, the first is how much …

AI assessment note: “So the, so the next two... is nickel and cobalt.”

Q our reliance in the Middle East has, has Waned, but now we've become reliant on a new set of countries. I know this is sort of central to what you guys are doing at Kobold. What, what do you think are the prospects for, for North America and Europe in particular to be able to, uh, domesticate the key mineral production for most of the stuff we're going to need?

A It's a, it's a great question. And it's, um, Uh, it's an interesting, it's not a perfect analogy. The best reason it's not a perfect analogy is actually because of the recycling component, right? Because you move toward a circular economy, you become less and less dependent on whatever, whatever the jurisdiction is that you're, that you're importing the product from. So it's sort of just like from that first, you know, from that first order look, it's, it's better, you know, all things, all things equal. Um, but, Because we're not at the circular level there, we still, there's still this transitionary period where, where you certainly have to source materials from wherever, wherever you can get them. Um, the outlook for Maybe the outlook for, um, what's broadly referred to as the West, right? So North America, Japan, Australia, the EU, uh, is pretty strong. Um, North America, uh, has, has tremendous potential for nickel, cobalt, uh, and lithium in particular, uh, and fairly meaningful for copper. Um, the largest copper mine currently in development is in Arizona, uh, For instance, um, not, not yet producing, but close to, close to producing, or it's among the biggest, I'm sure it's absolute biggest. It's very, very big. Um, there's, Australia is a, is a major mining jurisdiction with, with tremendous potential. Uh, there's, so there's, so that's, that's really positive. We, we …

AI assessment note: “The outlook for Maybe the outlook for, um, what's broadly referred to as the West”

Q the high end models and not for the like long range batteries. Uh, we should talk for a minute about recycling, um, because there's been a lot of attention paid and excitement around battery recycling and getting some of these, some of these minerals out of used EV batteries to recycle into new EV batteries. What portion of that future demand do you think can be taken up via recycling?

A Yeah, so this is, if we take the longest view here, uh, this is maybe, uh, one of the really exciting things about the energy transition is that, um, The, the renewable energy economy is going to give rise to the circular economy, right? Uh, and it's really, really exciting. The fossil fuel economy fundamentally can't be circular. Take fossil fuels out of the ground, right? It's, it's carbon and hydrogen. You burn it in oxygen to make CO₂ and water. The CO₂ goes in the atmosphere and it stays there for tens of thousands of years. You're not going to get it back despite what a bunch of people say. You will not get it back. We've had several conversations on that. It's an utter waste of time. Uh, uh, absurd, absurd, totally absurd technology that will cost, that is the, that is a staggering waste of human brain cells and capital and resources. Uh, and it's, and we should be spending at, we should always be working on the most effective, the best marginal use of our capital. And the best marginal use of our capital is not to do really expensive things like Like, like direct air capture, or even worse, trying to direct air capture and then converting fully oxidized carbon in, you know, reducing it all the way back down to fuel. It's fun to think about. It's not going to happen for decades, and people shouldn't waste their brain cells on it. I'm sure I just angered a lot of your aud…

AI assessment note: “I'm sure I just angered a lot of your audience, but I wanted to slip that in.”