Background and challenge
The future production of lithium ion batteries will require significant amounts of raw materials such as lithium and cobalt to meet expected demand. Lithium is either extracted from brine assets or mined from hard rock resources, while cobalt is typically produced as a co-product of nickel and copper mining. An international conglomerate wanted to vertically integrate its existing battery manufacturing capabilities by investing in lithium and/or cobalt mines. L.E.K. Consulting was engaged to identify, characterise and prioritise potential upstream investments. The client wanted to move fast to secure supply for its immediate production needs, but also wanted a plan that accommodated its longer-term growth plans for the chemical and battery operations.
Approach and recommendations
We collaborated closely with the client to first ascertain the rationale for investment, current and future operational needs, and the detailed preferences for the client’s investment strategy. This included exposure to risk, preferences for asset scale and quality, desired investment mechanism, and investment return horizon. We were then able to design a bespoke prioritisation framework that aligned the client’s needs with the key metrics for mining assets considered important from our experience and insight. Over 20 critical characteristics were ultimately included in the framework, covering asset scale and grade, strength of local mining code, current ownership, expected development timeline, likely cost of production, existing marketing arrangements, and quality of mine management.
A comprehensive database of global lithium and cobalt assets was compiled through available primary and secondary resources. The long list included assets that were currently operational as well as those in various stages of the development pipeline. The available metrics for each asset were recorded in the prioritisation framework and tested against the client’s needs (see Figure 1), which allowed objective determination of the most attractive assets for the client within each commodity.
Use of the clear and stepwise prioritisation framework generated a shortlist of the 20 most attractive assets for the client to consider for investment. The top ranked were subject to more detailed research in order to further develop an initial investment rationale and potential acquisition approach.
We delivered an actionable list of recommended assets for acquisition that best met the operational needs and investment rationale of the client. The work also produced a flexible and bespoke investment prioritisation tool that allowed the client to continually update information on its preferred investment targets and adapt to the evolving market.