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India's Third Giant Leap
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Mining Stocks Gold Rush Has Just Begun podcast

Jan 31, 2024

In July 2023, the Indian government approved amendments to the Mines and Minerals Act, 1957.

This allowed private mining companies to mine the six critical minerals - lithium, beryllium, titanium, niobium, tantalum and zirconium.

Earlier this year, the Ministry of Mines had declared 30 minerals as 'critical' for the country, including these six minerals.

These minerals are required for manufacturing in several sectors, including electric vehicles (EV), EV batteries, glassware, automotive components, defence machinery, telecommunication equipment, capacitors, superalloys, carbides and medical technology.

Then, for the first time on November 29, 2023, the Indian government invited bids for mining 20 critical mineral blocks, including lithium and graphite.

Why is this auction so critical for investors? Find out.

Are you ready for India's lithium stocks gold rush?

I asked this to you, dear reader, in March 2023. This is because I could sense the beginning of a mining megatrend in India, like the one China had.

China has had its own lithium gold rush over the past few years.

Miners in China had raced to feed rampant demand for the EV battery fuel. Especially, to benefit from record global prices of lithium.

Now, the miners are grappling with a close-up inspection by environment officials sent from Beijing. And if found at fault, they even risk closures.

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Meanwhile, in India, the lithium frenzy is yet to begin.

July 2023 saw the first major announcement.

The Indian government approved amendments to the Mines and Minerals (Development and Regulation) Act, 1957, allowing for the mining of lithium and five other minerals.

This allowed private mining companies to mine the six critical minerals - lithium, beryllium, titanium, niobium, tantalum and zirconium.

Earlier this year, the Ministry of Mines had declared 30 minerals as 'critical' for the country, including these six minerals.

These minerals are required for manufacturing in several sectors, including electric vehicles (EV), EV batteries, glassware, automotive components, defence machinery, telecommunication equipment, capacitors, superalloys, carbides and medical technology.

image

The amendment paved the way for granting mineral concessions for undertaking the full range of exploration starting from reconnaissance to prospecting operations.

Further, companies are allowed to transfer the mineral concession in full or part during the exploration period or after exploration, which makes the mining bids attractive.

This amendment, therefore, came as a big boost to the potential lithium gold rush in India.

Especially, since India aims to reach a milestone of 50% cumulative electric power installed capacity from non-fossil sources by 2030. This ambitious energy transition plan is poised to stimulate demand for lithium to unprecedented levels.

But today is a significantly more crucial day in India's lithium gold rush history.

Indian government has for the first time on November 29, 2023, invited bids for 20 critical mineral blocks, including lithium and graphite.

Why is this auction so critical?

India has been exploring ways to secure supplies of lithium, a critical raw material used to make electric vehicle batteries. In February 2023, India found its first lithium deposits in Jammu and Kashmir with estimated reserves of 5.9 million tonnes.

So, the recent amendments to the Mines and Minerals Act are critical for auctioning the lithium blocks identified in Jammu and Kashmir apart from few in Karnataka.

Lithium-ion battery costs rose exponentially in 2022 for the first time in the EV era.

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India has set an EV sales penetration target of 30% for private cars, 70% for commercial cars, 40% for buses, and 80% for two and three-wheelers by 2030. That makes lithium discovery critical to India's targets of meeting its climate-related commitments.

Understandably, the share of lithium in EV batteries has increased by more than 200% in the last few years. In the last financial year, batteries comprised 74% of lithium consumption all across the world.

The production of lithium was cornered by Australia, Chile, and China since decades. Through mergers, acquisitions and mining rights, Chinese state backed companies now control 60% of the world's capacity for processing raw lithium.

In fact, not just lithium, China has cornered production of other rare minerals too, which may be necessary for electronics manufacturing.

A report by the International Energy Agency says more than half of lithium, cobalt and graphite processing and refining capacity is located in China.

Being dependant on Chinese exports is not a long term solution for India. Hence, India has been looking for lithium reserves in countries all across the world.

The government is worried that the scarcity of these minerals in India could create vulnerabilities within the EV battery supply chain. Hence the need to invite private sector entities.

The entry of private sector mining players is seen as a landmark event that could change the course of India's energy transition and electric mobility.

But do not assume that the public sector entities have no role to play.

Rather state-run enterprises have been actively scouting the globe in search of these valuable mineral resources. Prominent energy giants like Coal India and NTPC have been meticulously strategizing their foray into the mining sector to tap into these essential materials.Additionally, the establishment of Khanij Bidesh India, a joint venture involving three government-owned companies, further underscores India's commitment to securing critical mineral assets. Not just domestically but on an international scale. The primary focus is on mineral rich regions such as Australia and South America.

One would also ask...is the timing of the auction of the mineral blocks linked to Tesla's entry into India and its need for lithium supplies?

In 2021, lithium prices had risen 550% over the previous year, according to McKinsey. Demand for the metal will outstrip supply for at least the next five years and the shortage could last through 2030, according to S&P Global Commodity Insights.

Against this backdrop, it's clear why Elon Musk is urging entrepreneurs to process more lithium. While raw lithium is abundant, it needs to be purified before it can be put to use in battery cells.

Securing enough battery-grade lithium is one of the biggest challenges automakers face in the near future.

So, with Tesla firming up its plans to produce EVs in India, it is necessary for the Indian government to offer it sufficient supplies of lithium over the medium term.

Previously, American technology giant Apple's production and supply chain was mainly concentrated in China. However, over the past few years, the company has diversified its supply chain by shifting production to other countries such as India as an insurance policy. Tesla could be looking at establishing a similar strategy to ensure that business in Asia remains secured.

To conclude...

I strongly believe that like in China, lithium mining in India will have it its own gold rush.

The lithium gold rush will have its own sets of miscreants who will find loopholes in environmental regulations.

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And like in China, few Indian miners too may face backlash due to indiscriminate lithium mining to cash in on the steep prices. This could cause environmental hazards and put parts of India's electric vehicle ecosystem at risk.

But the trend of indigenous lithium mining in India is here to stay.

Some niche players in the EV ecosystem are best poised to capitalise on the opportunity.

November 29, 2023 possibly marked the beginning of India's lithium gold rush.

And investors who get on to the EV lithium battery megatrend early could reap the richest dividends.

Hope you like this video. Thanks for watching.

Tanushree Banerjee

Tanushree Banerjee (Research Analyst), is the editor of Stock Select and Forever Stocks. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.

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