Professional Documents
Culture Documents
Mining research
November 2016
Analysts
Jeremy Wrathall
+44 (0)207 597 4180
jeremy.wrathall@investec.co.uk
Peter Richardson (commodity forecasts)
peter.richardson@investec.co.uk
Hunter Hillcoat
hunter.hillcoat@investec.co.uk
+44 (0)207 597 5182
Andrew Snowdowne
+27 21 416 1248
andrew.snowdowne@investec.co.za
Contents
Introduction ............................................................................................................................ 4
Impact of EVs on individual commodities ............................................................................... 6
Copper .................................................................................................................................. 11
Detailed analysis of copper supply/demand balance ....................................................... 12
Overall copper supply from major mining groups ............................................................ 16
Steel ...................................................................................................................................... 23
Other industrial metals ......................................................................................................... 24
Platinum Group Metals ......................................................................................................... 25
Lithium .................................................................................................................................. 29
Gauging lithium demand .................................................................................................. 29
Factors affecting supply .................................................................................................... 31
Appendix 1 – The evolving auto industry .............................................................................. 35
1. EV Developments by existing brands ........................................................................ 35
2. The industry ‘disruptors’ ........................................................................................... 42
3. Chinese auto manufacturers ..................................................................................... 43
Appendix 2: Other emerging EV markets.............................................................................. 46
Readers in all geographies please refer to important disclosures and disclaimers starting on page 47 In the United
Kingdom this document is a MARKETING COMMUNICATION. It has not been prepared in accordance with the rules in the
FCA Conduct of Business Sourcebook designed to promote the independence of research and is also not subject to any
prohibition on dealing ahead of the dissemination of research. The global contacts include: Andrew Fitchie (EU) and Leon
van Heerden (SA). Full analyst and global contact details are shown on the back page.
The age of the pure electric vehicle (EV) is rapidly arriving and we believe it
will have a long term impact on the mining industry globally, raising demand
for copper and lithium, in particular. We see less effect on iron ore,
aluminium and PGMs. We can also envisage China rapidly emerging as the
EV factory of the world, utilising a legitimate means of exporting the
overcapacity built up in many commodities over the last two decades.
Electrifying. We believe that the rapid shift to electric vehicles is now unstoppable
given growing concern over climate change and the effects of pollution globally.
The Paris Agreement (Dec 2015) was, in our view, seminal in this regard (pace
President-elect Trump). Together with power being increasingly sourced from
renewables, these trends look set to change all our lives.
Mix change. EVs, and their associated charging infrastructure, consume many
of the same raw materials as internal combustion engine (ICE) vehicles; but in
differing quantities. As the sales mix changes between the two, this will have
consequences for the mining industry. For example, an electric vehicle uses a
multiple of the quantity of copper used in ICE drive vehicles; we expect demand
for copper to rise dramatically once EVs become mainstream purchases.
For mining, it’s new car sales which count. We examine data recently released
by BHP Billiton on the relatively minor impact the company believes EVs will have
on ongoing demand for oil. Our modelling leads us to the conclusion that EV sales
will reach approximately 1% of overall vehicle sales by 2020, but rise dramatically
from that point onwards, to represent around 20% of new car sales by 2035.
Warning signs growing for ICE vehicles. The recent resolution by the German
Bundesrat (10th October) called for an EU wide effective ban on the sale of ICE
cars by 2030 - another strong signal that the future for the automobile industry
lies with alternative technologies. Although the resolution was non-binding, it
suggests the pace of change may be far faster than many observers currently
expect.
Enter the Dragon? The mining industry has already witnessed China become the
dominant player in steel, aluminium, nickel and, by proxy, many other commodities
over the last two decades. The progress displayed by the Chinese automotive
industry in combining EV technology with western-friendly designs suggests to us
that the country is well placed to become the “EV factory” for the world. We see
recent investments by Chinese companies in copper mines around the world as
evidence of long term positioning for such changes.
Copper and Lithium, the key plays. In our view, the rise in demand for copper
from growing EV production will have the most dramatic impact amongst the
materials used by the (ICE-dominated) auto industry today. In this report, we
analyse the likely effect on what we see as an already tight copper market over
the next 20 years. Our analysis suggests the impact on steel and aluminium
demand will be minimal and demand for PGM’s should remain relatively stable
based purely on vehicle demand growth overall. However the move to EVs will
increasingly impact on other commodities such as lithium, where we see demand
rising rapidly
Introduction
We believe the rise of electric vehicles is now an unstoppable trend and that
this will have a profound long term effect on the mining industry, given the
different mix materials that comprise an electric vehicle (EV) versus those in a
conventional internal combustion engine (ICE) vehicle. The automotive sector
represents a substantial portion of overall demand for various metals and
hence the envisaged shift to EVs is expected to bring both positive and
negative demand changes. As the cost of pure electric vehicles comes down,
and availability of charging points grows, the move away from hybrid electric
vehicles to pure electric vehicles is also expected to accelerate.
An electric vehicle requires between three and four times as much copper as a
conventional ICE driven vehicle, which illustrates the scale of the changes that we
expect to occur over the next two decades. Such vehicles also require less steel as,
for example, an EV has no transmission or gearbox. Ultimately, the move towards
pure electric vehicles is also expected to have an impact on PGM demand (given
that they do not require a catalyst), but we think that this is unlikely to dramatically
affect prices in the next ten years given overall growth in vehicle demand in
combination with a forecast drop in mined supply. Lithium, a key input into
batteries, is the obvious major beneficiary of the move to EV’s as the mining
industry currently appears unlikely to be able to satisfy demand - especially given
the simultaneous rise of power storage batteries. Cobalt is also expected to benefit
from the move to electric cars, but it is difficult to model this trend given industry
opacity.
We start this report with our view of the likely growth profile for EVs, with annual
sales the key issue, rather than share of the overall fleet. Our estimates of likely
changes in the auto industry are informed by recent research from BHP Billiton in
which the company assessed possible impacts of EVs on oil demand. A key extract
from BHP’s discussion paper of 2nd September 2016 entitled “Electric vehicles –
why all the noise?” is shown in figure 1. below.
1 Data released by Anglo American during a recent analyst presentation (24th November 2016) indicates that the
company see the broad trend of vehicle growth as similar to the assumptions made by BHP Billiton, and therefore
similar to the assumptions made in our analysis. Anglo American however assumes a CAGR for annual light
vehicle sales of 2.9%, whereas we have adopted a more conservative CAGR of 2.5%. Anglo American’s view of
the growth in electric vehicles relative to conventional vehicles and hybrids out to 2025 appears broadly in line with
our assumptions.
Between 2016 and 2035 electric vehicles are expected to represent a growing
percentage of overall car sales. BHP estimates a CAGR for EV sales of 25% p.a.
and expects the overall EV fleet will grow from a current level of around 1 million
vehicles to a total fleet of 140m vehicles by 2035 (Figure 2).
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Taking BHP’s assumed CAGR of 25% implies growth of the EV fleet as shown in
the graph below.
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
ICE EV
Copper 20Kg 80Kg
Steel 900Kg 750Kg
Lead 9Kg Nil
Platinum 1.2g Nil
Palladium 2.6g Nil
Lithium Nil 40 - 80Kg
In the section starting on page 10, we discuss the impact on each of these
commodities in detail, starting with copper where we see the greatest market
impact. Before that, we look briefly at our understanding of the current stage of
evolution of electric vehicles and the basis on which we have modelled future
commodity demand from this source.
We make the assumption that overall vehicle sales rise by 2.5% per annum in order
to obtain a projection of annual sales. We assume a start point for the global vehicle
fleet of 1.1bn vehicles currently and assume a fleet size of 1.8bn vehicles by 2035
(in line with BHP’s forecasts). By 2035 we therefore forecast annual light vehicle
sales will rise from around 90m vehicles p.a. currently to around 144m p.a. by 2035.
Between 2016 and 2035 electric vehicles are expected to represent a growing
percentage of overall car sales and BHP estimates a CAGR for EV sales of 25%
p.a. BHP expects the overall EV fleet will grow from a current level of 1 million
vehicles to a total fleet of 140m by 2035.
The rapid rise in EV sales is expected to have a growing impact in sales of ICE
vehicles, as can be seen from the chart below (Figure 5).
140.0 30.0
120.0 25.0
100.0
20.0
80.0
15.0
60.0
10.0
40.0
20.0 5.0
0.0 0.0
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Over the last twelve months, nearly 21 million passenger vehicles have been
produced and sold in China. Growth rates overall have slowed slightly and, given
the recent overall economic slowdown, it is difficult to accurately forecast the likely
growth rate in vehicle production over the next five years. In our view, the proportion
of electric vehicles is likely to increase dramatically given the government’s
determination to crack down on pollution. As part of its commitment to promote EVs,
the Chinese government announced plans in September 2015 to build a nationwide
charging-station network to fulfil the power demand of 5 million electric vehicles by
2020. This network will cover residential areas, business districts, public space and
inter-city highways, according to a guideline released by the State Council.
Copper
The mining companies are themselves well aware of the changes that electric
vehicle may bring. BHP Billiton and Rio Tinto have recently made statements on
this subject, some of which forms the basis for sections of this report. BHP
highlights the cumulative effect that EVs are expected to have on the copper market
suggesting that total additional copper demand from EVs will be “around 11mt “
between now and 2035 assuming that a pure EV consumes 80kg of copper. This
does not seem to take into account additional demand from charging infrastructure.
Rio Tinto assume that an EV consumes 90kg of copper hence these figures could
be expected to rise by 12% to over 12mt. BHP also makes the point that ever
declining mine grades makes new copper mines increasingly challenging to operate
profitably.
Amongst the materials currently used in ICE vehicles, copper is the metal where we
expect demand to be most affected by the growth pf electric vehicles. The EV
revolution is expected to significantly boost the demand for copper from two sources:
The vehicle itself. New EV’s are expected to consume around four times as
much copper as conventional ICE driven vehicles. The average American
saloon vehicle currently contains between 15kg (small vehicle) to 28kg (large
luxury vehicle) of copper, mainly in wiring circuits. The average EV is expected
to contain between 60kg and 100kg of copper, the majority of which is
consumed in the electric motors positioned at each wheel hub. We model
additional demand on the basis of 80kg per vehicle (based on BHP numbers),
but note that this may prove to be conservative, given the comments by Rio
Tinto that the number is closer to 90kg per vehicle.
Based on consumption of 20kg per ICE vehicle we see gross copper demand
from ICE light vehicles rising from around 1.8mt currently and peaking at
around 2.4mt in 2032. Gross copper demand from electric vehicles is expected
to rise from a negligible amount currently to over 2mt by 2035. This number is
likely to continue to grow rapidly from then onwards as EVs become a greater
portion of overall vehicle sales. Our derived numbers correlate with BHP’s
forecasts that the electric vehicle fleet will consume over 11mt of copper
between now and 2035. Using Rio Tinto’s number of 90kg per EV boosts the
overall amount consumed to around 12mt of copper by 2035. In our view these
numbers should be seen as conservative as they do not take into account
demand growth from charging infrastructure and the electrification of buses and
other commercial vehicles.
Charging infrastructure. Mass adoption of pure electric vehicles relies heavily
of adequate charging infrastructure being available worldwide. Charging
stations are rapidly being rolled out, including in China where the government is
driving the installation of a network of charging points nationwide - with a stated
goal of 4.8m charging stations nationwide by 2020. This infrastructure will add
materially to copper demand; especially as the cables need to be thick enough
to deliver high levels of charge in a short time.
Please note that this analysis draws heavily on contributions from Peter Richardson
of Metallum Commodity Consulting – Consultant Commodity Economist to Investec.
Peter is available by request for detailed discussions on this topic.
Given that copper will be one of the commodities most heavily affected by demand
from electric cars we have undertaken a detailed modelling exercise of likely copper
supply and demand under our base case and electric vehicle scenarios. Our
conclusions on demand are likely to be conservative given that we currently have
no way to reliably forecast incremental demand from electrical infrastructure related
to the charging of EVs. We also feel that our modelled scenario for the growth of
EVs may underestimate the increase in demand for copper and other metals given
the pace of change that is now becoming apparent.
Our conclusion is that future mine and scrap supply of copper as currently identified
will be inadequate to fulfil expected levels of demand long term, without sustainably
higher real prices to incentivise the development of a large number of category 3
projects and encourage exploration and commercial development
Our base case scenario indicates that all of the projects in the categories of
Category 1 and Category 21 will be required to come on stream by 2026 and that
40% of projects in Category 3 will also be required by that time. By 2035, 82% of
projects in category 3 will be required to be in production – a scenario that already
seems highly unlikely. Once copper demand is adjusted for expected demand from
EVs the picture becomes even more strained, and by 2034 100% of the Category 3
mines will be required.
For such a scenario to eventuate we believe that copper prices would have to rise
substantially, in the relatively short term, to incentivise new copper mines to be built
in time to meet expected demand and to significantly increase exploration
expenditure to increase the probability of discovering new commercial deposits
Copper demand
To arrive at these conclusions, we initially modelled expected copper demand
(excluding the effect of EVs) by inflating current demand using an average estimate
for global industrial production (IP} of 1.5% between 2016 and 2035 and applying a
consumption growth factor (the YoY change in copper consumption compared to
the YoY percentage change in IP) to arrive at projected consumption on an annual
basis. This consumption factor is based on observed historic correlation between
copper consumption and the global industrial production cycle over a thirty year
period. Based on this historic relationship, we regard our base case as a
conservative and muted non-cyclical demand scenario, but not unrealistic in the
aftermath of the demand shock from China’s metal intensive phase of
industrialisation between 1995 and 2011. To avoid an unrealistic flat growth
scenario, we introduced some cyclicality to these numbers to simulate specific
demand spikes and troughs over the forecast period 2016 to 2035.
1 Definitions
We place copper projects into the following categories which attempt to address the likelihood of their eventual
development.
Category 1. A project with a 90 – 95% chance of being developed given currently available financial and
geological information.
Category 2. A project with a 70 – 90% chance of being developed given currently available financial and
geological information.
Category 3. A project with a 40 – 70% chance of being developed given currently available financial and
geological information.
If, as we expect, demand proves higher than our assumptions, the multiplier effect on
consumption in a scenario of growing EV consumption will be material. Under the
base case scenario (excluding EVs), demand for copper is expected to rise from
22.2mt to 29.6mt by 2035. The picture that emerges when factoring in demand from
EVs (net of declining demand from ICE vehicles) is that total copper consumption is
forecast to rise to 31.8mt by 2035, an increase of 40%.
34.0
32.0
30.0
28.0
26.0
24.0
22.0
20.0
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Total refined demand (ex EVs) Total refined demand (Inc EVs)
Copper supply
The difficulties of modelling copper supply out to 2035 make such an exercise
challenging, as any of the assumptions on mine supply depend on prices prevailing
at the time of a production decision. This said, in our base case we forecast total
mined supply to rise steadily over the next ten years from a level of 15.9mt currently
to around 20.5mt in 2027 and 21.1mt by 2035. Importantly, for this supply to
materialise it will require the following projects to come on stream under our
demand base case:
100% of currently producing and all permitted projects (Category 1) come on
stream and produce to their full capacity. History shows this to be extremely
unlikely and that at least some such projects will either not see the light of day,
or will operate at below design capacity.
All Category 2 projects to come on stream by 2026. After this point the market
then becomes dependent on Category 3 projects if anticipated demand is to be
met. Even with such projects in the mix we anticipate base case demand to be
strong enough to require 40% of such mine capacity by 2025.
Once the additional demand from EVs is added, we anticipate the market will
tighten significantly.
If we make the same observations for our EV case we find the following:
All of the production from Category 2 operations will not be enough to keep the
market from tightening significantly by 2026, as in the base case.
The requirement of production from Category 3 projects rises faster than in our
base case, reaching 58% of identified capacity on a cumulative basis by 2029
and over 100% by 2035, given that we forecast mine supply to rise to 23.4mt
p.a.
Under such an EV driven scenario we observe that the market is likely to undergo a
significant re-pricing event at some stage in order to incentivise sufficient new
capacity to fulfil demand. Such an event is currently not built into our price forecasts
for copper. The chart below illustrates our two scenarios for copper supply without
EVs (blue line), and with EVs (red line).
23.0
22.0
21.0
20.0
19.0
18.0
17.0
16.0
15.0
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Investec base case (Ex Evs) Investec higher case (Inc Evs)
As a key part of the refined market supply chain, we forecast external scrap supply
to rise steadily rise from current levels of around 5.1mt currently (at the smelter and
refinery level combined) to around 8.3mt by 2035 (see Figure 8 below).
Figure 8: Total scrap supply (Mt)
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Scrap supply is highly price dependent – hence we believe a rise from current price
levels would be necessary to incentivise sufficient scrap collection to fulfil its historic
role of providing a significant component of refined supply to help match demand.
Overall net refined copper supply (after smelting and refining losses but including
external scrap) is expected to rise from current levels of 22.2mt to levels around
31.8mt by 2035 (see Figure 9).
34.0
32.0
30.0
28.0
26.0
24.0
22.0
20.0
18.0
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
This is a significant increase, but is heavily reliant on projects in all three categories
coming on stream seamlessly. Despite these identified and possible increases in
mine and scrap supply, the refined market is expected to be in persistent deficit
from 2030 onwards, resulting in sustained downward pressure on total stocks.
Under our EV scenario, total commercial stocks are expected to fall from 28.4% of
forecast prevailing consumption in 2028 to 23.7% in 2035,
Table 2: Copper production from the Top 10 miners (‘000t) and their share of global production
Over the past three calendar years (2013-2015), the Top 10 miners have together
produced close to 9mtpa of copper, equivalent to 49% of global mined production
over the period. The five London-listed miners made up c.45% of this, together
delivering 22% of global production.
Figure 10: Copper production from the Top 10 miners Figure 11: Global copper mine production
8,000 16,000
Anglo American
7,000 14,000
6,000 Rio Tinto 12,000 Others
5,000 KGHM Poslka Miedz 10,000
Other Top 10
4,000 Southern Copper 8,000
3,000 6,000 UK-listed majors
BHP Billiton
2,000 4,000
Glencore
1,000 2,000
0 Freeport-McMoran
0
2013 2014 2015 Codelco 2013 2014 2015
Source: GFMS Thomson Reuters Source: GFMS Thomson Reuters, Investec Securities estimates
Aside from the London-listed companies that we actively research, the other Top 10
producers have varying degrees of growth aspirations, as highlighted below:
Codelco in 2015 laid out plans to take annual copper production to 2mt by
2026, through US$25bn in investment that was intended to replace aging
infrastructure and depleting operations. However, the company is reportedly
facing funding shortfalls that are likely to impact the deliverability of such growth
and/or production maintenance. A funding decision by the Chilean government
is due this month (November).
6,000
5,000
Coppe rproduction ('000t)
4,000 ANTO
AAL
3,000
GLEN
BLT
2,000
RIO
1,000
0
FY16E FY18E FY20E FY22E FY24E FY26E FY28E FY30E
The table below shows the CAGR of copper production growth for the five London-
listed major copper producers over the period from 2016 to 2030. Only Rio Tinto, with
the Oyu Tolgoi expansion and Grasberg contribution, presents meaningful growth,
Clearly these producers will source and develop additional supply, but the current
numbers serve to illustrate that the sector looks ill-prepared for the growth in demand
that we anticipate, especially from 2025 onwards. Ongoing funding issues at Chile’s
state-owned Codelco, the world’s largest copper producer (1.7mtpa), point to a
substantial deficit of copper emerging after 2025.
Whilst Rio Tinto has the best copper growth, it is coming off a lower base than some
peers and it is still expected to deliver less copper in total than either BHP Billiton or
Glencore by 2030, as illustrated in the following table. The five companies combined
are expected to deliver 76mt by the end of the next decade, equivalent to 5.1mtpa.
1,400
1,200
Copper production ('000t)
1,000
800
600
400
200
Source: SNL
1,600
1,400
Copper production ('000t)
1,200
1,000
800
600
400
200
0
Source: SNL
Source: SNL
Glencore has exposure to substantial copper assets through its shared interests in
Collahuasi (44% Glencore, 44% Anglo American, 12% Japanese consortium) and
Antamina (33.75% Glencore, 33.75% BHP Billiton, 22.5% Teck, 10% Mitsubishi).
These form part of a substantial and diverse portfolio of operations, each modest in
its own right, but together capable of maintaining production at a minimum level of
1.2mtpa until the end of the next decade.
1,800
1,600
Copper production ('000t)
1,400
1,200
1,000
800
600
400
200
0
700
600
400
300
200
100
All of its production is currently in Chile, with Collahuasi (44% Anglo American) in
the north and Anglo American Sur (Los Broncos and El Soldado) located around
Santiago.
Source: SNL
1,000
900
800
Source: SNL
Steel
According to the World Steel Association (WSA), an average ICE vehicle consumes
around 900kg of steel, and thus it estimates the auto industry globally consumes
around 80mt of steel per annum – a relatively small amount when put in context
with overall steel consumption of over 1.5bnt p.a. In contrast, BHP Billiton estimates
the amount of steel consumed in an average ICE family saloon at just 650kg. In our
modelling we assume an average of 750kg per ICE vehicle.
Breaking its estimates down into individual areas of the vehicle, the WSA states that
34% is used in the body structure, panels, doors and trunk closures for high-
strength and energy absorption in case of a crash. For the purposes of this
study, we assume this would be the same for an EV. We note that Tesla have
announced that the body and chassis of the forthcoming Model 3 will be steel.
23% is used in the drive train, consisting of cast iron for the engine block and
machine-able steel for the gears. The transmission from the gearbox to the
wheels is also largely steel. We believe that virtually all of this would be
eliminated in an EV as the wheels are driven directly by an electric motor at
each wheel hub.
12% is found in the suspension, using rolled high-strength steel strip.
The remainder (31%) is found in the wheels, tyres, fuel tank, steering and
breaking systems. For the purposes of this study we believe that this would
remain essentially the same in an EV, barring the fuel tank, which we assume
to be relatively de-minimis.
Overall we assume for the purposes of this report that the quantity of steel
represented by the drive train (23%) is eliminated in an EV. therefore, it appears
that an EV will, on average, consume between 207kg (WSA figures) and 150kg
(BHP figures) less steel that a conventional ICE vehicle. We take an average figure
of 170kg and therefore assume that an average EV consumes 580kg of steel. Our
model suggests that growth in overall ICE vehicle demand for steel will peak in
2032 at around 90mt. Growth in steel demand from EVs is expected to reach
around 16mt by 2035 which implies that overall steel consumption from light
vehicles grows from approximately 67mt to around 103mt in 2035. Our conclusion
is that the move to EVs represents minimal threat to steel demand, and therefore to
iron ore demand, in the foreseeable future.
100
80
60
40
20
0
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
ICE EV Total
The main threat to aluminium in the auto industry is from plastics and carbon fibre
but in this report we do not attempt to quantify the impact of such changes to
aluminium consumption.
Lead
We believe that the growth in EVs will actually have very little impact on overall
demand for lead for usage in lead acid auto batteries until 2030 at the earliest,
assuming that lead acid batteries continue to be the main power storage battery
used in ICE vehicles. Lead acid batteries need to be replaced relatively regularly;
hence we expect the existing ICE fleet will ensure that demand from this source
remains robust Our model indicates that demand from the auto sector may grow
from around 8.32Mt currently, to peak at around 10.7mt in 2032, before falling
slowly from then on.
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Given these numbers, and assuming for the purpose of this study that all new light
vehicles have the same autocatalyst we calculate that the average amount of
platinum in an individual vehicle is approximately 1.2g. While we assume this
number for modelling purposes we recognise that vehicles differ widely.
Gross palladium demand from autocatalysts is around 7.5Moz (2015), as shown in
Table 4 below. We therefore estimate the average amount of palladium in an
individual vehicle is around 2.6g – recognising that this is a simplistic approach (as
for platinum). Our demand analysis does not take into account factors such as
further thrifting and any further loss of market share by diesel engines, as these
factors are complex and subject to regulatory change.
1 The charts overleaf assume that PGM demand from all vehicles types are equally subject to the mix changes
affecting the automobile industry. In reality this will not be the case due to many factors affecting different vehicle
classes.
Note the charts below simplistically assume that PGM demand from all
vehicles types are equally subject to the mix changes affecting the
automobile industry. In reality this will not be the case due to many factors
affecting different vehicle classes.
5.00
4.50
4.00
3.50
Platinum demand (Moz p.a.)
3.00
2.50
2.00
1.50
1.00
0.50
0.00
12.00
10.00
Palladium demand (Mox p.a.)
8.00
6.00
4.00
2.00
0.00
A recent presentation by the World Platinum Investment Council (WPIC) states that
they expect penetration of “battery cars” to be “only 1.1% in 2021”. Our numbers
suggest that the proportion of EVs in the overall vehicle fleet is likely to be less than
0.5% by 2021 but that as a proportion of new sales EVs may represent around
1.2% by that date.
It is possible that the “long term clouds on the horizon” referenced in a recent
presentation (1st September 2016) by Impala Platinum CEO, Terence Goodlace,
may have been the threat from EV’s? However, Mr Goodlace went on to say that
such clouds will likely be offset by falling production and that underinvestment in
platinum mining is poised to result in serious constraints in platinum supply from
South Africa in the future. “There is just an absolute lack of investment in the
platinum industry. We’re not too far from 2020, 2021 and 2022 when supply from
this country is going to drop off a cliff.” His statement was reinforced by a
presentation containing the following chart showing Implats’ view of future SA
platinum supply.
Source: Implats
This chart indicates that South African platinum supply is likely to peak at just below
5Moz in 2024 and then fall to between 2moz and 3moz by 2035. If this proves to be
the case, the drop in supply will more than offset the fall in demand caused by EVs
which we estimate to be around 500koz per annum by 2035.
A recent presentation (24th November 2016) given by Anglo American during their
analyst site visit indicates that the company does not subscribe to a “supply cliff” but
it does show evidence suggesting overall production will decline after 2021.
Demand for platinum from the automotive sector is seen as essentially flat at just
above 3moz for the foreseeable future despite forecasting a CAGR for light vehicles
of 2.9% (higher than our assumption of 2.5%). We take this as meaning that Anglo
American expect substantial erosion of autocatalyst demand from various factors
such as the move away from diesel and further thrifting.
The demand picture for palladium appears slightly better than platinum as they
automotive demand is shown rising from just below 8moz currently to around 9moz
by 2025. Over the same time period, our analysis suggests demand rising to
9.1moz, so broadly in line. Again, this would appear to suggest that Anglo American
see platinum demand being disproportionately affected by the factors mentioned
above.
Lithium
We see no current alternative to batteries in EVs containing lithium in some shape
or form. Given its unique properties (lightness and reactivity) lithium will, we believe,
remain central to battery construction for the foreseeable future.
When considering the lithium market it is important to realise that this is essentially
a market in transition, and that such a transition has only just started. While copper,
lead and zinc have been used and traded for thousands of years, lithium’s primary
usage, lithium-based batteries, has only just emerged. As such it is very difficult to
establish where the price for battery grade lithium will settle, especially as lithium
forms such a small proportion of the cost of a battery overall. Arguments that the
price of lithium will revert to the middle of “the cost curve” are simplistic given that
nobody is yet sure what the cost curve will actually look like once demand has
matured. The rapid growth in demand for battery grade lithium hydroxide and
carbonate means that new supply is needed, and such supply may need higher
prices as an incentive. A true understanding of the lithium cost curve will evolve, but
only over the next ten years or so, in our view. It is also likely that two cost curves
will emerge – one for industrial grade lithium chemicals and one for battery grade:
as the two are very different.
The recent dramatic rise in lithium prices is testament to a rapid change in an
industry hitherto relatively unaffected by the EV revolution. The price chart below
illustrates this change1 and we believe it is a matter for considerable debate as to
whether prices will revert to their previous levels of around US$5,000/t. We see
such a reversion as unlikely given the material changes that are only now starting to
have a material effect on demand.
Source: TheAtlas.com
1
Most lithium is traded on a contract basis and such prices have not yet been affected as much as the spot price.
indicates that the amount of LCE in EVs varies between 40kg and 80kg. We model
three scenarios for EV consumption using 40kg as our low case, 60kg as our mid
case and 80kg as our high case.
It is challenging to model long term lithium demand from EVs as this is very much a
market in its infancy. We expect battery makers to become more efficient and hence
that the amount of lithium in an individual EV battery will fall over time. Consequently
we only model demand to 2025. Using BHP’s expectations for growth in EVs, and
Johnson Matthey’s figures from Figure 28 above, we expect that annual LCE demand
for EV batteries could rise from a current level of just over 16,500t to between 120kt
(low case) and 240kt (high case) in 2025, assuming that future EVs use the same
amount of LCE in battery packs. Given that current total supply of LCE (both battery
grade and industrial grade) is estimated at around 170,000t in 2016 (Source:
Benchmark Mineral Intelligence) this represents a significant supply challenge.
Further growth in EV demand would exacerbate this situation.
300
250
200
150
100
50
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
In our view the lithium market appears set to remain tight for the foreseeable future.
Such tightness may also be compounded by the growth in demand from power
storage batteries. The use of batteries to store power from intermittent power
sources such as wind and solar is currently in its infancy, but the recent decision by
the National Grid to install eight new lithium-ion storage batteries across the country
is illustrative of how quickly demand from this source could grow.
As demand increases, the mining industry will no doubt rise to the supply challenge,
but development of new deposits may require prices to rise further in order that
such projects receive the necessary incentive to come into production. As
mentioned before, only then can a realistic assessment of the true cost curve be
made. Supply could otherwise prove a material hurdle to the development of electric
cars should the market develop as fast as we expect. An orderly market needs
abundant supply in order to normalise, and it seems the current market is far from
steady state given the anticipated increase in demand. In this analysis we make no
attempt to predict the future price of lithium given the complexities of doing so. We
see the recent price rise in battery grade lithium carbonate and hydroxide as
symptomatic of a chronically undersupplied market. Given that we see a shortage of
supply for the foreseeable future we expect prices to remain well above historical
norms. In the case of lithium the historical price is no guide to the future given that
the market has fundamentally changed due to the rise of entirely new categories of
demand – electric cars and power storage batteries – which did not previously exist.
The cost of lithium itself is expected to remain a small percentage of overall battery
costs and therefore even if the lithium price itself rises dramatically, this will have
little overall effect. What is more important is that battery costs are driven down to
incentivise greater EV purchasing, as the price of the battery makes up between a
quarter and a third of the cost of an electric vehicle.
Source: Qnovo
Lithium production
Lithium occurs in three categories of deposit, all of which have their own
complexities regarding lithium extraction into useable battery grade form (lithium
carbonate or lithium hydroxide).
1 Lithium brines. Brine is essentially highly saline water which in some cases
contains lithium. The chemistry of such brines is all important as many have a
high magnesium or potassium ratio, making extraction of lithium much more
challenging and expensive. Brine chemistry is a crucial metric when
understanding the likely cost of extraction, especially in remote areas such as
the High Andes where most lithium brines are currently located.
2 Hard rock sources. There are several naturally occurring minerals (such as
spodumene and lepidolite) that contain lithium, but these are almost exclusively
some form of lithium silicate. Extracting metals from silicates is, generally
speaking, a difficult process and hence hard rock sources of lithium are higher
cost than brines.
3 Clays. The best known deposit of clays containing lithium is that owned by
Bacanora Minerals in Mexico. Clay minerals are in general more challenging to
treat.
Lithium brines
The production of lithium worldwide is dominated by supply from an area in the high
Andes on the border between Chile, Argentina and Bolivia which is known as the
Puna Plateau. The area is also known as the “Lithium Triangle” given that it is
estimated to contain 70 – 80% of the world’s currently known reserves of lithium
(Source: USGS).
Lithium in this area occurs in saline water hosted in layers of rock beneath large salt
pans which are locally known as “salars.” These structures contain highly saline
water (or brine) which has been enriched in lithium and other elements such as
magnesium and potassium. Due to the lack of rainfall this environment is an ideal
location to construct large ponds where brine can be concentrated by evaporation.
The product from such ponds includes lithium, potassium salts (such as potash) and
borates. The brines in this area have challenging chemistry: with the main obstacles
being the following.
1 High magnesium content. Magnesium must be precipitated using lime before
lithium extraction can occur. Disposing of the residues left by this process can
be challenging in an environmentally sensitive area. The average magnesium
to lithium ratio of the raw brines in the Atacama region is around 4:1 which
means that magnesium must generally be precipitated before lithium can be
extracted.
2 High potassium content. Potash is sold as a by-product, as are potassium
sulphate and borates. The average potassium to lithium ratio of the raw brines
in the Atacama region is around 9:1 which means that a potassium by-product
is generated. The economics of lithium production in such areas is therefore
partially dependent on the sale of the potash by-product.
The map below shows the general location of the lithium salars in Argentina but
serves to illustrate the regional setting.
Figure 35: Salars in NW Argentina
Source: Orocobre
In addition to this region being very remote, substantial areas are classified as a
“special place” by the United Nations Environment Programme (UNEP) and hence
are of a particularly environmentally sensitive nature. The following map shows the
area where the majority of lithium production takes place (outlined by the red ellipse
in map below – Figure 36). The purple coloured overlay shows the area defined by
UNEP as a “Protected Area.”
Source: SNL
In our view a dramatic expansion of capacity from the “Lithium Triangle” area will
take many years given the following factors, which are in addition to the problems
relating to brine chemistry outlined previously.
1 The current necessity of building large evaporation ponds means that there is a
long delay before brine is ready for treatment (up to two years). Finding suitable
surface areas for such ponds can be challenging given the need for such areas
to be totally flat. Evaporation ponds must be lined with a plastic membrane –
which also represents a considerable logistical challenge.
2 Environmental concerns. Waste products have to be disposed of in an
environmentally friendly way, especially in UNEP areas.
3 The Puna Plateau is relatively remote; hence getting power, fresh water and
process chemicals (such as slaked lime) to site can be a logistical challenge.
In our view, the biggest challenge to the widespread adoption of electric cars will be
sourcing sufficient lithium. The industry has a few years before demand rises
significantly but even in the interim sourcing sufficient supply is expected to be a
challenge. We believe that the mining industry will rise to this challenge but that the
resulting cost curve may be very different from the curve as currently understood.
Toyota
VW
GM
Honda
Hyundai-Kia
Renault-Nissan
Ford
Fiat
Daimler
BMW
Source: Forbes
Toyota
Toyota appears to have recently changed its strategy on pure electric vehicles, having
previously focussed purely on hybrids and fuel cell vehicles. Reports indicate that the
company is considering launching long-range EVs by 2020 and that it is developing a
more advanced battery specifically for EVs.
Toyota has made considerable effort towards creating the “ultimate eco vehicle” with
zero emissions, and has two active programs called Optimal Drive and Hybrid
Synergy Technology. The company is considered a pioneer of hybrid vehicles which
currently make up around 14% of sales. Although Toyota currently appears reliant on
hybrids, its new Prius Prime relies more on the electric motor as a PHEV, showing a
gradual electrification in the range. In a wider statement, the company said: “Toyota’s
ambition to develop and build the ultimate eco-vehicle, which emits zero harmful
emissions and has no negative environmental impact, is at the forefront of our efforts.
Our innate curiosity to engineering and design problems, paired with world-leading
innovation and manufacturing standards will make this dream a reality, and today, we
are already taking large steps forward with our Optimal Drive and Hybrid Synergy
Technologies. If we pursue our efforts, we believe we will fulfil our ambition to create
such a vehicle. ... But there is much more to do, and there is much more to come from
Toyota.”
Toyota has also suggested that sales of gasoline and diesel engine vehicles will be
near zero by 2050, implying a 100% move to EV long term.
Volkswagen
Volkswagen appears increasingly determined to make EVs centre stage of its
strategy to restore its brand and the company now aims to produce one million
electric vehicles by 2025. Volkswagen’s initial BEV offering was the “e-up!” which
premiered at the 2016 Geneva Motor Show. This is Volkswagen’s first fully electric
vehicle. Until this point Volkswagen mainly focussed on hybrid vehicles.
Volkswagen recently stated that there will be up to 30 electric or plug-in hybrid
vehicles (BEVs and PHEVs) in VW Group’s range by 2025, through the investment
of Euro10bn. The company also stated that electric vehicles, self-driving vehicles
and shared ownership would play a major role in VW’s future and that they aspire to
sell one million EVs by 2025.
VW recently unveiled an “affordable” electric car at the Paris Motor Show, claimed
to offer a range of around 373 miles (600km) on a single charge. The vehicle is
targeted to be on sale in 2020, with a self-driving version available in 2025.
General Motors
General Motors have outlined plans to launch the all-electric “Bolt EV” by the end of
2016. This will have a range of approximately 200 miles and is expected to sell for
around US$33,000. Predicted sales are between 30,000 and 80,000 units in 2017.
This follows on from GM’s incredibly successful Chevy Volt which proved to be the
Nissan Leaf’s biggest rival.
Source: Forbes
GM boasts that half of its 8,600 designers and engineers are involved in alternative
and electric propulsion systems, illustrating the commitment towards electric and
hybrid vehicles. Each year through 2020, GM projects that 40% of its global sales
will come from new models, most likely EVs.
Honda
Until recently, Honda has appeared largely out of the EV race, but the company has
recently launched a program called Clarity with planned hybrids and electric
vehicles. An all-electric version of the Honda Clarity has a planned release in 2017.
Following the Volkswagen scandal, Honda’s CEO released a statement in February
2016 stating that the company wanted partially or fully electric vehicles to account
for two thirds of its global sales by 2030.
Hyundai
Hyundai has developed hybrid models in the past, but has recently launched the
“Ioniq” as a hybrid and as a pure electric vehicle.
Figure 40: Hyundai Ioniq
Source: Hyundai
The company also recently announced plans for a second electric vehicle with 200
miles of range to be released in 2018, said to be a luxury electric vehicle produced
under its Genesis brand.
Kia
Kia has achieved success in Europe with its first fully electric vehicle, the Soul EV.
Global sales had exceeded 10,000 by January this year.
Figure 41: Kia Soul EV
Source: Kia
The partnership between Hyundai and Kia plans to reinvent the Soul EV for a second
release in 2017, ensuring a longer driving range between charges. The two
companies also plan a “grand electrification plan” in order to leapfrog other
competitors. This would involve the possible release of 26 new hybrid, fuel cell and
EV models by 2020. Kia-Hyundai aims to become global number 2 for electrified
vehicles, behind Toyota.
Renault-Nissan alliance
The Renault-Nissan alliance is generally considered the world’s leading electric
vehicle manufacturer and Nissan states that it is the “world leader in 100% electric
since 2010” – given the spectacular success of the Nissan Leaf. As of December
2015, the Leaf was the world’s all time bestselling highway capable plug-in electric
vehicle. By 2015 the model had seen sales of 200,929 worldwide since 2010. The
Renault-Nissan alliance committed $5.2bn to its EV and battery development
programs, attempting to become the leader in zero-emission transportation. As of
August 2013, Nissan confirmed plans for 5 plug-in vehicles including the Leaf,
Infiniti LE, Nissan E-NV200 and two further models.
At the recent Paris Motor Show Renault unveiled a redesigned version of its Zoe
electric car which can travel 250 miles (around 400km) on a single charge.
Source: Renault
Renault also exhibited their new all electric concept car, the Renault Trezor. While
only a concept, this car is illustrative of a complete rethink by conventional auto
manufacturers seeking to offset the “Tesla factor.”
Source: Renault
Ford
Ford announced in late 2015 that it will invest $4.5bn into EV development, but is
generally seen to be lagging other vehicle manufacturers in EV development. Ford
initially released a Focus Electric but this was poorly received. In 2016, Ford
appeared to take a backwards step by releasing a plug-in hybrid, the Fusion Energi,
rather than an all-electric model. The company released the following statement:
“Ford – the No. 1 seller of plug-in hybrids for 2015 and year-to-date 2016 – is
leading the way in raising awareness of the advantages these vehicles offer.” Ford
recently stated that it would add 13 electric vehicles and hybrids to its line-up by
2020, which will represent 40% of its current range, up from 13% currently.
Fiat Chrysler
Fiat Chrysler CEO Sergio Marchionne has voiced doubts about electrification and
how profitable such vehicles might be. Bob Lee, the head of Fiat Chrysler’s global
powertrain said that the company will continue to focus on adding more diesel
options and will downsize engines instead of heading into the EV market. The
company has said it will not invest in wholly electrified powertrains until consumers
are willing to “step up and pay for the technology.” Lee estimated that it could be a
decade until Fiat thinks that buyers would be willing to pay the cost.
This said, Fiat recently unveiled the 500e which is an all-electric vehicle (BEV). The
Fiat 500e was very well-received, but is yet to be released outside California.
Daimler / Mercedes
As evidenced by the company website, Daimler has until recently espoused a
cautious approach to electric vehicles – believing that the internal combustion
engine “will continue to be the backbone of mobility.” The company also states that
they are “advancing the hybridization of our vehicle fleet on our path to all-electric
mobility.”
Daimler plans to invest Euro14.2bn in the next two years, half of which is to be
spent on research and development. Daimler recently restated its objectives and
now plans more than ten electric cars by 2025 – split between its Mercedes and
Smart brands.
In May 2009 Daimler acquired an equity stake of 9.1% in Tesla, with the aim to work
together on EV’s, but disposed of its stake in 2014 netting a capital gain of
US$780m.
Mercedes unveiled a fully electric vehicle at the recent Paris Motor Show under the
name “Generation EQ.” This is intended to be the first vehicle in what is intended to
be a whole new electric sub-brand. Mercedes now state that they expect EVs to
represent as much as 20% of their worldwide sales by 2025.
Source: CNN
Daimler’s Smart brand also revealed a new vehicle at Paris. This is apparently the first
electric car available as a convertible and will be available in the US by the end of
2016. Smart also plan a four seat option which will be called the ForFour.
Source: CNN
BMW
BMW stated in mid-2015 that it had plans to convert all its models to electric over the
next decade and recently stated that it targets selling over 100,000 EVs in 2017. In
2013 it created a sub-brand called BMWi, specialising in electric vehicles. Under this
brand BMW has created the all-electric BMW i3 and the PHEV i8.
Source: BMW
So far, BMW i3 sales have not lived up to expectations and only 25,000 such
vehicles were sold in 2015. Recent announcements by Board Member Froehlich
suggest that BMW will now focus on developing autonomous driving vehicles, in
competition with Tesla, through “Project i Next.” The third vehicle in the electric
BMWi range has been delayed until 2021. BMW stated recently that they are ahead
of competitors and are now on “phase two” of their electrification strategy.
During the recent Paris Motor Show BMW Board Member Ian Robertson claimed
that new legislature is changing the automotive landscape, forcing all automakers to
push for more EVs. “We’re all facing a legislative framework around the world which
is going in one direction and almost converging on the same spot. Within the mix of
vehicles for the foreseeable future, you will need to have a good proportion of zero-
emission vehicles.” (Source: BMW Blog)
Porsche
Porsche’s Mission E represents the company’s efforts to develop the first 100%
electrically powered Porsche, deemed “a new chapter in the history of the sports
vehicle”. Although Porsche has developed some plug-in hybrids in the past, such as
the Panamera SE Hybrid, this would be Porsche’s first venture into the BEV market.
Porsche plans to spend $1 billion on the development of Mission E, stating on their
website that “the first 100% electrically powered Porsche is on its way.”
Source: Tesla
The Model 3 already has a twelve month order book, (Source: Tesla October 2016),
testament to the mass market appeal of this vehicle, and Tesla ambitiously projects
that Model 3 sales will triple between 2020 and 2025, with a target of 500,000 sales
in total by 2025.
Tesla’s proactive model of installing superchargers at key locations is likely to
speed up adoption rates, given that such chargers are capable of delivering a full
charge in around thirty minutes. The launch of the “Gigafactory” in Nevada is aimed
to ensure adequate supplies of batteries to cope with the company’s ambitious
vehicle sales targets.
Google
Google is widely reported to be planning a self-driving vehicle, which is likely to be
all-electric. Sergey Brin, one of Google’s co-founders, forecasts that Google will
have driverless vehicles on the market by 2018 at the latest, having tested the EV
driverless vehicles out with Google employees. The autonomous vehicle market has
different dynamics to that of the electric vehicle market as autonomous driving is
likely to take many years to achieve widespread adoption.
Apple
After much media speculation it now appears uncertain whether or not Apple will
develop cars itself, or supply electronic systems to OEMs.
Source: BYD
Great Wall
Great Wall is China’s largest SUV manufacturer and has invested heavily into EVs. In
2010 the company showcased an all-electric SUV at the Guangzhou Auto Show,
showing an early commitment to the electrification of larger vehicles. Additionally,
Great Wall recently announced that it would be selling its C30 sedan as a pure-
electric vehicle, to be launched at the end of 2016. The company recently raised
$2.7bn in a private placement to fund research and development of new energy
vehicles.
Brilliance
Brilliance is undeerstood to be the eighth largest vehicle manufacture in China.
Notably the company has a joint venture with BMW (BMW Brilliance) which
produces and sells BMW vehicles in China.
Brilliance is due to release an electric version of its popular V3 SUV over the
coming months. Given that ICE version of the V3 accounted for around 50% of SUV
sales in China it is expected that the all-electric model will prove highly popular.
BMW-Brilliance recently announced the opening of a new engine plant in China
which is also expected to produce lithium batteries for new EV models.
Chery
Chery is a state owned auto manufacturer and is ranked around 10th by market
share. The company is the largest Chinese exporter of passenger vehicles. The
Chery eQ EV was the 5th highest selling pure electric vehicle in China in 2015, with
sales of 7,262 vehicles.
The company is in the process of establishing itself as a key player in the Chinese
EV arena and aims to boost its annual sale of EVs to 200,000 by 2020: up from
14,000 in 2015. In 2016 Chery began work on a new plant in China that is said to be
capable of producing 60,000 EVs a year.
Geely
As part of the company’s “Blue Geely” initiative, Geely aims to achieve 90% of sales
in the category of “new energy” vehicles by 2020, 35% of which will be pure electric
vehicles. This would make Geely the first company to reach the Chinese
government’s energy directive for 2020. The announcement came a day after the
launch of Geely’s first electric vehicle- the Emgrand EV.
All this said, Geely’s chairman recently questioned the viability of the EV market in
China, suggesting it could take a couple of years before the market entirely
accepted EVs
Geely also has plans to make its EVs more available and popular in Europe and
North America. In 2010 Geely acquired Volvo from Ford and is now using Volvo’s
designers to give their brand a more global appeal.
Forbes recently reported that Geely will soon launch an “affordable premium” brand,
with cars initially available in the U.S. and Europe.
LeEco
Chinese automaker LeEco recently raised US$1.08bn specifically to develop an
electric car called the LeSEE. The company has already invested around US$1.8bn
in a new electric car plant in eastern China with the aim of producing around
400,000 vehicles per year.
Figure 51: LeSee Concept Car
Source: TechCrunch.com
Japan.
EV usage in Japan has been slowly growing since 2009 and the fleet of EVs is now
the third largest in the world after the US and China. However the recent decision
by the Japanese government to promote hydrogen fuel cell vehicles has recently
caused growth to slow. The Japanese government has set a target of two million
slow charging points and five thousand fast charging points by 2020.
South Korea.
South Korea has proved a rapidly expanding market for EVs, both in terms of
production of vehicles and in terms of domestic purchases. Given that the country is
now the fifth largest automobile manufacturer globally, this should not be a surprise.
The government has made a big push to provide charging stations in key locations
and is giving tax incentives for the purchase of EVs. Electric vehicles still account
for a low percentage of overall auto sales domestically (0.2% in 2015) but the
government expects to see this grow to 5.3% by 2020. Kia has proved to be the
success story, with its Soul EV being the highest selling electric vehicle in Korea,
followed by the Samsung SM3 ZE. Kia and Hyundai have set themselves a target of
26 electric vehicle (PHEV and EV) models by 2020 and are targeting a No.2 market
share globally in EVs.
India
The Indian government has placed a high priority on improving air quality by
becoming more focussed on electric vehicles, ultimately targeting 100% electric by
2030, with 6 million EVs sold by 2020. Such targets are daunting, and probably
unachievable.
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persons) is a director or officer of the company, The analyst (or connected persons) has a holding in the subject company,
The analyst (or connected persons) has traded in the securities of the company in the last 30 days. Investec Australia
Limited holds 1% or more of a derivative referenced to the securities of the company. Investec holds a net long position in
excess of 0.5% of the total issues share capital in of the company. Investec holds a net short position in excess of 0.5% of the
total issued share capital of the company. The sales person has a holding in the subject company.