Investment Matters

IGO and the Four Humors

The Theory of Four Humors (phlegm, black bile, blood, yellow bile) first appeared in a fifth century BC treatise titled The Nature of Man.

In this work Polybus, a student of Hippocrates, first elucidated the idea that human health can be attributed to four humors: phlegm, black bile, blood and yellow bile.

Good health was defined as an appropriate balance and mixture of these humors and disease was thought to result from the imbalance and separation of these humors.

Lithium, cobalt, nickel, and manganese constitute the four humors of the battery revolution.

These are the four critical elements currently used in the chemistry of lithium-ion batteries.

Battery development has involved the careful balance of these (and other) elements in the search for the most efficient, energy dense and low-cost battery.

With the energy revolution increasingly underway, these minerals are becoming a vital part of how we are likely to power our grids and vehicles to ensure the health of our planet.

We focus on three of these four humors in exploring IGO Limited, a recent addition to client portfolios.

IGO Limited: a green metal miner

Who are IGO Limited?

IGO Limited owns a 100% interest in the Nova project, which produces Nickel, Copper and Cobalt and has a 30% interest in the Tropicana gold mine.

The company has recently been involved in several transactions that have transformed it into a pure green metal miner.

In December of last year, the company announced the acquisition of a 24.99% interest in the Greenbushes Lithium Mining and Processing Operation and 49% interest in the Kwinana Lithium hydroxide plant.

Client portfolios have long held an exposure to lithium through a successful position in Mineral Resources (recently exited), which was sold as its price ran ahead of our price target.

Greenbushes provides an ideal substitute: it is the world’s largest and lowest cost hard rock lithium asset, constituting 21% of global supply in 2019 (Source: IGO).

Furthermore, this week IGO announced the divestment of its 30% stake in the Tropicana gold mine.

The result is a company that provides an undervalued exposure to metals that are at the heart of the energy transition.

Greenbushes is the largest and lowest cost lithium mine in the world.


Source: IGO limited

Why green metals?

Green metals are likely to benefit as the adoption of electric vehicles increases and as batteries play a larger role in the electricity grid.

There is potential for strong increases in demand in coming years as the penetration of electric vehicles increases.

While changes in consumer preferences, battery technology, urban planning and government policy mean that an increase in demand is not predestined, we see a moderate allocation to these metals as reasonable.

Through investment in Sandfire and IGO limited client Australian Equities portfolios have an exposure to battery related metals of approximately 3.5%

There is significant attraction in investing in a pure battery metals producer in the current environment.

Many of the large miners trade at elevated prices and offer a mixed exposure to commodities. This mixed exposure means investors are forced to take the “good with the bad”, in the case of BHP and Rio Tinto, significant risk that iron ore prices will fall as well as direct exposure to oil prices and thermal coal.

We have instead looked to invest in cheap exposure to metals that have the potential to benefit from positive trends over the next decade.

Clients will note their portfolios also maintain an exposure to oil. We have however, looked to invest in companies that benefit from oil demand in the near term but can pivot into other areas as the energy transition occurs (Worley and Origin provide examples of this).

These are companies whose futures are also likely to be intertwined with the development and use of green metals, as the world transitions to renewable and sustainable forms of energy.

The Four Humors of the Battery Revolution


Lithium is currently the life blood of the battery revolution, with lithium ions at the heart of modern-day batteries.

The element is unique in its physical and chemical properties: it can conduct electricity and heat and while being low in physical density (light weight) and high in energy density.

Lithium salts dissolved in a mixture of solvents (electrolyte) form the core of the modern-day battery. These salts dance between the other core parts of these batteries: the anode (composed of graphite or graphene) and cathode (composed of lithium, cobalt, manganese and nickel) as batteries discharge and recharge.


While there are many hard rock and brine (seawater) lithium deposits, only a few are of commercial value.

Australia holds 18% of the world’s economic lithium resources, which are predominantly located in Western Australia and is responsible for 47% of the world’s total supply (Source: Geoscience Australia).

Approximately 95% of these resources occur within only five deposits: which include Wodgina and Mount Marion (owned by Mineral Resources) and IGO’s Greenbushes Mine.

Future supply and demand dynamics

Batteries, particularly those use in electric vehicles are key driver for lithium demand, with a significant amount of lithium produced for automotive applications.

While battery chemistry is ever changing, Lithium remains an essential component.

While estimates of the future penetration of electric vehicles vary widely (between 15-50% vs 6% currently) the upper end of estimates sees the demand for lithium increasing by an order of magnitude by 2030.

Furthermore, current resources, that is, all current known projects, can only sustain a penetration of approximately 22% (Source: UBS).

Grid scale and home batteries add to future requirements for lithium and are increasingly being recognised as a critical part of an electricity grid that is being transformed by renewable energy.

This creates a dynamic which we see as favourable for future demand and potential for deficits in supply unless price incentivises further exploration and investment.

Without further investment, a significant supply shortfall could eventuate (50% penetration scenario).
Source: UBS


Cobalt is currently a component in the cathode of lithium-ion batteries.\

The first batteries developed were lithium cobalt oxide batteries – which to this day still have the are used in consumer electronics (mobile phones, laptops etc).

However, Cobalt is a relatively rare and the most expensive of the battery minerals, with its supply concentrated in a few regions.


Known Cobalt reserves are highly concentrated in a handful of regions of the globe.

An estimated 72% of Cobalt production is thought to originate from the Democratic Republic of the Congo which is home to 51% of the world’s reserves.

Australia is estimated to constitute 3% of supply, however, has 20% of global Cobalt reserves.

Global Cobalt Reserves are concentrated in a handful of geographies.
Source: USGS, UBS

Future supply and demand dynamics

Reliance on the Congo for supply comes with a significant number of issues, including ethical and humanitarian issues surrounding mining practices.

This is compounded by the considerable political instability in the region as well as significant Chinese influence and presence in the region.

These issues create a dynamic where suppliers are increasingly look for ethical and independent sources of supply. They also result in an elevated probability of supply disruptions and price volatility.

The potential for rising demand and fragility in supply therefore creates favourable dynamics for pricing in the future.

Nickel (Yellow bile)

Nickel has a long history of use in batteries, such as in Nickel-cadmium and Nickel Metal Hydride batteries.

Battery suppliers are Increasingly adding more nickel to Lithium-ion cathode chemistry. Nickel serves as a substitute for Cobalt, while also lowering costs and improving battery performance.


Although use in batteries is increasing, 73% of Nickel supply is currently used to create stainless steel. However, growing use in batteries could see this fall to 57% by 2030, with 30% of Nickel consumed for use in batteries (Source: Macquarie Research).

Currently, higher grades of Nickel are required for use in batteries than stainless steel.

Battery grade Nickel (Sulphide Ores) is largely found in Australia, Canada and Russia and constitutes approximately 40% of supply (Source: UBS).

We have recently seen a significant premium paid for this higher-grade ore as electric vehicle sales have accelerated in 2020.

Future supply and demand dynamics

Future demand is sensitive to not only the adoption of EVs, but further changes in battery chemistry.

This is shown in the chart below. It is expected that electric vehicles will increasingly incorporate higher amounts of Nickel, represented by the blue columns where nickel is expected to make up 60% and 80% of cathodes, respectively.

Current estimates see that demand for Nickel, in a scenario where EV’s reach a penetration of 50% by 2030, would more than double (Source: UBS).

This results in a dynamic where from approximately 2025 onwards, a significant increase supply or technology to convert lower grade ore may be required to meet this demand.

Cathodes are increasingly incorporating higher amounts of Nickel
Macquarie research
Source: Macquarie Research


With the energy transition well under way, battery metals are becoming more and more critical to achieving a low carbon future.
In a market where the large miners offer a mixed and expensive exposure to materials, the addition of IGO Limited bolsters exposure to metals that are likely to benefit from the move towards a greener future.