TSX wins race to the pole with battery metals index

Here’s another example of an opportunity lost by Australian financial regulators, led by the ASX.

After allowing the Singapore Stock Exchange to set up futures contracts in iron ore and Australian premium hard coking coal, the regulators have ignored the opportunity to use Australia’s leading position in key battery minerals such as lithium, nickel and to a degree, cobalt, to set up a futures market in index form.

The ASX and S&P have made a big deal recently of the exchange’s new Australian Agribusiness Index and yet a battery minerals or green metals index would be far more forward looking with considerable (self-evidently) scope for expansion.

So Canada’s Toronto Stock Exchange (TSX) has filled the obvious gap and launched a battery metals index of its own to support the critical minerals sector and offer investors, users and producers insights into the energy transition – an importantly the ability to trade.

It is an index built with S&P Global, which run the ASX’s indices here (as well as the S&P 500 on Wall Street and many other market measures around the world).

The S&P/TSX Battery Metals Index will track Canadian-listed companies engaged in the production and exploration of metals used in the making of batteries that power electric cars or are used in renewable energy, including copper, nickel, cobalt and lithium.

“Global demand for battery metals continues to gain momentum and the goal of this new benchmark is to provide investors increased exposure to, and deeper insights into the cleantech and energy transition story,” Loui Anastasopoulos, chief executive of the Toronto Stock Exchange, said in a statement.

The new benchmark’s top five constituent firms are Turquoise Hill Resources (Being taken over by Rio Tinto), Teck Resources, Sierra Metals, First Quantum Minerals and Lundin Mining.

Other companies are Ero Copper, Hudbay Minerals, China Gold International, Copper Mountain Mining and Taseko Mines.

(By way of contrast a sample of Australian companies involved in an Australian index would include BHP, Rio, Newcrest, Mineral Resources, Pilbara Minerals, IGO, Evolution, OZ Minerals, Lynas Corp, Iluka, maybe Chalice Mining, Cobalt Blue and perhaps Galileo (it might be a bit early for that one).

With larger and more globally known companies Australia’s index would have a better chance of becoming a global standard.

But the ASX seems stuck in the time warp of changing CEOs and dealing with the much-delayed blockchain-based post-trade network, which was initially set for go-live in April 2021 but is now 2 years at least late).

An ASX green metals (or imitation battery metals index) index would open up huge hedging possibilities for miners, processors and end users, battery companies, EV makers, other suppliers and speculators.

But as the AFR reported this week, the ASX is struggling to meet deadlines for dealing with changes needed after its shocking one day outage in November 2020.

The AFR reported “The second independent expert report on ASX Ltd’s work to assure the corporate regulator it has fully resolved the issues that caused market chaos when trading was halted for a full day will miss a key deadline.

“Independent Expert, EY released its second report measuring ASX’s work to address an action plan put in place by IBM after the November 2020 market outage, concluding that while the market operator continues to make good progress, it will need to revise the delivery timetable,” the AFR reported.

The ASX seems snowed under and it’s no wonder that Toronto’s exchange has stolen a march on what is obviously going to be a gold mine, if well supervised and credible.

At a time when the London Metal Exchange is now facing two separate legal actions over the nickel trading debacle in March, there is a wide-open opportunity for a well-run, credible index that addresses the green future.

The TSX said there had been a noticeable rise in listed companies raising money on the exchange to invest in renewable metals – the exchange reckons companies focused on critical and battery minerals accounted for more than 25% of the total equity capital raised by the exchange’s mining sector.

The Canadian government in its latest national budget allocated $C3.8 billion for critical minerals exploration, processing and use to help the country’s net zero by 2050 goal.

The index involves TSX and TSXV listed mining companies which are involved in production and exploration of battery metals Cobalt, Copper, Graphite, Lithium, Manganese, Molybdenum, Nickel, Palladium, Platinum, Zinc. Weighting is 80% divided equally among companies involved in production and 20% divided equally among companies involved in exploration that are not involved in production.

Turquoise Hill with a current value of $C13.45 billion is the biggest, followed by Teck with $C13.41 billion. Will Rio be allowed to enter the index when it wraps up its $US2.7 billion offer for the 49% of Turquoise hill it doesn’t control?

Wouldn’t that be ironic?