Nathan Hunt: This is the Essential Podcast from S&P Global. My name is Nathan Hunt. I was reminded looking at the commitments and goals coming out of the COP26 meetings in Glasgow that the energy to transition depends on more than just our good intentions. It depends upon elements. Some of these elements are familiar to anyone with high school chemistry under their belt. Comfortably nestled at the top of the periodic table, carbon and hydrogen tend to grab the headlines. But as we dig deeper to understand how green energy is produced we find ourselves down in the basement among the rare earth or platinum group metals. These are the elements of the energy transition.

Nathan Hunt: In this series I'm reviewing some of the obscure elements of the energy transition to understand where they come from, how they are rendered usable and how the markets value these elements. Today we will be discussing iridium. As always, I am joined by Terence Kooyker, Founder and CEO of Valent Asset Management, a fund that invests in metals related to the energy transition.

Nathan Hunt: All right, Terence, welcome back to the Essential Podcast, I'm glad you can join me again. I am of course, obliged by journalistic ethics to reference the fact that you are my brother-in-law and so we do have that personal connection.

Terence Kooyker: Thank you, Nathan. Glad to be here again.

Nathan Hunt: So let's dive into it again. We are back with the elements of the energy transition. You suggested iridium for our second element of the energy transition. I know and appreciate your great affection for platinum group metals, but why did you specifically think we should be talking about Iridium? What is it used for in the energy transition?

Terence Kooyker: Iridium is important to speak about in this series because of how much a percentage of that market is going to be consumed by not just green tech, but also by other technological developments we see to address the environmental crisis that we have now. It's a wide range of uses that can apply to both cleaning it up traditional pollution sources, but also for generating green energy. You know, one of the most relevant uses for this is that iridium can be used as a coating for cathodes and anodes in hydrogen electrolysis. So Iridium has the property of being highly corrosive-resistant, and that's very important for the oxidative environment that exists in hydrogen electrolyzers.

Terence Kooyker: One of the other uses, and when I spoke about traditional technologies that could use some cleaning up, when most people think about gasoline vehicles, they think about the catalytic converter serving the biggest purpose in making it more environmentally-friendly. And that also involves platinum group metals of which Iridium is one, but it's mostly rhodium, palladium and plat.

Terence Kooyker: In the front of your car in the engine, they coat the tip of the spark plugs with Iridium. And this can really improve the mileage and fuel efficiency. Basically, the dispersion of the spark that you get from a well-made spark plug that has as a good Iridium coating, really reduces the amount of unburned fuel and therefore reduces the emissions from gasoline vehicles.

Terence Kooyker: I also mentioned environmentally-friendly technologies away from pure green energy production. And the one that comes to mind is how Iridium's being used to reduce the environmental impact of the shipping industry. One of its uses is in technology to address ballast water treatment. So the IMO, which is the International Maritime Organization, recently passed policies that said ships over certain tonnage need to purify their ballast water before dumping it overboard. This happens frequently actually.

Terence Kooyker: So the problem being often from a ship that unloads at one port it'll take ballast water on there and then dump it in another port. So it introduces, sometimes, foreign bacterial species into the water. So we have now is this requirement of having the ballast water treatment and it's a electrolytic chlorination treatment. And that's the technology that accounts for the third of the world in salt systems right now. And it uses iridium-coated electrodes to produce basically diluted sodium hydrochloride, which is a disinfectant inside the ballast water. Like I said, that's not necessarily in green energy production, but it does fall into the camp of trying to have less of an environmental impact from the traditional industry that we have now.

Terence Kooyker: And then aside from the theme that we've been addressing on these is iridium is also important for the rollout of the 5G industry. Iridium is used for making crucibles to produce SAW filters in 5G communications. And SAW filters is basically the mechanism in your phone that takes electromagnetic waves and makes it into sound so that you can actually hear it. The iridium crucibles are used for making a lithium tantalate, which is a precursor to the SAW filter. And so that's really another area, like I said, not necessarily pertaining to our environmental focus, but one that we see a lot of expansion for demand, for Iridium.

Nathan Hunt: There's a lot of talk about hydrogen as an alternative fuel source or a store of energy. You said that iridium is useful in hydrogen electrolyzers. What is it about the technology behind hydrogen electrolyzers? That requires something that is as corrosion-resistant as iridium?

Terence Kooyker: In electrolyzer, you are necessarily making a highly corrosive environment for any metal. And that's generally when you have contact with oxygen. The reason that that's so attractive to have something highly corrosive-resistant is basically the trade-off for the downtime that you would have to take your electrolyzer offline to replace those electrodes. And so by using iridium, and actually, this is one area where there's potential substitution with ruthenium, generally they will tend to use an alloy of the two. When you have something that resistant, it just means more uptime and less maintenance.

Nathan Hunt: So that leads me to my next question. And I'm going to use a little of the jargon that you taught me in our last podcast. My question is what could I use instead of iridium if the price got too high, can I thrift away from iridium?

Terence Kooyker: Impressive, you have been listening. Thrifting, very good. The problem with these new technologies is, well, I shouldn't say problem. There's great benefits to these technologies, but we're relying more on the quantum and atomic properties of elements. Whereas with something like the energy complex, your options are in manipulating the molecular bonds that you find in any of the hydrocarbons and you can produce different products. So obviously from raw food, you can get heated oil, diesel, jet fuel, naphtha. With the technologies that are being developed for green tech, they're relying on the quantum and atomic properties, and that makes it a lot harder to find substitutes. It also makes it so that these technologies are centered around the very specific atomic properties of these metals. And for iridium, it's the density and resistant to high temperatures that makes it so valuable for certain applications that it's used in. Really, the unique property that they're leveraging in iridium is that it is so dense, in fact, it's the most dense element aside from Osmium.

Terence Kooyker: And the reason for that is that the actual radius of an iridium atom is very small for the amount of mass that's in there. This happens basically because the f electron orbitals are contracted at the N 5 and N 6 level because they're not well-shielded from the attractive force of the nucleus. I know that's technical, so forgive me. That's the mechanism by which both iridium and osmium become the most dense elements.

Terence Kooyker: It means that I don't want to say there's no way to achieve substitution for these things, but it's a lot more difficult. Touching on what we spoke about before with the trade-off in the hydrogen electrolyzer for example, yes, you could have substitution, but then you're going to introduce more downtime, you're going to introduce a lower resistance to corrosion. That plays into the cost-efficiency, even when there's a large increase in price in an element like iridium. So it's not just the actual cost of the raw material, but then everything else that goes into the cost of running the equipment or the technology that you've put it in, such as the downtime, the lever involved in switching it out, etc.

Nathan Hunt: Terence, I just want to clarify for the sake of our listeners, that you are the co-founder and the CEO of Valent Asset Management, which is an asset management company that, among other things, trades in elements like iridium. My question is, do you think it is necessary for someone who is trading in these elements to have the level of technical knowledge that you have?

Terence Kooyker: I do because of how specific the demand side can be. And what I mean by that is when one of these elements is consumed by 80% of a certain industry or a certain technology, the risk of the downside, like we spoke about is substitution. And if you can then identify those potential areas for substitution or even ways that each element could be put to use in other technologies, it gives you more of a longer foresight into what's out there. So my reading pleasure is basically metallurgical journals. The other aspect of these metals is that even when you can note something in metallurgical research, it's another, best case, four to five to 10 years before that becomes commercially viable.

Nathan Hunt: Okay, Terence. Fun historical fact, in 1803, British scientist, Smithson Tennant discovered two new elements, osmium and iridium while analyzing the residue leftover when platinum was dissolved in assets. Tennant named one of the new elements iridium after Iris, the Greek goddess of the rainbow, I gather that iridium is sort of rainbow colored. We've established that iridium is useful in industrial usage. And also, in the energy transition, is osmium useful as well?

Terence Kooyker: Osmium is a very small market. One of the other issues, it's a highly toxic as well. And so while they are mined together, osmium is not something we even trade at Valent. It's main use is actually still as an alloy with iridium. After it's been alloyed, it's used on pen tips. It's not still toxic then, so don't worry about that. Osmium is a difficult one because it oxidizes quickly and there's a very low level of commercial use.

Nathan Hunt: All right, iridium is one of the nine least abundant stable elements in the Earth's crust. I want to get a sense for how much iridium there is on Earth, is there enough iridium to fill a football stadium? Enough to fill a bread box? What are we talking about?

Terence Kooyker: In terms of the Earth's total mass, there is... I don't want to say there's quite a lot of iridium, because it's about two parts per billion, but nobody's going to go out and start an iridium mine for the specific purpose of targeting iridium because it's not going to exist in high enough concentrations to make that profitable. We have iridium production largely because of platinum and palladium production. We're quite lucky in that regard because nobody would target specifically iridium. The best way to contextualize is, right now, annual production for iridium is around 200,000 to 250,000 ounces. The annual production of platinum is around 6 million ounces, depending on mine outages, etc.

Terence Kooyker: In terms of like filling some sort of area, this is also one of what I find interesting things about iridium is that because it's so dense, you actually don't have much area for the amount of weight that you mine. Just for another comparison, lead is about 6.5 ounces per cubic inch, and let's consider it a heavy metal and iridium is 13 ounces per cubic inch. So you have just a cubic inch of iridium. You're holding about 0.8 or so pounds in your hand, which means that you're compacting quite a lot of weight in a small volume. It's about 17,000 cubic inches per year for production. So you could probably get that in the back of your car.

Nathan Hunt: So where would I find iridium in the world?

Terence Kooyker: So the vast majority is mined in South Africa. I mentioned it being a byproduct of platinum and palladium and that's really where you'll find these associated metals too. There are other PGM mines in the world, but they have a smaller amount of the minor PGMs, which would include rhodium, iridium, ruthenium and of course, osmium. So really it's dependent on South Africa. Much earlier this year, even at the end of here, a lot of South African production was either taken offline or caught in South Africa because of COVID concerns. And that actually highlights a big concern for even many governments now, that some of these elements that are so critical to the energy transition are highly geographically concentrated. And it's not just relegated to something like iridium, it's also true for rare earths, China, constituting about 90% of the production. So it's not only the scarcity of these metals. In general that's a concern, but also the geographic concentration and the vulnerability to any sort of outages in these areas or any sort of unstable government organizations there. You introduce a lot of country risk into trying to source these very important raw material inputs.

Nathan Hunt: Terence, I want to get a sense for how sensitive the iridium market is to world events. So for example, there has been in the news recently, the development of this new omicron variant of the coronavirus that was first spotted in South Africa and among other countries. Immediately, there were some travel restrictions introduced around South Africa. Have you seen any effect from those actions on the price of iridium or on the sort of larger basket of platinum group metals?

Terence Kooyker: That was seen not so much with this latest variant, but with Delta, for sure. And also when COVID first hit, we saw that. And obviously in that period, Q1 or so 2020, the initial reaction was to then discount or put into the price the potential demand shock. But pretty rapidly, what we found in a lot of these metals is that it wasn't necessarily the demand that was going to get hit, it was going to be the supply and the logistics of moving those raw materials to wherever their demand source was. It's been more muted with this most recent development in COVID.

Terence Kooyker: And I think that's largely because people now know how to have enough safety measures in place to still keep the transportation and logistics going. Certainly, the bottlenecks that you see in certain raw material inputs and then also just what you see in general, even with finished products now. That took a long time to start dissipating that bottleneck, although we are seeing signs of that now as well. LA port was backed up, the ships' on anchor in LA port. And also in some other key hubs were highly elevated for a long time and that starting to come off now.

Terence Kooyker: The benefit of some of these high value per volume metals is that if you have a flat rate box, you can pretty much get iridium some place. So it's not as difficult as something like iron or... But when the world didn't really know how to deal with the initial stages of COVID, it did make for a lot of supply bottlenecks. You know, especially not just in the transportation, but also in the mining of it because you're not doing your workers any favors by sending them down to a confined space when there's a global pandemic.

Nathan Hunt: Speaking of high value, rare usually means valuable. So how does the value of iridium compare with the other platinum group metals?

Terence Kooyker: I will say rare means valuable as long as there's demand. In terms of [inaudible 00:17:55] abundance, it might be rare, but if there's no demand for it, then the actual notion of value of it doesn't have to be that expensive. That said though, iridium is one of the more expensive platinum group metals. It also exhibits a much higher volatility than the others. Coming into 2019 to 2020, it was trading around $1,500 an ounce. From December 2020 to April 2021, it went from around $1,600 an ounce to $6,300 an ounce. And that was what I was referring to when we start to see some of the logistical constraints really holding back supply.

Terence Kooyker: Since then it's come off again, it's probably about $3,500 now. I think what we saw in that market was a bit of a supply related shock that really drove the price up. And generally, that will then also mitigate the downside on this because as companies build out the technology that'll utilize iridium, they're going to want to hold inventory, they're going to want to hedge their exposure and mitigate the impact of what could be a four-fold price increase. I would expect that now we start to see some more hedging in some of these more minor metals.

Nathan Hunt: Let's talk about the platinum group metals in general. Are the market values of these metals highly correlated since they would tend to be part of a basket? If you can explain sort of the logic of them being a basket of metals.

Terence Kooyker: Basically, when you mine for platinum group metals, I think what a lot of people have in their mind is that is like the old-timey western mines for gold and someone coming up with a big chunk of metal. That is not what happens with platinum group metals. They're very finely dissolved in a very small seam. I've had visited a bunch of South African mines and you basically take an elevator straight down into the Earth for about a mile to a mile and a half, take another half a mile walk, and you find yourself in a seam that's... You're definitely not standing up, you're you're crawling on your hands and knees another 50 meters to where the actual seam is. And what you find is that there's a layer of rock that's a little bit lighter, but is anywhere from a foot to two feet high and you don't see any chunks in there, there's just platinum group metals dissolved in there.

Terence Kooyker:

So much so that even when you are done with the refining process, you don't get something like an ingot, you get what's called platinum or palladium sponge and it essentially looks like dirt. And if they tried to sell you jewelry that looked like that nobody would wear it. In every bit of ore that you're taking out of the ground, you're getting what's either the 4E or 6E basket. They categorize that as the 4E is the platinum, palladium, rhodium and gold. And then if you add in iridium and ruthenium, that becomes the 6E basket. While they are correlated in terms of their production profile, that does not necessarily mean that their prices are correlated well, either. And that's a result of the fact that they come out as a basket.

Terence Kooyker: So for a very long time... Just to use a tangible example, for a very long time, platinum was the main component of a catalytic converter, and then technology was developed so that palladium could be substituted in. And this was when platinum was multiples the price of palladium. As palladium slowly started being substituted in for platinum, and this took over a decade, you saw palladium get more expensive relative to platinum. To the point where, presently, we're looking at about $2,000 for palladium and $920 per ounce of platinum.

Terence Kooyker: The reason this occurs is that the miners really focus on the biggest revenue-generating metal in their mines. And when you base your cost structure on platinum and or palladium, your byproduct metals are just going for the ride. And there might be zero demand for iridium or ruthenium, but it's coming out of the ground anyway. And so you see this in a lot of these very esoteric markets. It's very prevalent dynamic in rare earths as well because those two come out as just a basket. And the ones that are really the most expensive and the ones that are in demand are not the ones that are in the highest relative abundance. So if you're mining rare earths, and you're going in there for the expensive ones like dysprosium and gadolinium, you're also going to be producing more cerium and lanthanum them. And as you oversupply those, it'll drive the price down. So even with increase in price of your byproduct metals, you might not be making up for the oversupply of your less in demand metals.

Nathan Hunt: So let's take a hypothetical, let's say that Eurozone committed to converting 50% of all their energy usage to hydrogen over the next five years. Not realistic, but let's say they did it anyway. And I was a savvy investor and I knew how important iridium was for hydrogen electrolyzers, and I believed that this action was going to increase the price of iridium. How would I take a long position in the market?

Terence Kooyker: Essentially, as of now, there's no alternative besides actually taking physical possession. That has to do with how small the market is. Obviously, there's no derivatives for some of the metals that do come out with it. So the other platinum group metals, you'll have tradable futures, that's the case for platinum and palladium. Or you'll have ETFs, that's the case for rhodium. But with something like iridium, it's really just taking physical delivery and that's pretty much it.

Nathan Hunt: When we talked about dysprosium last time, we talked a lot about processing. For platinum group metal processing, is that also confined to certain countries or companies?

Terence Kooyker: That largely takes place in South Africa and or Russian, for Norislk. From the producers themselves, what they'll do is they'll refine it down to the sponge material. And then that sponge material is what is distributed to consumers. Largely for commercial purposes, consumers will prefer the sponge and especially for catalytic converters.

Nathan Hunt: Terence, thank you so much for joining me on another essential podcast to talk about elements of the energy transition. And I'm going to ask you a final question, put you on the spot a little bit. What will be our next element of the energy transition?

Terence Kooyker: I will tell you. I think we have to do gadolinium, not just because it has a cool name, but because it really ticks all the boxes for the green energy transition. It's one of the most magnetic elements on Earth and the importance for offshore wind for EVs is undeniable.

Nathan Hunt: Well, I will look forward to our next interview to talk about gadolinium. Thank you so much for joining me today.

Terence Kooyker: Thank you.

Nathan Hunt: The Essential Podcast is produced by Molly Mintz with assistance from Kirk Berger and Camille McManus. At S&P Global, we accelerate progress in the world by providing intelligence that is essential for companies, governments, and individuals to make decisions with conviction from the majestic heights of 55 Water Street in Manhattan. I am Nathan Hunt, thank you for listening.