Electric cars

Anglo American’s venture capital spin-off seeks investors to join in the hunt for fuel cell energy start-ups

AP Ventures, with US$200 million worth of assets under management, launches new fund to target investments in renewable energy-related projects

PUBLISHED : Sunday, 30 September, 2018, 11:16am
UPDATED : Sunday, 30 September, 2018, 9:27pm

AP Ventures, a venture capital fund manager recently spun off from the world’s largest platinum miner Anglo American, is on the hunt for global investors including Chinese to buy into its new US$100 million fund seeking early exposure to the emerging fuel cell electric vehicles industry.

The London-based AP, which manages US$200 million worth of assets, will also deploy the new fund in other renewable energy-related projects, besides investment themes related to scare resources and the ageing population, said partner Kevin Eggers.

“We are open to a broad range of investors and have a number of prospective Asian investors in our data room now, including Chinese strategic investors involved in the fuel cell vehicles supply chain,” he said in an interview with South China Morning Post.

AP Ventures was formed in July this year, with Anglo American contributing US$55 million in cash and six investments from a five-year-old venture capital unit worth US$45 million, while South Africa pension fund manager Public Investment Corporation has put in US$100 million cash.

With the advent of electric vehicles and announcements by various nations to phase out fossil fuel use in the next two decades, Anglo American has been funding start-ups that will bring about new demand sources for platinum, whose biggest demand is currently internal combustion engine vehicle exhaust emission abatement units.

We are open to a broad range of investors and have a number of prospective Asian investors in our data room now, including Chinese strategic investors involved in the fuel cell vehicles supply chain
AP Ventures partner Kevin Egger

In fuel cell vehicles, platinum electrodes are used to turn oxygen and hydrogen into electricity.

“It was part of an innovative drive to find new sources of demand, and for Anglo American that included funding new research and development and sponsoring demonstration projects … to some degree putting money where its mouth is,” Eggers said.

He considers China’s potential as a fuel cell vehicle market and manufacturer of great interest to AP Ventures, and that the nation has showed strong capability in lowering the cost of complex manufacturing through scale expansion – something badly needed for the mass commercialisation of fuel cell vehicles.

While both fuel cell- and battery-powered electric vehicles both have zero roadside emission, fuel cell models can be refuelled in around seven minutes and a full tank can run 500 to 1000km, advantages similar to those offered by fossil fuel vehicles that battery ones cannot match.

Still, the high cost of fuel cells, which produce electricity through the reaction of oxygen with hydrogen leaving water as a by-product, has hindered their mass commercialisation.

Globally, only 6,475 hydrogen fuel cell passenger vehicles have been sold between 2013, when they were first commercialised, and the end of last year, according to market research firm Information Trends.

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Of that total, over half were sold in California and the bulk of the remainder in Japan. Toyota accounted for 76 per cent of global sales, followed by Honda’s 13 per cent of Honda and Hyundai’s 11 per cent.

According to new energy vehicle portal, seven Chinese firms produced 1,226 fuel cell-driven commercial vehicles last year, and combined central and local government subsidies per passenger fuel cell car could reach as high as 400,000 yuan, compared with 1 million yuan for commercial vehicles. In contrast, pure battery electric vehicle sales grew 59.6 per cent last year to 652,000 units.

In the passenger car segment, plug-in and pure electric cars accounted for 2.1 per cent of total sales last year. Beijing has slashed cash subsidies and planned to eliminate them by 2020.

The Society of Automotive Engineers of China says there is potential to be building 5,000 fuel cell vehicles by 2020, rising to 50,000 in 2025, while its 100 hydrogen refuelling stations could be tripled to 300 in the five years by 2025.

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Fuel cell vehicles was mentioned as a key area of development in Beijing’s “Made in China 2025” economic development strategy as part of the nation’s new energy vehicles ambition, with “small scale regional deployment” in cities by 2025, but no production target has yet been announced.

They are more suitable as commercial vehicles such as buses and trucks due to their high usage, which make them more economically viable, considering the high initial investment costs.

Some Chinese companies are moving into the nascent industry by acquiring foreign technology.

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Shandong province’s diesel engine and heavy truck-maker WeiChai Power in August agreed to buy a 19.9 per cent stake in Canadian fuel cell maker Ballard Power Systems for C$163 million (US$125.24 million), set up a joint venture to make fuel cells, and paid C$90 million to acquire Ballard’s technology.

Weichai has committed to build at least 2,000 fuel cell modules for commercial vehicles in China by 2021, which Ballard claimed was the “largest announced planned commercial fuel cell vehicle deployment in history globally”.

AP Ventures has made a six-fold gain on its roughly C$30 million disposal of Ballard shares this year, Eggers said, adding its funds are aiming for a return rate of 25 per cent, akin to top quartile performance of venture capital funds globally.

If fuel cell vehicles were to achieve a 1.5 per cent share in the global passenger vehicles market, and based on the US Department of Energy’s target of platinum usage of 12.5 grams per car in 2020, it could generate a platinum demand of 760,000 ounce that year. Last year’s global platinum demand was 8 million ounces.

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Those projections come from the World Platinum Investment Council, whose backers include Anglo American and South African miner Lonmin. Fossil fuel vehicles use 3 to 10 grams each.

The council’s chief executive Paul Wilson told the Post in a separate interview that it has this month struck a deal with precious metals distributor Shenzhen Hengfu Yingjia, whose 10 outlets will sell platinum coins and bars, as part of the council’s effort to develop China’s investment market.

The council was also in “advanced discussions” with a “very large Chinese oil company” which is expected to soon start a business to sell platinum bars to its several million employees. The oil firm concerned is said to be consumer of platinum as a catalyst used in its refineries.

The council has also been discussing with the Shanghai Gold Exchange about launching platinum coins and a cash-settled platinum contract, he said.

Platinum prices have fallen to their lowest in a decade as a result of worries about falling demand of diesel cars in Europe, but Wilson said the metal’s long term demand outlook is positive thanks to fuel cell vehicles development.

According to London-based international speciality chemicals and sustainable technologies provider Johnson Matthey’s forecast, global platinum demand may fall 2.4 per cent this year to 7.77 million ounces.

It fell 2.5 per cent last year due to a steep fall in investment bar sales in Japan, besides lower demand from Chinese jewellery makers as gold jewellery gained market share.