Cobalt Crisis

The cobalt producers would like the world to believe a crisis is unfolding in their supply chain.  Cobalt has become a crucial metal for lithium ion batteries and over 40% of total cobalt supplies end up in batteries.  Industry analysts have predicted cobalt demand will increase by at least 50% from 50,000 metric tons per year in 2016 to 80,000 tons by the end of 2020.

Few companies develop cobalt as a primary ore.  Only about 6% of cobalt is produced at dedicated mines.  Instead, it is produced as a by-product of nickel or copper mining.  Significant cobalt production is carried out in the nickel and copper mines of the Democratic Republic of the Congo, China, Zambia, Russia, and Australia. 

The cobalt price has surged in recent months, largely on new demand from battery manufacturers  -  or in anticipation of new demand.  There have been dire predictions of cobalt shortfall if production is not increased to meet the requirements from battery manufacturers.  Perhaps it is simply the location of current production that has the sector agitated.  About 60% of total annual supply comes from the Congo, which ranks as the poorest country in the world.  Poverty rarely makes for a stable political situation.

Several of the companies listed in the previous two posts are also involved in cobalt production.  Glencore (GLEN:  LSE) produces about 21,500 metric tons of cobalt per year and is the largest cobalt producer in the world.  Its first place position was aided by the acquisition of Fleurette Group for $960 million.  Fleurette produces copper and cobalt in the Congo.  Glencore got access to Mutanda Mining and Katanga Mining to boost its cobalt presence.

The China government owns part of China Molybdenum (3993:  HKEX).  China Moly produces about 9,300 metric tons of cobalt each year.  The company’s market share may increase with its 2016 acquisition of Tenke mine in the Congo.  Expect all of the Tenke production to end up on China.

Brazil’s Vale SA (VALE:  NYSE) produced 5,278 metric tons of cobalt in 2016, from its mine interests in Ontario and Manitoba, Canada.  All of Vale’s cobalt production is a by-product of its copper production.

The Congo is host to a number of foreign mining companies.  The local government also has interests.  Gecamines SA is a state controlled cobalt producer with an output around 4,160 metric tons per year.  It is also involved with several joint ventures with Glencore and Ivanhoe Mines.  Gecamines would probably not be the best choice for a cobalt play  -  at least not in the near-term.  Almost $750 million paid by international mining companies to the Gecamines over a three-year period are missing from the company's accounts.

Higher prices have brought new players to the market.  With higher prices the economics of mining for cobalt can be more easily justified.  Investor dollars are leapfrogging lithium and graphite opportunities to participate the cobalt market.  Quantum Cobalt Corporation (QBOT:  CSE) recently raised $1.0 million in new capital to move forward with a cobalt project in Nipsing, Ontario.  First Cobalt Corporation (FCC:  TSX) is another cobalt player exploring in Ontario, Canada.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.