Following the wise words of a visionary like Jobs, before peering into the future and envisioning what could become an insatiable demand for
Cobalt we must look to the past.
What is Cobalt? And where did it come from?
According to
Wikipedia,
Cobalt is a chemical element with symbol “Co” and atomic number
27.
Cobalt-based blue pigments (Cobalt blue) have been used since ancient times for jewelry and paints.
Like nickel and copper,
Cobalt is found in the Earth’s crust only in chemically combined form, except for small deposits found in alloys of natural meteoric iron.
Known as just a silver-gray metal since
1735, it wasn’t until the turn of the twentieth century (
1907 to
1913), thanks to the work of Elwood Haynes (an American inventor, metallurgist and automotive pioneer) that
Cobalt begins to be used as a suitable metal in the forming of
Cobalt-chromium alloys. This important alloy was and is characterized by high strength and pronounced strain hardening.
As the
1930s roll in
Cobalt alloys are more widely used in construction because of excellent corrosion resistance.
Fast forwarding to today, over a period of
282 years
Cobalt has evolved from merely a metal into a “special and critical” metal required for manufacturing advanced technologies like jet engines and lithium-ion batteries.
Recognizing a great opportunity…
Some people can and some people can’t.
Take Peter Buffett for example, Warren Buffett’s son.
When Peter was
19 Buffett blessed him with an inheritance in the form of
Berkshire Hathaway (NYSE: BRK.A) stock, about $
90,000 worth (or $
250,000 worth today). A good chunk of change however we break it down.
At the time Buffett said:
“Here is what you are getting. You can do whatever you want with it but there’s not going to be any more.”
What do you think young Peter did when he got his hands on what would become the best performing stock of all time?
…go on, take a guess.
He sold it! And spent the cash on music equipment! Had Peter recognized the opportunity and held onto his
Berkshire stock $
90 thousand would have turned into more than $
75million, like magic!
But hindsight’s
20/
20.
Perhaps Buffett should have given Peter more information about what the gift represented, but after reading his biography “The Snowball”, I know his parenting methods were, how should I say this— standoffish. Buffett would lock himself in the office for days at a time researching businesses and industries.
Bottom line, Buffett wasn’t the world’s most hands-on dad, but he did become known as the world’s greatest investor (which isn’t a bad consolation prize).
Ultimately, those thousands of hours spent studying and pondering helped him see things that others couldn’t see, and capitalize on that vision.
I hope you didn’t mind that little story about Peter and Warren Buffett, but I wanted to share it with you because there are a few valuable lessons within it (one being the power of compound interest).
The billion dollar question is…
Could there be a
Berkshire Hathaway-like opportunity buried within the “special and critical” metals industry just waiting to be discovered?
Heck, albeit we’d both be thrilled to uncover a stock that does a fraction of what Berkshire did.
Now I’m no Warren Buffett, but after locking myself in the office for many hours to read articles and academic journals, in addition to talking with industry experts, I’d like to think I’ve learned a few things about
Cobalt. And I’m happy to share my findings with you, so if you’ve stuck with me this far, congratulations! Almost all the great stock pickers of the world have a voracious appetite for knowledge and a willingness to read. Therefore, if you wouldn’t consider yourself a great investor just yet, you’re definitely on the right track so stay the course!
Getting back to the business of
Cobalt, arguably the most important “special and critical” metal…
5 of my big picture findings regarding Cobalt are below:
1. By
2020, it is expected that
75% of all lithium-ion batteries will contain
Cobalt. Why’s that? It’s because
Cobalt is the most important metal for increasing the energy density of lithium-ion cathodes.
2. The United States has depleted its stockpiles of
Cobalt and is almost completely dependent on politically unstable countries such as the Democratic Republic of Congo for supplies. In fact, the entire world depends on politically unstable countries for more than half of its
Cobalt needs.
3. Cobalt prices increased
60% last year, from $
10 to over $
16 per pound. Strangely enough, this new bull market has received almost no coverage from the mainstream financial media.
4. A growing list of modern and advanced technologies rely on
Cobalt, but as of now there is no great alternative.
5. Approximately
22 kilograms of
Cobalt are inside one “
Tesla Model S”.
Bloomberg’s New Energy Finance group forecasts more than
300 million electric vehicles (EV) will be on the road by
2037.
Assuming each EV needs
22 kilograms, like a
Tesla Model S does, we would need
6.6billion kilograms of
Cobalt to be mined between now and then.
Herein, the question becomes…
Is there enough Cobalt to meet ever-increasing demand?
First off, it’s important to realize more than
90% of all
Cobalt production is a byproduct of mining nickel and copper.
Therefore, the overall supply of
Cobalt tends to rise and fall with the price of nickel and copper. When the price of those metals are up miners extract as much as they can, and
Cobalt production rises. Conversely, when the price of nickel and copper is low miners extract less, and
Cobalt production decreases.
The image below is very busy, and honestly, I had a difficult time interpreting the charts, but overall it provides some insight into which countries are the dominant producers and how a shift in production affects the supply of
Cobalt.
Image Courtesy of “The Journal of Economic Structures”
As far as I can tell, from the image above, the supply of
Cobalt changes significantly between the three scenarios with the different contributions from each region, but there isn’t much change in the regional pattern for nickel and copper supply.
According to the study referenced which you can
read here,
Cobalt recovery rates from nickel and copper production vary between
25% and
80% depending on deposit type. Assuming an average recovery rate of
60%, the authors anticipate
Cobalt supply will be sufficient to meet demand going forward.
Is Mr. Market waking up to the fragile supply-demand situation for Cobalt?
That said, supplies of this “special and critical” metal, a necessity for electric vehicles and lithium-ion batteries, can be constrained for reasons such as political instability, anti-mining policies, and trade restrictions. Additionally, supplies could be constrained by a lack of mineral resources and a mismatch between demand and available production capacities.
Image Courtesy of “Visual Capitalist”
At any moment, a drop-out of one major African
Cobalt supplier could swing the supply-demand equation into a deficit virtually overnight. Perhaps Mr. Market is waking up to this fragile situation and will continue bidding up the price of
Cobalt. Historically speaking, the high is over $
50 per pound, so while prices are up
60% year over year, at $
16 they’re still closer to a valley than the peak.
Given the “need” for this “special and critical” metal required for jet engines, lithium-ion batteries and electric vehicles, just to name
3 things that are kind of important, my gut tells me– you should be acquiring stocks that offer exposure to
Cobalt.
In my view, savvy speculators will be overjoyed for the opportunity to buy the best of the best
Cobalt assets into any weakness for years to come.
In the
1,254 words above and
6 images above I hope to have provided you with a solid foundation of knowledge regarding
Cobalt that you can build from.
(20min delay)