Cobalt angst will turn carmakers into mine owners

Henry Ford left little to chance. To ensure raw materials reached his slick new production lines, the U.S. automobile pioneer owned everything from coal mines in West Virginia to rubber plantations in Brazil. It’s a lesson for successors like Elon Musk and Volkswagen (VOWG_p.DE) boss Herbert Diess as they stake their futures on electric vehicles and hard-to-get battery metals like cobalt.

For EV makers, the blue metal is a double headache: it’s likely to be central to lithium ion battery packs for the foreseeable future, and three-quarters of it comes from a single, tricky place – the Democratic Republic of Congo. For Western manufacturers like Tesla (TSLA.O) and VW, that’s an even bigger pain: Chinese firms control well over half of cobalt output from the chaotic African state, accounting for more than 40% of the 130,000-odd tonnes mined globally each year. In the DRC, London-listed Glencore (GLEN.L) digs up most of the rest.

Currently, manufacturers rely on long-term purchase agreements for their cobalt, around 10 kilogrammes of which sits in the average EV battery. However, the scramble for Covid-19 vaccines has shown this is not without risk. The International Energy Agency thinks a carbon-free economy may mean cobalt demand rising 30-fold, dwarfing this year’s 60% price spike. And after falling victim to the global chip shortage, carmakers are hypersensitive to supply chain snafus.

Contemporary Amperex Technology (CATL) (300750.SZ), a $138 billion Chinese battery giant, took matters into its own hands last month when it paid $137 million for a quarter of China Molybdenum’s (603993.SS) Kisanfu copper-cobalt mine in the DRC. This yields multiple benefits. First, CATL gets a say in who buys Kisanfu’s cobalt, and in what quantities. Second, it can influence investment and production plans, crucial given that cobalt is mainly a copper by-product. And third, CATL acquires a handy hedge against cobalt prices going stratospheric.

Rather than buying a chunk of $57 billion Glencore, the equivalent for Musk or Diess could be stakes in DRC-focused subsidiaries like its 75%-owned Kamoto Copper Company, whose Katanga mine produced 23,900 tonnes of cobalt last year, or the currently shuttered Mutanda. If ownership alongside the Congolese government looks iffy, a safer alternative might be Murrin Murrin in Australia, which supplied a modest 2,900 tonnes of cobalt last year as a nickel by-product.

Musk already has Ford-esque (F.N) plans to unearth his own lithium in Nevada and methane in Texas, for SpaceX rockets. It’s a logical extension to do the same in Africa.

Follow @edwardcropley on Twitter

- Chinese battery giant Contemporary Amperex Technology (CATL) said on April 11 it was paying $137 million for a stake in China Molybdenum’s Kisanfu copper-cobalt mine in the Democratic Republic of Congo.

- Under a strategic partnership agreement, CATL subsidiary Ningbo Brunp CATL New Energy will take a 25% stake in China Moly’s KFM Holding, which owns 95% of Kisanfu, CATL said in a statement.

- China Moly said it and CATL would invest in the mine in proportion to their shareholdings in order to create a “world-class copper and cobalt producer”.

- Traded copper hit a record $10,747.50 a tonne on the London Metal Exchange on May 10, up 36% since the start of the year. Cobalt was trading at $45,185 per tonne, bringing its year-to-date gains to 40%. Cobalt’s all-time high is nearly $95,000 a tonne, scaled in 2018.