Apple, Samsung hungry for lithium, cobalt but supply an issue
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Cobalt markets are gearing up for a severe supply shortage. Waldo Swiegers
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by Jessica Sier
Lithium tends to bask in the glory brought on by the world's new-found enthusiasm for what goes into batteries.
However, its fellow component in all things electrical (be they laptops, smartphones, aircraft parts, prosthetics...), cobalt is gearing up for its time to shine.
"If you look at the constituents of a battery, cobalt's the one that's hardest to solve, in terms of supply," says Julian Babarczy, head of Australian equities at Regal Funds Management.
"Even though the demand and future is there, it's quite a difficult one to play, there are very few listed entities, but the story is a good one. So we've had to look down the value curve at some companies that look like they could make it into production."
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Li-ion battery growth and how it impacts global cobalt demand
But those companies are few and far between.
Where does it come from now?
Cobalt is mostly a byproduct of nickel and copper operations, with only 6 per cent of global supply stemming from primary cobalt mines. The Democratic Republic of Congo has the biggest operation and accounts for roughly 60 per cent of global cobalt production.
However, the dangerous conditions of the Congo mines have earned the nickname "conflict minerals" or "blood metals" and Amnesty International recently released a damning report highlighting the conditions of children labourers in parts of the DRC.
Amnesty went on to point out that Chinese companies, easily the biggest demand for the commodity and which provide 52 per cent of refinery production, buy the bulk of cobalt from these unsafe and unethical mines and then onsell to mobile-phone and laptop makers such as Apple and Samsung Electronics.
"It's been a headache for those electronics guys who are now looking around to find other cobalt suppliers," says Ben Cleary, portfolio manager at TriBeCa Capital. "It's an important element in their products and 49 per cent of the cobalt market goes into rechargeable batteries." Where else can we get it?
Aside from the very few pure cobalt plays, the remaining 94 per cent of global supply hinges on the developments in nickel and copper markets.
But unfortunately development has been slow as the prices of nickel and copper are languishing at multi-year lows and have seen the forced closure of company's like Clive Palmer's Queensland Nickel and Panoramic Resources' Savannah mine in Western Australia in recent years.
"It makes it hard for investors because cobalt demand is forecast to grow at a greater rate than copper and nickel demand," says Mr Cleary. "It means an excess amount of primary metals will need to be mined and refined in order to meet the world's growing cobalt needs. One sort of has to rely on the other."
But the demand story is a compelling one, with some analysts expecting global demand for refined cobalt will exceed the 100 kt mark next year and could exceed 150,000 tonnes by 2025.
"The increasing popularity of Li-ion batteries in electric vehicles and a range of modern electronic devices leads us to forecast cobalt demand for these applications to grow by 8 per cent per annum for the next five years," says Edward Spencer, mining and metals analyst at CRU in London.
"If mining and refining capacity growth fails to keep pace we could see a considerable deficit opening in the market before the end of the decade."
These impressive demand figures haven't flowed through to the price as of yet. While lithium prices have soared from about $US5000 to $US20,000 per tonne in China, cobalt prices during the last two years have ranged between $US13-15/lb ($17-19.50/lb or $34-40/kg).
While gold, silver and some base metals have rocketed higher as markets contemplate unconventional monetary policy, cobalt hasn't managed to find its peaks of $US50 in 1977 and prior to the global financial crisis in 2008.
"Cobalt isn't undersupplied just yet," says Regal's Mr Babarczy. "But given what we think the battery demand will do, I think there's a good chance projects will get financed." How to invest
Investors could once get exposure to cobalt through nickel and copper shares, however as those markets languish, a few opportunistic miners are plotting to exploit cobalt rich deposits.
One such play is ASX-listed Clean TeQ which has a scandium deposit in central New South Wales. The stock was bumbling along at 17¢ for most of the year before it became clear there was great potential stemming from its nickel and cobalt potential.
"We think it's the most exciting and the most advanced," says Mr Babarczy, who has invested in the Australian company. "It's not a tiny project and they've got pretty big aspirations, but there's very few projects out there in the world at this stage and the bulk of it comes from places people don't want to go to."
Billionaire Canadian investor Robert Friedman has taken an almost 20 per cent slab of the company's stock and is a vocal proponent of the cobalt story. TriBeCa Capital is also exposed to the cobalt story, but in Canadian explorer eCobalt Solutions.
"I'm not sure what it is with cobalt companies and terrible names," says Mr Cleary. "But this company's Idaho Cobalt Project remains the sole primary, advanced stage and near term cobalt deposit in the US."
The company has already spent $100 million on drilling and feasibility studies and during the last cobalt commodity price rally the stock was fetching around $6.60 a share. But since then has slumped back to around 60¢ a share.
"The cobalt market is a bit slower than the lithium market and it takes a bit of work to find a way to gain exposure," says Mr Cleary. "But rechargeable batteries are only going to be in higher and higher demand, so it makes sense for us."
CLQ Price at posting:
58.0¢ Sentiment: Buy Disclosure: Held
(20min delay)