Why Speed to Cobalt Production Matters…and Why 20% can be Better than 100%
The recent announcement by CLQ highlights “acceleration” of the Sunrise project. Like many other CLQ announcements, it indicates a sense of urgency to complete Sunrise. I share that sense of urgency.
Several readers have expressed indifference to speed to production. They do not consider it so important a factor. The attitudes of these readers have been expressed by remarks like: “It doesn’t matter who is first”; “”There is room for more than one supplier”; “It’s not a race”, and the like.
Normally, I would agree with them. Long-term projects usually do not succeed or fail based on whether they open six months, or a year, or maybe even two years early or late.
But the situation in nickel-cobalt-scandium is not normal. It is an unusual because there are no primary cobalt or scandium mines, the largest country supplying cobalt is in political turmoil, and world demand is accelerating.
Being early in any production endeavor has a real benefits of earlier income and cash flow. But I am not interested about a shift in normal income from one period to another. I am interested about the potential windfalls that will accrue to being first-mover in cobalt.
These advantages of being first vary and depend on the target commodity and market conditions.
Variables on “first mover advantage” include price environment at the time of productive capacity; the price behavior of the commodity, the impact of new supplies onto the market, how long the first mover has the field to himself, and how much business they can get while in that position, and the options of buyers to go without the commodity or find substitutes. Allowing for these, here is my opinion on the potentials for first mover advantage in the ni-co-sc space:
NICKEL…I see no particular first-mover advantage in nickel sulfate.
COBALT…potentially a windfall profit advantage. Likely to be of major financial benefit.
SCANDIUM…major strategic advantage in the scandium by being first. Being first is likely to result in the best off-takes in aviation and aerospace. In scandium, it is apparent (to me, anyway) that CLQ has a major head start: They have superior research, preparation, technology , patents, experience, and contractual and client relationships. They are in the lead in every major area of mine construction. Other than those few things (!) they do not have much of an advantage.
But let us put scandium aside for the moment, for those who are doubtful of it potential and its timing.
LET US FOCUS ON COBALT.
Many people sense an impending supply shortage because of accelerating demand against tight supply. We have already seen cobalt go from $14 to $40. I agree with this view, and I expect price increases in cobalt I decline to venture a guess about the timing or price values, or the length of time; other than to opine, that it will occur prior to new cobalt-oriented suppliers coming on line.
At some point the cobalt supply situation will become critical, resulting in price increases and supply shortages.
In that case, the first new supplier who can has UNCOMMITTED cobalt sulfate is going to reap a massive windfall. Phenomenal profits could be made. The precise amount of the windfall can only be thought about; no predictions can be made with confidence. Your calculator works as well as mine does.
It might be only for a few months, or six months, or a year. Maybe two years. Who knows ?
While the precise benefit cannot be known at present, I suggest it is potentially a large number.
You will have to make your own back-of-the-envelope calculations. For example, take your favorite cobalt project and see what an extra $10,000 or $20,000 or $50,000 dollars a ton might mean.
It would be handy to have that money a year earlier to develop and build something.
Conversely, a different company might be able to acquire a strategic asset, or pay for a mine capex, from the cash flows of being first to market in cobalt.
Cobalt first-mover windfall could be reasonably expected to have an impact on the stock price, cash flow, profitability, capex repayment, and the ability of the seller to further improve and strengthen its position, however it sees fit.
COMPETITION FOR FIRST MOVER ADVANTAGE IN COBALT: Why 20% is better than 100%
In the last few weeks there has been a lot of discussion on timetables and who is “in the lead.”
I can acknowledge all the positive aspects CLQ’s competitors. Maybe one of them can even complete
their project before CLQ completes theirs. But with respect to the first mover advantage in cobalt, I am
indifferent to a competitor that has ZERO UNCOMMITTED PRODUCTION.
The timely completion of a project with 100% off-take matters very much to the stakeholders of that company; but it doesn’t matter to anyone else, because that company will not have available cobalt to sell.
Question: Who will call a resource for cobalt sulfate that has a 100% off-take agreement ?
Answer: Nobody. They will call a supplier who has uncommitted, available cobalt sulfate.
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