Toronto Fund Manager Mentions Cruz in the Financial Post
CUZ:TSX.v | BKTPF:USA | A2AG5M:Germany
Cruz Capital Corp (CUZ—TSXv, BKTPF—OTCBB, A2AG5M--FSE) wishes to report that Toronto Fund Mangaer Steve Palmer was quoted in the financial post today and he mentions Cruz and cobalt. full article is here
http://www.financialpost.com/m/wp/investing/buy-sell/blog.html?b=business.financialpost.com/investing/buy-sell/still-opportunities-in-the-small-cap-space-this-fund-manager-says
“I think the sector was getting somewhat overheated, as a lot of junior lithium companies have popped up,” he said. “Many of them are promotional and most of them will fail, so we’ve transitioned the portfolio a bit from lithium to cobalt.”
Palmer states..."Another holding, Cruz Capital Corp. (CUZ/TSX-V), has accumulated quite a few properties that are prospective for cobalt, and will be initiating work programs on some of them shortly."
“The big issue with cobalt is that a lot of the production is out of the Democratic Republic of the Congo, but there are some issues there in terms of human rights,” Palmer said. “People are trying to avoid supporting that industry there, so the focus is on cobalt in legitimate jurisdictions like North America.”
The manager also noted that since cobalt is a by-product of copper production, investors can opt for a larger miner for their exposure to the commodity. The problem is these large mining stocks are primarily driven by the copper price or other base metals, not cobalt.
Since cobalt, like lithium, is used in rechargeable batteries, the demand for these commodities is growing significantly along with electrical vehicle usage and energy storage facilities.
Another very hot sector in the junior resource space has been marijuana stocks. It’s an area Palmer has largely avoided, as he is quite negative on the sector as a whole.
“I think investors need to be very cautious because these stocks are trading at crazy valuations, and there is nothing proprietary about the majority of them,” he said. “I believe they are all going to 10 cents within a couple of years, and it may happen sooner rather than later, when people realize these companies are not going to be as profitable as they thought.”
Palmer likens it to growing tomatoes. Companies are simply growing a plant, and the margins are going to get squeezed.
COBALT PRICES:
Yesterday Cobalt prices spiked up today $0.45 cents to year highs today at $14.06. Cruz is actively engaged in acquiring and developing Cobalt assets globally. Cruz has recently acquired numerous high grade cobalt assets located in North America. 7 cobalt projects are in Canada and 1 in Idaho, USA (please scroll down for more information). The goal of the company is to make Cruz the foremost cobalt project generator and developer on the TSX Venture Exchange. Management feels that cobalt is at the early stages of a significant bull market and we are pleased to be positioning Cruz at the forefront of this cycle.
dec 6.png
We also came across this good article regarding cobalt on seeking alpha.com...Tesla's Evolving Cobalt Nightmare.
http://seekingalpha.com/article/4027400-teslas-evolving-cobalt-nightmare
Summary
Long-range electric vehicles cannot be produced at relevant scale unless automakers have ready access to plentiful supplies of cheap high energy lithium-ion batteries.
All high energy lithium-ion batteries use more cobalt in their formulations than lithium.
While new lithium resources can be developed if prices are high enough, 94% of the world's cobalt is produced as a by-product of copper and nickel mining.
Without sustained increases in copper and nickel demand, the battery industry will not be able to obtain the cobalt it needs at anything approaching a reasonable price.
Without a miner miracle (pun intended), Tesla Motors' EV dream will soon become a cobalt nightmare.
Over the last 10 years, we've been deluged with news stories and investment analyses extolling the virtues of electric vehicles, or EVs, powered by high energy lithium-ion batteries. The stories pontificate on theoretical environmental benefits and speculate on how EVs could forever change the world's energy landscape. While the occasional realist questions the availability of enough lithium to satisfy soaring battery industry demand, everybody overlooks or ignores the more critical mineral constraint - cobalt.
It's a gargantuan challenge. A veritable Gigarisk!
This graph from BatteryUniversity summarizes the typical specific energies for nine different battery chemistries.
cobalt image dec 1.png
The six lithium-ion chemistries (orange columns) use varying amounts of lithium metal in their cathode and electrolyte formulations. While there is no single "right" value, a lithium-ion battery with perfect electrochemical efficiency would need 80 grams of lithium per kWh of capacity. Since perfection doesn't exist in the real world, the industry average is closer to 160 g/kWh.
According to Avicenne Energy, the lithium-ion battery industry used 118,000 metric tons of active cathode material batteries in 2014, which works out to an average of 2.4 kg/kWh. According to BatteryUniversity, LCO, NMC and NCA, the lithium-ion chemistries with the highest energy densities, all use cobalt in their cathodes. For LCO, cobalt represents 60% of cathode mass, about 1.44 kg/kWh. For NMC, cobalt represents about 15% of cathode mass, about 0.36 kg/kWh. For NCA, cobalt represents 9% of cathode mass, about 0.22 kg/kWh.
Avicenne expects global battery production to climb to about 135 GWh per year by 2025. Since Tesla (NASDAQ:TSLA), LG Chem (OTC:LGCEY), Foxconn, BYD (OTCPK:BYDDY) and Boston Power are all building new battery factories that will boost manufacturing capacity to over 150 GWh by 2020, Avicenne's forecast is probably conservative. For purposes of this article, however, I think conservative is best.
Supply and Demand for Lithium and Cobalt. My first table summarizes the (1) current annual global production (in metric tons) of lithium and cobalt, (2) estimated tonnage of each metal embodied in finished cells sold by battery industry in 2015, and (3) estimated tonnage of each metal that will be embodied in finished cells sold by the battery industry in 2020 and 2025 if battery demand grows at the modest rates forecast by Avicenne.
According to the USGS, the battery industry accounted for 35% of global lithium demand in 2015, or roughly 11,375 tonnes of refined metal purchases for 9,760 tonnes of finished product metal content. According to the Cobalt Development Institute, or CDI, the battery industry accounted for 41% of global cobalt demand in 2015, or roughly 40,600 tonnes of refined metal purchases for 35,200 tonnes of finished product metal content. While raw material scrap and shrinkage rates of 15% may strike some as high, they're actually pretty reasonable when one considers the complexity of converting refined metal feedstocks into finished battery products.
When I look at these numbers, I'm convinced that global production of lithium and cobalt must ramp very rapidly over the next few years if the battery industry wants to avoid insurmountable supply chain challenges. Unfortunately, both lithium and cobalt either co-products or minor by-products of other minerals and increased demand for lithium and cobalt may not be enough to move the needle for mining companies.
Lithium Production Dynamics. Lithium is an odd "minor metal" and current global production is only 32,500 tonnes of metal content per year, or about 172,500 tonnes of lithium carbonate. According to the USGS, lithium is used in batteries, 35%; ceramics and glass, 32%; lubricating greases, 9%; air treatment and continuous casting mold flux powders, 5% each; polymer production, 4%; primary aluminum production, 1%; and other uses, 9%.
According to SQM (NYSE:SQM), the world's largest lithium producer:
"Salar brines are located in the nucleus of the Salar de Atacama. They contain the greatest lithium and potassium concentrations ever known, in addition to considerable sulphate and boron concentrations. From this natural resource lithium carbonate, potassium chloride, potassium sulphate, boric acid and magnesium chloride are produced."
In its Q2-16 financial report, SQM disclosed that:
Operations on the Atacama Saltpeter Deposit produced potassium chloride, lithium chloride, boric acid and potassium sulfate; (Note 26.8)
Operations in the Salar del Carmen produced lithium carbonate and lithium hydroxide; (Note 26.8) and
Operations in the Salar de Atacama generated 42.5% of its total comprehensive income, including the income from its potassium and lithium product lines (Note 19.3).
SQM also provided the following disclosure of its comprehensive income classified by product segments for the six-month periods ended June 30, 2015 and 2016. (Note 26.3)
Lithium production is clearly SQM's most profitable segment, but operations in the Salar de Atacama would not make sense without the potassium, plant nutrients and other minerals that SQM produces from the Salar. That means any decision to increase lithium production will depend on stable and sustained global markets for the co-products because SQM can't produce more lithium without also producing more co-products. If increased supply forces co-product prices down, the game may not be worth the candle.
I don't know enough about SQM's operations to understand the interplay between lithium and its other products, but I do find it fascinating that revenues were flat from 2015 to 2016 and total gross profit fell by roughly 10% despite the fact that lithium revenues doubled and lithium gross profits increased by 135%.
If SQM will have to grapple with co-product market strength issues in any decision to expand lithium production from the Salar de Atacama, I have to believe other companies that produce the overwhelming bulk of the world's lithium from brines will face similar issues.
At present, the battery industry uses 35 percent of global lithium production. Over the next 10 years, that percentage will increase to about 78 percent unless additional resources are brought into production. Given the usefulness of lithium in other industries, I have a hard time accepting the suggestion that the battery industry can lock down 78 percent of the available supply and do so at attractive prices.
In my view, lithium production dynamics provide a meaningful window of opportunity for junior miners that can bring new lithium projects online quickly. But investors who are considering the lithium space must understand that (a) lithium is not and never will be "the new gasoline," (b) mining projects always take longer and cost more than anyone expects, and (c) extreme caution and careful skeptical analysis are essential.
Cobalt Production Dynamics. According to the Cobalt Development Institute, an incredible 94% of global cobalt supplies come from nickel and copper mines that produce cobalt as a by-product. That means only 6% of global cobalt supplies come from mines that might be able to increase production in response to growing demand from the battery industry.
Every year, the world's nickel miners sell $14.58 billion of nickel and $1.05 billion of cobalt, which means cobalt revenue represents 6.7% of their total revenue. It's even worse with copper miners who sell $68.4 billion of copper and $0.92 billion of cobalt, which means cobalt revenue represents 1.3% of their total revenue.
Expecting the supply side of the cobalt market to respond to the needs of the battery industry is like expecting a cropped tail to wag a Rottweiler.
While global production of refined cobalt surged from 52,400 tons in 2005 to 99,000 tons in 2015, the bulk of the increase was attributable to new capacity from African copper mines. In addition to thorny regulatory issues for companies that buy metals from African miners, metal production from African mines is not necessarily reliable. In 2015, Glencore (OTCPK:GLCNF) produced 421,900 tons of copper and 19,400 tons of cobalt from its Katanga, Mutanda and Mopani mines in Africa. In September of last year, Glencore announced the closure of Katanga and Mopani for 18 months as part of a debt reduction and modernization plan. Those closures will temporarily cut cobalt production capacity by several thousand tons.
According to the Cobalt Development Institute, the battery industry uses 41% of global cobalt supplies. Over the next 10 years, that percentage will increase to about 65% unless new cobalt resources are brought into production. While there is limited competition in the global markets for lithium, cobalt is one of the most useful metals going. Critical non-battery uses include:
Superalloys for combustion turbine engines (16%)
Hardened high-speed steel for machine tooling (7%);
Hardened carbides and diamond tooling (10%);
Petroleum desulfuring catalysts (7%);
Pigments (6%);
Magnets (5%); and
Others (8%).
The bottom line is that the cobalt supply chain is entirely dependent on global demand for nickel and copper. To make matters worse, cobalt demand is tremendously inflexible because of (1) the critical nature of alternative uses, and (2) the lower price sensitivity of competitive users. While new primary cobalt mines may come online, exploration, permitting and development for a new metal mine typically involves a decade of work and billions of dollars.
In my view, the battery industry is on the verge of a very unpleasant confrontation with the inescapable realities of the mining industry. The supply side of the cobalt equation is entirely dependent on global demand for nickel and copper. The demand side of the cobalt equation includes a rich variety of competitive manufacturers that need cobalt for products the world considers essential.
Any time rapidly increasing demand crosses swords with inflexible supply, the outcome is substantially higher prices. Since I first wrote about cobalt supply constraints in March of this year, cobalt spot prices have increased by almost 40% as astute investors began to recognize an unavoidable global shortage. Over the next six months, things should get really interesting.
The battery industry itself does have some capacity to free up additional cobalt supplies by phasing out LCO chemistry, which requires 1.44 kg/kWh of cobalt, and reconfiguring LCO plants to manufacture products with NMC or NCA chemistries, which require 0.36 and 0.22 kg/kWh of cobalt, respectively.
I'd love to be a fly on the wall of a meeting where one battery manufacturer tells another, "I want you to stop making LCO batteries so that I can repurpose your supply chain for my business."
BYD and LG Chem currently manufacture LCO batteries and they may be able to repurpose their supply chains to accommodate higher production of low-cobalt batteries. Unless new market entrants like Tesla, Foxconn and Boston Power are quietly reconfiguring their factories to make low-energy LTO, LFP and LMO cells, I see no reasonable possibility that any of them will be able to build a secure cobalt supply chain in the foreseeable future.
Conclusion. In the lithium-ion battery industry, materials costs are 50 to 70 percent of total manufacturing costs, one of the highest ratios on the planet. Prevailing green mythology holds that lithium-ion battery prices will fall dramatically as anticipated production rates soar due to Gigafactories and other vaguely defined "economies of scale." Given the current production dynamics for both lithium and cobalt, increased demand can only lead to higher raw material prices. Since most competitive users of lithium and cobalt are far less sensitive to raw material prices than battery manufacturers, it's a safe bet that they'll protect their supply chains and the battery industry will either have to pay up or do without.
Tesla cannot launch a $35,000 Model 3 without a Gigafactory that's operating at or near its design capacity of 35 GWh per year. That will require about 7,800 tonnes of cobalt per year. Everything I've seen says Tesla doesn't have a cobalt supply chain that can take almost 10% of global cobalt production away from the companies that are presently using the metal.
The bottom line for investors is, "It doesn't matter how big your Gigafactory is if you don't have a rock-solid supply chain for your essential raw materials."
ABOUT CRUZ:
Cruz recently announced that the company has increased its cobalt property holdings by 137 claim units now comprising of approximately 5500 contiguous acres. The Hector Cobalt Prospect is one of 4 cobalt prospects in Ontario currently held by Cruz to go along with 3 in British Columbia and 1 in Idaho.
The Hector Cobalt Prospect now consists of approximately 5500 acres in the Larder Lake mining division of Ontario. According to the Province of Ontario Mineral file MDl31M05SE00127, the property was mined for cobalt and is a past producer of cobalt. This new expansion also covers multiple other cobalt showings based on Government of Ontario files. We look forward to commencing operations on this prospect to evaluate and follow up on the historic data gathered.
Cruz President, James Nelson, stated, "We continue to expand our cobalt projects. The Hector Cobalt Prospect, according to the Government minfile, was a past producer for cobalt, which compliments the stable of high quality cobalt prospects Cruz currently has. This new addition also covers multiple other cobalt showings based on Government of Ontario data. We are very excited about the growth potential for Cruz as we continue to add cobalt assets at a time when Cobalt is making year highs almost daily (see chart). Cruz is focused on high grade cobalt assets in North America and we look forward to getting operations underway on multiple cobalt prospects. With 8 current cobalt projects in the Company, we believe Cruz is in a unique position at the forefront of what we feel will be an impending global cobalt boom.”
Cruz is actively engaged in acquiring and developing Cobalt assets globally and has already acquired several high-grade cobalt projects across North America. Seven cobalt projects are located in Canada and one in Idaho. The goal of the company is to make Cruz the foremost cobalt project generator and developer on the TSX Venture Exchange. Management feels that cobalt is at the early stages of a significant bull market and we are pleased to be positioning Cruz at the forefront of this cycle.
The technical contents of this release were approved by Greg Thomson, PGeo, a qualified person as defined by National Instrument 43-101. The property has not been the subject of a National Instrument 43-101 report.
If you would like to be added to Cruz’s email list please send an email to info@cruzcapitalcorp.com or twitter @CruzCapitalCorp
James Nelson
President
604.899.9150
Toll free 1.885.599.9150
www.cruzcapitalcorp.com
twitter @CruzCapitalCorp.
CRUZ INFORMATION:
Cruz Capital Corp (CUZ:TSXv, BKTPF:USA, A2AG5M:Germany) . Cruz is actively engaged in acquiring and developing Cobalt assets globally. Cruz has acquired numerous high grade cobalt assets located in North America. Seven cobalt projects are in Canada and one in Idaho. The goal of the company is to make Cruz the foremost cobalt project generator and developer on the TSX Venture Exchange. Management feels that cobalt is at the early stages of a significant bull market and we are pleased to be positioning Cruz at the forefront of this cycle.
Cobalt prices have increased significantly over the past 9 months and appear to be breaking out. We feel that cobalt prices could have the same type of parabolic move like lithium has had. Similar dynamics that have driven lithium prices higher are present in cobalt, and that is why Cruz established itself at the early stages of this sector move securing multiple high grade cobalt projects.
lithium price chart.jpg
Additional Information:
Here is a good graphic explaining the battery make up and how cobalt fits in
http://www.visualcapitalist.com/critical-ingredients-fuel-battery-boom/
Here is a link to a recent article reporting about the mining of cobalt in Africa. As you can see this is why we are focused on developing and acquiring high grade projects in politically safe and responsible governments.
https://www.washingtonpost.com/classic-apps/the-cobalt-pipeline-from-dangerous-tunnels-in-congo-to-consumers-mobile-tech/2016/09/30/66103382-5a8c-11e6-9767-f6c947fd0cb8_story.html?tid=hybrid_collaborative_1_na-amp
https://www.google.ca/amp/s/www.washingtonpost.com/amphtml/business/economy/companies-respond-to-questions-about-their-cobalt-supply-chains/2016/09/30/910f94de-7b51-11e6-bd86-b7bbd53d2b5d_story.html%3f0p19G=e?client=safari
cobalt graphic.png
Cruz has recently acquired 8 separate cobalt prospects across North America
The Hector cobalt prospect consisting of approximately 5,500 acres in the Larder Lake mining division of Ontario was mined for cobalt and is a past producer of cobalt.
Bucke Cobalt Prospect in the Larder Lake mining division of Ontario returned assays grading 13% COBALT and 240 g/t SILVER (historic Ontario data)
The Johnson Cobalt Prospect encountered grab assays over 300m up to 10.5% cobalt, 69 g/t AG, 12% NI and .4% CU (historic data)
The War Eagle Prospect encountered surface samples of 6.41% cobalt, 3.59% nickel and 7.25% copper (historic data)
Cobalt is one of the main elements in Lithium-Ion batteries
Seasoned Expert, Fritz ten Doornkaat of Switzerland has been added as a strategic European adviser
Thank you for your time and consideration.
James Nelson
President
604.899.9150
Toll free 1.885.599.9150
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