Fuse Battery Metals Inc. (FUSEF)

[goforthebet]

this is only a port out of the long report

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The math points to a cobalt supply shortfall.

The world’s biggest refiner and consumer of cobalt, China, isn’t playing around with looking to lock-up cobalt for its own uses. In May 2016, China Molybdenum (“CMOC”) paid a whopping $2.65 billion to acquire Freeport-McMoRan’s 56% interest in the Tenke Fungurume mine, one of the world’s biggest known cobalt resources located in the Katanga province of the DRC. About six months later, Lundin Mining sold its 24% interest in the mine to BHR Partners, a Chinese private equity firm, for $1.14 billion.

CMOC has built a war chest of cobalt assets, including buying Freeport’s Kisanfu exploration project in the DRC and a controlling stake in the Kokkola refinery in Finland that processed about 10% of the world’s cobalt supply in 2017.

China, who has been known to hoard commodities before, is not taking these positions because it plans to share cobalt with the rest of the world. It is aggressively building its upstream capabilities to fit with its downstream capacity to meet its own needs and burgeoning anti-pollution mandates.

Right now, there are only about two million EVs on the road, but that number is supposed to experience hockey-stick type growth going forward. The research house CRU Group estimates that if a Tesla Model X today replaced all the roughly one billion cars on the road, it would take more than double the total known cobalt reserves in the world today.

In order to try and keep up with demand and avoid sourcing cobalt from the DRC, companies are looking wherever they can to secure cobalt. Samsung SDI Co., an affiliate of Samsung electronics and a supplier of batteries to carmakers, is buying a stake in an unnamed recycling technology company and penning a deal to secure long-term cobalt via recycling mobile phones.

That lends some color to the situation and understanding as to why carmakers like Volkswagen and Tesla are getting with cobalt miners seeking to procure future cobalt.

Interestingly, despite many reports about downstream manufacturers meeting with cobalt miners, there hasn’t been any news of deals being struck. The rationale seems to be the manufacturers that are used to strong-arming miners to get lower prices don’t have the leverage this time because they don’t have other options to threaten to use. The miners, for once, are holding all the cards and standing firm about not providing deep discounts.

The landscape has already led to consolidation within the industry. Last month, First Cobalt agreed to acquire US Cobalt Inc. in a friendly, all-stock deal valued at $149.9 million, a nearly 62% premium to the price of US Cobalt stock the day before the merger was announced. First Cobalt was motivated to build its position as a non-DRC cobalt player, a strategy more companies may begin to employ than will fan additional M&A activity.

Against this backdrop, the idea of seeing cheap cobalt every again seems to be fleeting.

There’s a real conundrum brewing because of the fact that 97% of the cobalt produced today is a byproduct of other metals. That means the ramping-up production is much more complicated than doing so with other minerals.

Furthermore, most explorers are working on greenfield projects, those that have never had mining work conducted before. Bringing a greenfield project into a producing mine often takes more than a decade to complete, which certainly doesn’t solve the immediate supply problem.

The Answer: Primary Cobalt, Safe Jurisdiction

The answer may seem to be a tall order, but it certainly is possible. Just ask LiCo Energy Metals (TSX-V: LIC, a Tier 2 miner)(OTCQB: WCTXF, blue skied)(FRA: 43W1), a company with projects centered on both cobalt and lithium, the two metal darlings of the rechargeable battery space. The lithium projects are located in the heart of prolific lithium, Nevada and he Salar de Atacama in Chile, but the company’s initial focus is on cobalt with its adjacent Teledyne and Glencore Bucke properties outside of the town of Cobalt, Ontario, Canada.

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