UPDATE Insider Financial
LiCo Pays Off Glencore for Cobalt Property and Drill Results Continue to Impress
Lico Deserves to be Firmly Planted on your Radar(TSX-V: LIC, a Tier 2 miner)(OTCQB: WCTXF, blue skied)(FRA: 43W1),
For years, cobalt has been a somewhat overlooked part of the mining industry. Produced almost exclusively as a byproduct of copper and nickel mining, supply easily kept up with demand for the metal that only commanded prices in the range of $10-$15 per pound from late 2011 through mid-2017. With the emergence of the electric vehicle boom, prices for cobalt, a key ingredient in rechargeable batteries used in everything from mobile phones to EVs and power storage systems, have skyrocketed and the whole industry has been disrupted by concerns over a future supply shortfall. This has triggered a frenzy for companies scrambling to lock-down supply agreements and miners angling to capitalize on cobalt properties, which has, in turn, created a unique investment opportunity for savvy investors that can pinpoint properly positioned companies. That means that companies like LiCo Energy Metals (TSX-V: LIC, a Tier 2 miner)(OTCQB: WCTXF, blue skied)(FRA: 43W1), with their pure-play cobalt land position outside of the appropriately named town of Cobalt, Ontario, should be firmly planted on radar for upcoming developments.
The chart below provides a compelling visual showing the surge in cobalt prices, which closed March 29 at a decade-high $42.52 per pound. The price for a pound of cobalt is even more interesting when put in the context that a year ago analysts were making “bold” calls that prices would jump to $16 per pound by 2020.
A look back further shows that cobalt still can have plenty more upside considering it crossed $50 a pound in 2007 on fears that the Democratic Republic of Congo, which supplies about two-thirds of the world’s cobalt, was going to limit exports.
The DRC is still a headline topic when it comes to cobalt...and not for good reasons. The war-torn African country has repeatedly been criticized for their failure to regulate the industry and follow globally accepted labor practices by allowing artisanal miners to work in dangerous conditions and children to work the mines.
Amnesty International in 2016 exposing the violations of child labor laws has had a cascading effect across the industry, with some companies now conducting deeper due diligence to ensure that proper standards are in place from mines where their cobalt is sourced. In 2012, Unicef estimated that about 40,000 children were working mines in the DRC. To that point, a pilot project called Better Cobalt has a growing number of refiners, miners, automakers and others joining forces to ensure ethical cobalt supply chains.
If the DRC doesn’t change its ways, artisanal miners, which supplied about 20 percent of the country’s cobalt last year, could be cut out of the mix as companies avoid having their image tarnished for supporting child labor in the name of cheaper material.
In an unprecedented move that speaks volumes about potential supply shortages and its public image to verify safe cobalt, tech behemoth Apple recently began reaching out to miners directly looking to secure cobalt supply. There are hundreds of millions of Apple products in use today, but consider that an iPhone only uses about one-quarter of an ounce of cobalt and a Macbook uses about 1-1/4 ounces (on the low end). Those small amounts add up across the 320 million devices Apple sells each year to the tune of about 4,550 metric tons of cobalt.
Now think about an EV, which requires about 20 - 44 pounds of cobalt and the fact that only approximately 121,000 tonnes of cobalt were produced worldwide last year, with batteries accounting for about 42% of consumption. By 2025, Benchmark Minerals Intelligence forecasts that the battery industry alone will command 127,000 tonnes of cobalt.
At the low end (20 pounds), that’s 110.2 EVs per metric ton of cobalt. If every ounce of production went to EVs, that’s only enough for about 13.3 million cars. That’s without mention for all the other uses for cobalt (alloys, catalysts, pigments, tool materials, etc.) that currently gobble up 58% of production.
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.
AI
