Monsters of Rock: AussieSuper throws more cash behind bet that cobalt market will turn as EV demand surges
AustralianSuper has thrown more funds into a bet that the cobalt market will recover from near 50-year real term lows, pumping US$11.7 million into an entitlement offer in Jervois Global (ASX:JRV) that could take its stake to 25%.
Jervois has tapped the market for US$25 million in unsecured convertible notes and a fully underwritten 1 for 3.34 non-renounceable entitlement offer which will raise another US$25 million.
It will see AussieSuper, which currently holds 18.5% of the under-fire cobalt and nickel producer, up its stake while fellow insto Mercuria — Jervois’ second largest investor and lender with a 9.9% stake — also agrees to take up its full allotment.
JRV’s directors and management are chipping in US$700,000, with the company expecting to hold US$65m in cash after the raising and +US$20m in near term debt repayments.
Jervois has been, by any measure, one of the worst performing stocks on the ASX in the past year, down 87.78% from a market cap around the $1 billion mark to just $135m today.
At its 5 year peak just 14 months ago the company’s stock was selling at 93c a pop. It’ll now get you 6.6c.
Behind that ignominious slide has been a dramatic collapse in LME Cobalt prices.
A key ingredient in the NCM cathode lithium ion batteries used in long range electric vehicles, most cobalt miners are not as exposed to the price of the commodity since their main focus is copper or nickel. Cobalt, normally found in tiny quantities, is largely mined as a by-product and heavily concentrated in mines in the Democratic Republic of the Congo.
Since April last year the price for cobalt metal for three month delivery has deteriorated from ~US$82,000/t to US$29,525/t, less than 1.5 times the price of nickel despite its relative scarcity.
Cobalt prices have been hit by falling demand for consumer electronics and a ramp up in supply from Indonesian nickel producers and Glencore’s Mutanda mine in the DRC.
The case for Jervois, which continues to operate the Finnish assets it picked up from Freeport, is that this could be a market low.
After suspending construction on its Idaho cobalt mine earlier this year, it’s forking out around US$1m a month in holding costs.
But it has US$15m in a grant from the US Department of Defence to drill there and deliver studies on a potential new cobalt refinery in the United States, with strong investment from the Biden Government to deliver a local source of cobalt which can help diversify that part of the EV supply chain away from China.
Jervois had spent US$155m in capital on Idaho before market pricing made it hit the pause button in March.
Outside of that, Jervois also owns the Sao Miguel Paulista refinery in Brazil, where it is looking to use third party feed from a mine in Turkey via Traxys and is carrying out a partner selection process over the second half of 2023.
It is also looking to sell the Nico Young deposit in Australia.
But longer term, JRV says there is a strong outlook for cobalt underpinned by EV demand, with cobalt requirements forecast to grow three times over by 2035, it said in a presentation to investors today.
Given its rarity, price and concerns about the potential for child labour from the DRC in the supply chain, cobalt is often viewed as a candidate for substitution.
But major battery makers continue to see it as a key ingredient in the EV revolution. Last year Toyota and Panasonic battery JV Prime Planet Energy Solutions said it would require 30,000t of cobalt by 2030, around a sixth of the current global market.
The commodity is extremely prone to price spikes, previously seen on numerous occasions including in 2018 and 2021-22, as supply is relatively inelastic due to the fact it is mined as a by-product of other metals.
Shortages and surpluses of the commodity are often exacerbated as supply does not respond to demand signals the way it does in other commodities, resulting in volatility.