Off-grid energy storage will be a big driver of cobalt demand alongside electric cars, says PacPartners Senior Resource Analyst Andrew Shearer.

 

Cobalt is fetching record prices at the moment. What is your view on the mineral?

We’ve had an initial run and seen a lot of interest in cobalt stocks of late but it’s only now that the investment community is becoming educated on the sector and can see the massive demand potential.

Following trends we have seen with graphite and lithium, the initial buzz is hoped to translate into a longer and more sustained period of interest, as long as the demand follows the same trajectories as forecast.

We have seen the initial wave and now we’re looking at the capital cost of extraction. But strong cobalt prices will continue to drive demand. The cobalt price recently reached $62,500/t — up 240 per cent from 12 months ago.

 

What factors are affecting cobalt pricing?

On the supply side we’re seeing sovereign risk issues at play given at least 60 per cent of cobalt comes from the Democratic Republic of Congo (DRC). As well, most cobalt has typically been produced as a by-product of copper and nickel — while copper and nickel prices have been depressed, that supply has come off.

Turning to demand, the rapid adoption of electric vehicles is what is really grabbing investors’ attention. But apart from just cars, I see a bigger investment growth in off-grid energy storage for factories and in industry as well as a supplement for ageing electrical infrastructure.

The risk to cobalt is that it is a by-product – if the demand for nickel rises and more of the nickel projects run on you are going to see more cobalt coming into the market.

Timing at the moment is still wide enough that we have time to run before that supply response comes on.

Over the year we have heard of companies stockpiling cobalt because they see the commodity as that valuable.

 

Ethical issues have plagued some African cobalt operations. How much does that affect the market?

When you look at the big brands like Apple and Samsung, who are the end users of cobalt, they need to be seen to be sourcing only ethical products. Issues of child labour in cobalt mines were highlighted earlier this year and companies such as Panasonic have previously suffered blows because of graphite production that was not environmentally friendly.

End-users want the best quality in their phones and securing supply ensures bad publicity like Samsung’s exploding batteries doesn’t happen again.

 

Besides the Congo what are the other promising cobalt regions?

64 per cent of the production is coming out of the Democratic Republic of Congo with other projects around the world accounting for no more than 10 per cent of remaining supply.

The more important thing to consider is that China gets 80 per cent of its cobalt from the DRC and produces 80 per cent of the world’s chemical grade cobalt. Any hiccup in the DRC will flow through because China is so dictated by their supply.

Increasingly we are seeing end users looking for diversity.

 

There are more and more cobalt players in the market, can they all be sustained?

I’ve seen this happen with iron ore, then graphite, followed by lithium and now cobalt – a strong initial response like that we saw with cobalt near the start of year but only a handful will come through.

With cobalt, my list was initially 84 stocks and now that’s down to only a dozen – just those that have taken the steps towards development.


What sets those companies apart?

Without getting into too much of the geology, there are three main types of deposition and each company takes a different approach.

Depending on the deposition there are varying levels of associated capital expenditure – all are looking to get a saleable grade product but the upfront capital cost makes the difference between the juniors.

Companies like Ardea (ASX: ARL) are looking at high grade components with laterite, that runs in currents through the rock. While others are looking to sulphite hosted projects like that at Broken Hill.

 

What cobalt stocks are you eyeing at the moment?

Northern Cobalt (ASX:N27) will list on Friday with drilling to start as soon as it hits the market. They have taken over a site in the Northern Territory, near the border of Queensland, where Rio Tinto was targeting copper in the mid 1990s. The company already know where the first 200 drill holes are going and the drill rig has been prepared for an extensive drilling program.

Ardea (ASX:ARL) are a junior looking at different processing paths to reduce costs – a project only a junior could tackle. Cobalt 1 (ASX:CO1) are chasing high grade cobalt and look set to merge with three others listed on the Toronto Stock Exchange. While European Cobalt (ASX:EUC) is right on the doorstop to supply to European car manufacturers like Volkswagon who have made strong signals of a switch to electric vehicles.

 

Andrew Shearer is a Senior Resource Analyst at PacPartners and has been involved in the mining and finance industries for 20 years. Coupled with geoscience and finance qualifications he has experience in the resources industry, from exploration through to production. He has been exposed to the global resources sector covering micro to mid cap resources stocks; from exploration through to producing companies, across a broad suite of commodities. Prior to moving into the finance sector Andrew spent over a decade working in the minerals exploration industry in technical and senior management roles and has developed a deep network of industry contacts across the resources sector. 
Pac Partners are underwriting the Northern Cobalt IPO. Andrew Shearer is a director of the company.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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