Essential Power…Infinite Possibilities

About Cobalt

Cobalt

Facts:

Atomic number: 27

Atomic symbol: Co

Atomic weight: 58.933195

Density: 8.86 grams per cubic cm

Melting point: 2,723F or 1,495C

Boiling point: 5,301F or 2,927C

Market: Cobalt is a physically traded commodity where published market prices are derived from telephone surveys with trader and consumers. Prices of cobalt are provided in two grades including 99.3% and 99.8% purity. Metal Bulletin publications have traditionally been the source for market price of cobalt. In 2010, the London Metal Exchange introduced the cobalt contract where prices of exchange traded contracts are published.

Application:

Cobalt Demand - 2015

(Source: Darton)

Cobalt has many unique characteristics including its magnetic properties, resistance to high temperatures, wear, and corrosion. These properties make cobalt an essential metal used in metallurgical and chemical applications and these include:

  • Cobalt is used as pre-cursers (cobalt compounds) for cathodes in rechargeable batteries;
  • Jet turbine generators where high temperature strength is critical. Cobalt is used in jet turbines for aero-engines and other aerospace applications. Cobalt is also used in land based turbines for power generation;
  • Cobalt is alloyed with aluminum and nickel to form powerful magnets. Permanent magnets are used in wind turbines, and electric motors for automobiles and aircraft;
  • Cobalt is used in electroplating due to its appearance, hardness and resistance to corrosion;
  • Cobalt is a component of vitamin B12 and is essential to living organism;
  • Cobalt acetate is used for production of polyethylene terephthalate to produce polyester fibres for textile, packaging, and bottles;
  • Cobalt oxide used in paint and dyes including green and blue colours in glass and ceramics; and
  • Radioactive cobalt is used in cancer treatments.

Cobalt used in chemical applications for rechargeable batteries accounted for 49% of total global demand for cobalt in 2015 (Source: Darton).

Rechargeable Batteries:

The largest demand for cobalt has been from the rechargeable batteries industry since the 1990s. Cobalt was initially used in NiCd and NiMH cells but since the invention of the lithium ion battery in 1995, this technology accounted for all of the growth in cobalt consumption from the batteries sector (Source: CRU).

There are many lithium ion battery technologies that have been developed for different end uses but the three main drivers for changes in lithium ion battery technologies include safety, the need to reduce manufacturing cost and to increase storage capacity. Cobalt is used in the cathode component of the lithium ion battery (for more information on battery technology, see http://www.visualcapitalist.com/evolution-of-battery-technology/ ) but the cathode is also the most expensive component. Cobalt also affects the battery’s charge time and energy density resulting in different battery chemistries suitable for different end uses. Lithium manganese oxide has been used in cathodes to improve safety by decreasing the battery’s potential to overheat but this reduces the intensity of cobalt used in batteries.

The following table illustrates the different types of lithium ion batteries that are currently in the market, their cobalt composition, precursors, end uses, and current market share:

Lithium Ion Batteries Cobalt Composition Precursors End Uses 2015 Market Share
LCO- Lithium Cobalt Oxide 60% Cobalt oxide High capacity storage: cell phones, iPads, cameras, and wearables 41%
NMC- Lithium Nickle Manganese Cobalt Oxide 10-20% Cobalt sulfate Lower capacity but high specific power and long life: Laptops and EVs 24%
NCA- Lithium Nickle Cobalt Aluminum Oxide 9% Cobalt sulfate EVs, electric grid storage: Tesla’s EVs and Smart Grid/Home Storage, and laptops 8%
LMO- Lithium Manganese Oxide 0% n/a Lower capacity but high specific power and long life: EVs and Smart Grid Storage 19%
LFP- Lithium Iron Phosphate 0% n/a Lower capacity but high specific power and long life: Tools, EVs, Smart Grid Storage 8%
LTO- Lithium Titanate 0% n/a Electric grid storage -

(Source: Avicenne, CRU)

LCO, NMC, and NCA batteries have accounted for approximately 75% of the market share of lithium ion batteries in 2015. Demand NMC and NCA batteries are expected to grow in the near future due to their uses in EVs and Smart Grid Storage and this drives the demand for cobalt sulfate (Source: CRU)assuming no drastic changes in future battery technologies that reduces the use of cobalt in battery chemistry.

Demand

Refined cobalt consumption has been steadily increasing over the past couple of years with 83,000 tonnes in 2013, 89,000 tonnes in 2014, and 90,150 tonnes in 2015 (Source: CRU). Demand for refined cobalt is expected to exceed 100,000 tonnes in 2016 and forecasted growth at a compounded annual growth rate (CAGR) of 6% is expected between 2016 and 2020 resulting in a 68% increase in cobalt consumption between 2015 and 2025 (Source: CRU). Lithium ion batteries will be a significant driver for future growth but demand in metallurgical applications of cobalt will also be robust. Most of this growth is due to consumption of cobalt used in rechargeable battery applications with the strongest forecast demand growth coming from EVs market at 16% per annum, portable electronics such as tablets, laptops and household devices at 10% per annum, and portable phones at 6% per annum (Source: CRU).

Cobalt Demand

(Source: After CRU)

Energy requirement in MWh for EVs are expected to grow at 16% per annum until 2025 (Source: CRU). To produce this energy requirement, the battery sector is forecasted to consume 75% to 78% of total cobalt production (Source: CRU). In 2014, Tesla Motors, Inc. confirmed its plans to build its US$5.0 billion EV “Gigafactory” in Reno, Nevada of which construction is well underway and ahead of schedule. At its peak, the Gigafactory is expected to have the capacity to produce 500,000 electric vehicles annually and this can potentially increase the annual global demand for cobalt by approximately 20% once the Gigafactory reaches full commercial production capacity planned for 2020. Recently, the following companies have also announced investments in EVs including:

  • Ford Motor Company announced commitment to invest US$4.5 billion to bring 13 new EVs to its portfolio by 2020;
  • Porsche AG announced €700 million investment to their main assembly plant for EV production;
  • Faraday Future plans to invest US$1.0 billion to develop intelligent EVs;
  • General Motors Company has also shown their commitment towards EV technology including fast-tracking their Chevy Bolt production; and
  • Audi, BMW, Mercedes, BYD, Volkswagen, Mitsubishi, Renault, and Nissan have EVs in their current and/or medium term portfolio.

The EV market continues to rise in popularity and importance and there are several other EV manufacturers which have announced plans for new vehicle production. Stationary storage cells utilized to store energy from sources such as wind and solar powered generators and off peak grid charging are also contributing to this significant growth in the markets.

Supply

Cobalt Supply

Cobalt resource and reserve base have not changed over the past decade with over 50% of cobalt reserves located in the African Copper Belt in the Democratic Republic of the Congo (DRC) and Zambia (Source: CRU). The next largest source of cobalt comes from Australia, Cuba, South East Asia and Pacific in the form of nickel laterites. Cobalt is also found in Canada, Russia and Western Australia in nickel sulphide deposits. Due to the nature of these deposits, cobalt production is generally a byproduct of nickel and copper mines. Currently 60% of cobalt production comes from copper mining, 38% from nickel operations and only 2% are primary cobalt mines located in Morocco and Uganda (Source: CRU).

Production of cobalt from primary cobalt mines are not affected by nickel and copper prices. Weak nickel and copper prices have negatively impacted cobalt supply due to the suspension and closure of a number of large nickel and copper projects including Glencore/Katanga Mining (representing 10% of global cobalt metal supply), Votorantim, ERG/Chambishi, Norilsk Nickel, and Queensland Nickel (Source: Darton).

Supply by Country

(Source: After CRU)

Approximately 65% of the world cobalt supply is mined from the DRC with 69,200 tonnes produced in 2015 (Source: Darton). Despite the reduction in cobalt production related to nickel and copper projects, total cobalt output from the DRC increased by 9% in 2015 and this was due to increase in cobalt production from artisanal mining (Source: Darton). Artisanal mining accounts for approximately 22% of total cobalt production from the DRC. Supply from artisanal production is expected to taper off as easily accessible high grade reserves get depleted. Current low cobalt prices make artisanal mining less profitable and this may also impact artisanal mining output. In addition, Amnesty International published a report in January 2016 titled “This Is What We Die For” (https://www.amnesty.org/en/documents/afr62/3183/2016/en/ ) which exposes abuses of the human rights, safety and environmental issues related to artisanal mining in the DRC. The article also made allegations against global technology companies for using cobalt sourced from artisanal mining supply, highlighting the importance of supply chain management and traceability of the sourcing raw materials. This may also result in regulation changes relating to artisanal mining activities in the DRC.

China is the largest importer of cobalt raw materials estimated at 65% or 59,223 tonnes of world supply in 2015 (Source: Darton). Approximately 94% of Chinese import comes from cobalt contained in intermediates such as crude hydroxide produced in the DRC (Source: Darton). In turn, China is also the largest producer of refined cobalt with a 9% growth in production in 2015 representing 52% or 48,500 tonnes of world production. This growth is predominately driven by demand from downstream markets. This growth forces Chinese biggest refiners and producers to expand and aggressively acquire cobalt assets. This was demonstrated by China Molybdenum’s acquisition of Freeport McMoRan Inc.’s Tenke Fungurume flagship copper-cobalt asset in the DRC for US$2.65 billion in April 2016. In addition to this acquisition, China Molybdenum also has the option to acquire Freeport’s Kisanfu project in the DRC and its interest in the Kokkola Cobalt Refinery in Finland for US$100 million.

Supply and Demand Balance

Primary and secondary supply for refined cobalt will grow by 21% and 14% respectively by 2020 compared to 68% growth in demand by 2025 (Source: CRU). Higher demand growth over supply for refined cobalt will increase supply deficit in the near future. The chart below illustrates the forecasted deficit of refined cobalt supply in both the metals and chemicals categories:

Refined Metals SD Balance


Refined Chemical SD Balance

After CRU

As a result of increase in demand and reduction in supply of cobalt, overall supply demand balance is forecasted to progressively tighten over the medium and long term with minimal prospects of new cobalt projects coming into production within the next decade. Demand for metallurgical cobalt will continues to grow against supply even though there is a small surplus in metallurgical cobalt supply. Significant increase in demand of non-metallurgical or cobalt chemicals used in rechargeable batteries will cause deep deficit. The combined effect is expected to result in a projected deficit of greater than 10,000 tonnes annually by 2020.

SD Balance & Price Forcast


Historically, metallurgical supply demand balance has the most impact in setting market cobalt price and this tends to also influence the price of non-metallurgical or cobalt chemicals. The serious deficit expected in the non-metallurgical or cobalt chemicals may change these market dynamics.

Cobalt and the ICP

Cobalt metal, powders and chemicals remain critical in the production of rechargeable batteries and the ICP is the only primary cobalt deposit located in the United States that is near term and environmentally permitted. These are key positive attributes of the ICP that can address some of the risks and issues faced by the world cobalt market today. As the ICP is a primary cobalt deposit (less than 2% of current world production of cobalt comes from primary deposits), it is not influenced by copper and nickel markets. Being located in the United States eliminates the geopolitical and human rights issues that are attached to cobalt that comes from the DRC. The ICP offers a unique opportunity for North American consumers to secure an ethically sourced, environmentally sound, transparent supply of high purity cobalt chemicals, mined safely and responsibly in the United States.

The Company believes that the ICP could be well positioned to capitalize on the growing demand for cobalt, in particular battery grade cobalt chemicals. In addition, previous engineering studies (who’s economic assumptions are now considered out of date) demonstrated the technical ability of the project to produce high purity cobalt metal suitable for critical applications in the aerospace sector. These are the two fastest growing sectors in the cobalt market.