Essential Power…Infinite Possibilities

About Cobalt

Cobalt


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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 (LME) introduced the cobalt contract where prices of exchange traded contracts are published. From 2010 when the LME first listed cobalt through 2017 LME contracts have been based on 99.3% cobalt. Beginning in 2018 LME contracts for cobalt will be for delivery of 99.8% purity cobalt.


Application:


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, these include:

  • Pre-cursers (cobalt salts) for cathodes in rechargeable batteries;
  • Applications where high temperature strength is critical like jet turbine generators, jet turbines for aero-engines, other aerospace applications, and land based turbines for power generation;
  • Building powerful magnets by alloying cobalt with aluminum and nickel. Permanent magnets are used in wind turbines, and electric motors for automobiles and aircraft;
  • Due to its appearance, hardness and resistance to corrosion cobalt is excellent for electroplating;
  • As a component of vitamin B12, essential to living organisms;
  • 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 46% of total global demand for cobalt in 2016 (Source: CRU).

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 change include safety, the need to reduce manufacturing cost, and the need for increased 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/ ) the most expensive component. Cobalt affects the battery’s charge time and energy density resulting in different battery chemistry’s being 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 2016 Market Share
LCO- Lithium Cobalt Oxide 60% Cobalt oxide High capacity storage: cell phones, iPads, cameras, and wearables 65%
NMC- Lithium Nickle Manganese Cobalt Oxide 10-20% Cobalt sulfate Lower capacity but high specific power and long life: Laptops and EVs 30%
NCA- Lithium Nickle Cobalt Aluminum Oxide 9% Cobalt sulfate EVs, electric grid storage: Tesla’s EVs and Smart Grid/Home Storage, and laptops 5%

(Source: Avicenne, CRU)


LCO, NMC, and NCA batteries accounted for approximately 90% of the market share of batteries in 2016. Demand for NMC and NCA batteries are expected to grow in the near future due to their uses in EVs and Smart Grid Storage, this is driving the demand for cobalt sulfate (Source: CRU), the Idaho Cobalt Project’s main product.

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, 90,150 tonnes in 2015 and 98,000 tonnes in 2016. Global cobalt demand is expected to exceed 100,000 tonnes for the first time in 2017 as the market begins to face supply deficit. Demand for cobalt used in metallurgical applications is forecasted to grow steadily from 36,690 tonnes in 2016 to 50,000 tonnes in 2025, driven by the aerospace industry. Demand for cobalt used in non-metallurgical applications is forecasted to grow at a faster rate, at 6.7% compounded annual growth rate (“CAGR”) from 2015 to 2020 and 5.7% CAGR from 2020 to 2025.

End user consumption of cobalt will also change rapidly by 2020, with the most significant change in demand by lithium ion batteries used in electric vehicles (“EVs”) by 114%:

The main three types of batteries in the rechargeable lithium ion batteries market is comprised of the lithium cobalt oxide (“LCO”), nickel manganese cobalt (“NMC”) and lithium nickel cobalt aluminum (“NCA”) cells. These three types of batteries made up 75% of the rechargeable batteries market share in 2015. LCO cathode contains the highest cobalt by weight in the form of cobalt oxide followed by NMC and NCA batteries which contains cobalt in the form of cobalt sulfate. LCO batteries are the largest consumer of cobalt and accounts for 28% of global consumption. NMC and NCA batteries, used in EVs, is expected to have the highest demand growth in the mid and long term range forecast. The growth in the EVs market will increase consumption of cobalt sulfate to 27,500 tonnes in 2020 and 41,500 tonnes in 2025, accounting for roughly 40% of chemical cobalt consumption in 2025.

Energy requirement in MWh for EVs are expected to grow at 16% per annum until 2025. Battery supply is one of the key hurdles to EV growth, especially to meet demand requirements beyond 2019 and 2020. To produce this energy requirement, the battery sector is forecasted to consume 75% to 78% of total cobalt production. In addition to Tesla Motors, Inc.’s US$5.0 billion EV “Gigafactory”, LG Chem has confirmed a plant in Poland and Daimler has commenced a €500 million battery assembly plant. Recently, the following companies have also announced investments in EVs:

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. It has been forecasted that strong forecast demand from the EV market can potentially double current cobalt demand by 2022. 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 is produced primarily as a by-product of nickel and copper mining, with 60% of cobalt coming from copper mining, 38% from nickel production, and 2% from primary cobalt mines in Morocco and Uganda. 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.

Approximately 65% of the world cobalt supply is mined from the Democratic Republic of Congo (“DRC”) with 69,200 tonnes produced in 2015. 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. 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” which exposes abuses of the human rights, safety and environmental issues related to artisanal mining. 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. Approximately 94% of Chinese import comes from cobalt contained in intermediates such as crude hydroxide produced in the DRC. In turn, China is also the largest producer of refined cobalt with a 9.3% growth in production in 2016 representing 78% or 48,910 tonnes of world production. This growth is predominately driven by demand from downstream markets. This growth forces China’s biggest refiners and producers to expand and aggressively acquire cobalt assets.

Supply and Demand Balance

Forecasted compounded annual growth rate for cobalt supply is 2.4%. 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 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 deficits. The combined effect is expected to result in a projected deficit of 10,000 tonnes annually by 2020.

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 prices have increased significantly since the beginning of 2017 as end users and hedge funds secure supply of cobalt metal and sulfate in anticipation of further supply and demand deficits. Cobalt 99.3% metal has reached a six year high of over $24 per lb and is forecasted to reach as high as $27 per lb in the near term. Cobalt sulfate prices have attracted an average of $2.00 per lb premium over 99.3% due to stronger demand.

Cobalt and the Idaho Cobalt Project (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 environmentally permitted with the potential for near term production. 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 directly 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 supply of high purity cobalt chemicals, mined safely and responsibly. 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, now considered out of date, demonstrated the 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.

There are significant opportunities recognized in the PEA that could improve the economics of the ICP. Excluding those opportunities typical to all mining projects, such as changes in metal prices, exchange rates, etc., there are additional opportunities that exist. For example, the mineral resource has not been fully delineated and there is an excellent opportunity to expand this resource. The addition of marginal mineralized zones that were excluded from the resource and mine plan could also add to resources. In addition, over a dozen potential targets have been identified in the immediate area within the claim block of the ICP. Four of these have been drill tested with several intercepts exceeding the current cut-off grade. There is also potential to add additional resources from the nearby Black Pine property optioned by the Company which potentially could provide additional feed for the mill. Previous core drilling on the Black Pine property returned significant intercepts of cobalt and copper including 1.13% cobalt over 17.5 feet with another drill hole returning an intercept of 4.9% copper over 9.2 feet. Further exploration and development on the property would be required to further define and develop a potential resource suitable for providing additional feed for the ICP mill.

There is an opportunity for the mine to produce more tons for short durations on the high tonnage levels of the mine through the optimization of the mine plan and sequence. There also exists the possibility of increasing overall recoveries at the CPF and obtain better shipping and handling terms through formal negotiations in the future and to incorporate offtake and/or streaming agreements on some or all of the products to be produced. In addition, the project has potential to recover both heavy and light rare earth elements previously identified in association with the cobalt mineralization. No metal value is given to the copper or gold in determining the cobalt resource cut-off. With modifications to the processing design incorporating copper and gold values back into the cut-off calculation, an increase in tonnage within the resource would be realized. Further information and engineering and geological assessments are needed before these opportunities could be included in the project economics.

There are risks associated with the PEA. The most significant potential internal risks associated with the ICP are uncontrolled dilution, lower metal recoveries than those projected, operating and capital cost escalation, unforeseen schedule delays, the potential reduction of mineable reserves after removing inferred material from the model and the ability to raise financing. The reported mineral resources are not mineral reserves and do not have demonstrated economic viability. These risks are common to most mining projects, many of which can be mitigated with adequate engineering, planning and pro-active management.