Building North America's Next Primary Cobalt Mine

April 14, 2014

Spotlight on cobalt: Juniors (T.FT) (V.GCO) (T.FCO) expect battery cathode output to drive demand


Stockhouse Editorial - April 9, 2014, 2014

Spotlight on cobalt: Juniors (T.FT) (V.GCO) (T.FCO) expect battery cathode output to drive demand

Cobalt is a commodity that usually flies under investor radar screens.

But a number of developments are combining to put the spotlight on cobalt and companies that are aiming to produce the metal, including Fortune Minerals Ltd. (TSX: T.FT, Stock Forum), Global Cobalt Corp. (TSX: V.GCO, Stock Forum) and Formation Metals Inc. (TSX: T.FCO, Stock Forum).

The biggest one appears to be the recent announcement by Tesla Motors Inc. (NASDAQ: TSLA, Stock Forum) that it plans to open the world's largest battery factory in 2017, a move that is expected to increase demand for necessary raw materials, including graphite and cobalt.

While a site in the western U.S. has yet to be selected for the proposed Gigafactory, published reports say the factory is expected to produce enough rechargeable lithium-ion batteries each year by 2020 to power 500,000 Tesla electric vehicles.

Cobalt industry officials are welcoming the news that Tesla plans to source all the raw material for its proposed $5 billion U.S. battery factory in North America.

Cobalt is a critical component of super alloys and rechargeable batteries for uses ranging from mobile phones, laptops, and tablets, to hybrid vehicles and electric vehicles.

Demand for cobalt should increase by as much as 4,000-5,000 tonnes if the Gigafactory comes to fuition, wrote analyst Chris Berry, in an April 2, 2014 edition of Morning Notes, a newsletter that focuses on geolpolitical, technological and economic trends.

However, cobalt is usually mined as a by-product of other metals including nickel and copper.

"So it doesn't gain the attention in the market that a lot of commodities do,'' said Mitchell Smith, head of corporate development with Global Cobalt, a Canadian company which is working to develop the Karakul Cobalt project in Russia's southern Siberia region.

Smith said cobalt tends to be overshadowed by other metals because of the lack of primary cobalt producers that are available for people to invest in.

An exception is Global Cobalt, which has a deal with Beijing Easpring Material Technology Ltd., a supplier of battery grade material to Panasonic, Tesla's partner. Subject to the approval of Global Cobalt, Easpring will arrange offtake agreements with a major Chinese processor.

Also, Formation Metals has a fully permitted cobalt project near Salmon, Idaho, comprised of a mine and mill. Future production is estimated to be 1,500 tonnes of cobalt annually.

By contrast, Sherritt International Corp. (TSX: T.S, Stock Forum) is gearing up to produce 5,600 tonnes of finished cobalt annually from its Ambatovy mine on the eastern coast of Africa. But that material will be produced along with an estimated 60,000 tonnes of finished nickel.

Meanwhile, a report by FastMarkets' and posted on the website of Formation Metals says cobalt production has exceeded demand in recent years, creating oversupply and putting pressure on prices, according to the United States Geological Society (USGS).

No change is anticipated in this pattern, USGS said in its latest update.

"This trend is expected to continue in the near-term as production from new projects and expansions to existing operations add to supply,'' it added.

World mine production last year rose to 120,000 tonnes from 2012's 103,000 tonnes, the USGS estimated.

China was the world's leading producer of refined cobalt -- much of its production is from cobalt-rich ore and partially refined cobalt imported from Kinshasa in the Congo, where it owns facilities.

Congolese mine production last year was 57,000 tonnes, up from 2012's 51,000 tonnes. Chinese production from internal mines was 7,100 tonnes, rising from 7,000 tonnes.

Canadian production also rose to 8,000 tonnes from 6,630 tonnes, while there was an increase in Australian production to 6,500 tonnes from 5,800 tonnes.

Russian production was up at 6,700 tonnes from 6,300 tonnes, while there was a rise in Zambian output to 5,200 tonnes from 4,200 tonnes, the USGS added.

Jack Bedder, a senior analyst with Roskill, a London, England-based metals research firm, recently said global consumption of cobalt increased at a compounded annual growth rate of 5.5% between 2008 and 2013. Roskill also said it expects future demand to grow at a similar rate, expected to be 6.1% annually to 2018.

As a result, cobalt demand will reach over 100,000 tonnes.

Roskill went on to say that demand for cobalt will be led by Asia, particularly China, South Korea and Japan.

"Growth in demand in these countries will be driven by increasing battery cathode production,'' it said, adding that demand for cobalt in battery applications is forecast to grow at 9.2% per year to 2018 and will continue to be the greatest contributor to increased demand.

Meanwhile, in late February, cobalt prices hit a two-year high on strong demand for batteries at a time of low producer supplies, according to a report by Metal Bulletin.

However, Metal Bulletin also said low grade cobalt prices dropped to $14-$14.90 per pound April 9, 2014, down from $14.10 to $15 per pound previously. High-grade cobalt prices fell to $14.10 to $15.10 per pound, down from $14.20 to $15.30 per pound.

Both traders and producers expressed an eagerness to sell, having watched prices stabilize for several weeks following the recent rally,'' MetalBulletin said.

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