Introduction to Cobalt Investing

By Damon van der Linde—Exclusive to Cobalt Investing News

Overview

Cobalt is an element that has been used by humans for thousands of years as blue coloring in pottery, glass and ceramics, but in recent years demand has surged, mainly due to its use in  hybrid electric vehicle (HEV) rechargeable batteries. The global supply of cobalt is complicated by the fact that it is rarely sourced as a primary element, most commonly extracted as a by-product from nickel and copper mining operations. Though sourced in about a dozen countries around the world including Canada, Australia and Finland, the majority of cobalt extraction comes as a by-product from copper mining operations in the politically unstable Democratic Republic of Congo on the Copperbelt of Sub-Saharan Africa.

As with many other global commodities and stock prices, the value of cobalt fell dramatically with the economic recession in 2008, but has again begun to rise modestly since the beginning of 2009.

About Cobalt

Cobalt is a hard, lustrous, silver-grey mineral, with the atomic number 27 and atomic symbol “Co.” Although cobalt has been used since ancient times for the rich blue color it gives glass, glazes and ceramics, it wasn’t until 1735 that the free metallic form was prepared and discovered. Since then, the element has played a significant role in industrial uses, the hi-tech industry, medical and environmental operations.

Cobalt is globally quite widespread, forming 0.0029% of the earth’s crust, but it is rarely found as a native metal. Its low concentration means it is mainly obtained as a by-product of nickel and copper mining, and its primary sources are in locations where these other minerals are extracted.  The main ores of cobalt are cobaltite,erythriteglaucodot and skutterudite.

Cobalt Supply

Sub-Saharan Africa’s Copperbelt is the world’s largest source of cobalt, with one-third of global reserves and 40-50 percent of the supply originating from copper mines in the politically volatile Democratic Republic of Congo (DRC), and to a much lesser extent, Zambia.

Until recently, significant volumes of ore and concentrates were being mined in the DRC and shipped elsewhere for refining, mainly to China. From 2006 to 2008, the DRC Government put restrictions on the export of ores in order to encourage greater development of downstream processing in the country and has, in some cases, been renegotiating mining contracts in the country.

Globally, there are other potential new cobalt sources, ranging from new cobalt-containing nickel and copper deposits in Canada, Western Australia, Finland, Madagascar, to deep-sea nodules and discoveries of cobalt containing polymetallic minerals in Yemen.

Cobalt Demand

Cobalt demand is growing largely due to the increase in production of rechargeable nickel metal hydride and lithium-ion batteries, which both contain cobalt.  In 2009, the percentage of cobalt use for rechargeable batteries rose to 25 percent of total cobalt demand—its highest-ever level—and that percentage is forecast to rise to approximately 45 percent by 2018.  Computers, cell phones, portable tools, audio/video units and other electronic devices all use batteries containing cobalt, however, the fastest growing segment of the battery market is for hybrid electric vehicles (HEVs). Nearly all current HEVs use nickel-metal hydride batteries that contain about 22 pounds of nickel and 3 to 5 pounds of cobalt. Lithium-ion batteries containing 5 to 7 pounds of cobalt and little to no nickel are expected to dominate future HEV markets because they charge in minutes rather than hours and offer many other economic and technical advantages.  Global production of HEVs in 2007 was about 400,000-500,000 units, and is estimated to increase to 8 million units by 2015, thereby increasing annual cobalt demand by nearly 22,000 tonnes per year.  The rise in recent years’ production can largely be attributed to substantial increases in demand in the Chinese and South East Asian markets.

Cobalt Price

The 2008 recession caused a dramatic fall in cobalt prices, along with other commodities and global stock values. Cobalt prices opened 2009 at $17.5/lb (High Grade) and $11.5/lb (Low Grade) having fallen from highs of $51.25/lb (HG) and $48.63/lb (LG) in March and April of 2008. The markets remained subdued for the first half of 2009 and slowly began to recover in the second half as market sentiment improved and demand, particularly from China and other Asian countries, continued to be sustained. The end of 2009 closed with prices at cobalt prices $21/lb (HG) and $20/lb (LG), modestly higher than the beginning of the year.

The London Metal Exchange (LME) started the trading of cobalt (minimum Co 99.3 percent) in February 2010, showing significant turnover for this new contract. Until then, the main price reference had been the London Metal Bulletin free-market quotation. The LME will offer a fully regulated market with which to trade spot and future cobalt contracts.