Jon Hykawy of Stormcrow Capital: Cobalt Supply Needs to Rise

- March 21st, 2016

With demand for lithium-ion batteries growing, the world will need more cobalt from more geographically diverse sources, said Hykawy at PDAC.

By all accounts, lithium, graphite and cobalt got a lot of attention at this year’s Prospector’s & Developers Association of Canada (PDAC) conference. 
Hype surrounding the metals stems from the fact that they’re all used to make lithium-ion batteries, which are required by electric vehicle makers. In particular, many market participants are excited by the fact that Tesla Motors (NASDAQ:TSLA) and other major companies are building lithium-ion battery megafactories that will make large amounts of the batteries and require vast quantities of lithium, graphite and cobalt.
Of course, the key question is exactly how much lithium, graphite and cobalt these companies will require, and how their demands will impact the market. Various firms have come forward with estimates, but at this early date it remains difficult to accurately predict what companies’ future requirements will be.

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During a talk on lithium-ion batteries at PDAC, Jon Hykawy of Stormcrow Capital took the time to address those questions. While the talk largely centered on lithium itself (check out our overview here), he also made some interesting comments about cobalt.
In terms of supply and demand, Hykawy said that in 2015, annual global mined cobalt production clocked in at 120,000 tonnes, with 53,000 tonnes being used as cathode material. However, “by 2025, we’re looking at a requirement for cobalt of 121,000 tonnes, which is actually in excess of all producing cobalt today.”
That, said Hykawy, is “interesting,” particularly in light of the fact that “cobalt is a by-product.” In other words, more often than not it’s a secondary product mined at the same time as other metals — for example, a mine that produces mainly copper may produce some cobalt as a by-product.
Part of the problem with cobalt’s status as a by-product is that it means cobalt supply is tied to supply of other metals. Consider again the case of copper — if a copper mine that also produces cobalt comes to the end of its life or is placed on care and maintenance, some cobalt will come off the market as well. That concern came to the fore last fall when Katanga Mining (TSX:KAT) announced an 18-month suspension of copper and cobalt processing.
Relatedly, said Hykawy, the fact that cobalt is largely a by-product of other metals is an issue because “cobalt for batteries has to be clean. Free of iron, free of aluminum, free of a bunch of other things. That’s a difficult problem. Bear that in mind.”

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The solution, he believes, is for cobalt production “to be significantly increased and … diversified geographically.” In other words, the volume of cobalt produced needs to rise, and it needs to come from a wider variety of locations (currently the Democratic Republic of the Congo is the world’s largest cobalt producer by an extremely wide margin).
In conclusion, he pointed out that the consequences of those things not happening could be dire. If there is not enough cobalt to go around, then prices will go up. And with higher prices, “Elon Musk and Tesla are going to have some issues to deal with.”
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
Jon Hykawy of Stormcrow Capital: Lithium Market in a ‘Precarious Position’
10 Top Cobalt-producing Countries

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2 responses to “Jon Hykawy of Stormcrow Capital: Cobalt Supply Needs to Rise

  1. Looking up the cobalt sector these last couple of days, I have to say the market reacted to this news very strongly. As for the producers at hand, the actual ones are currently highly diversified to be considered near-term profitable in regards to the cobalt shortage (Glencore, Nyrstar, etc.) since their profits are also made elsewhere. The Katanga mine in DRC (largest cobalt mine in the world) is closed until middle 2018 due to maintenance. This leaves ONLY few virtual producers that are specialized on cobalt pure-play for the investor to make a near-term profit.

    Formation Metals (FCO.TO) – (PEA) – Idaho Cobalt Project, hyped due to Tesla Gigafactory vicinity (Nevada), promotes itself with ethical mining, safety and responsibility, however other than economic studies they offer not much information about their deposit, other than estimated reported resources which are not particulary impressive in comparison with the resources elsewhere.

    Equitas Resources (EQT.V) – (N/A) – Garland-Nickel-Cobalt-PGM Project, other than forward looking statements there is no information regarding the surveys, resource deposit, orebody etc. available on their page that I could find. Must be in very early exploratory stages.

    Broken Hill Prospecting (BPL.AX) – (PEA* non JORC) – still lacks a JORC compliant study to further provide economic viability, the scoping studies for cobalt are years out of date, it will need current information for further assessment. The scoping study shows the deposit being fairly vertical with mineralisation occuring to 300m of depth, thus drilling and maintenance being a production cost factor.

    Conico (CNJ.AX) – (PFS) – Mt. Thirsty, potentially 4th largest cobalt producer, is owned, operated and managed by Conico. The orebody is relatively flat lying with an average thickness of 12m and an average depth below surface to the top of the orebody of 14m, deeming the production costs lower due to lack of necessity for extensive drilling.

    Conico (CNJ.AX) is currently way ahead of other cobal developers finishing it’s preliminary feasibility study in 2014, the company’s tangible book value currently exceeds their SP (0,02 SP – 0,05 TBVPS), with the worlds 4th largest cobalt deposit, it makes a very good entry point at the current prices.

  2. Looking up the cobalt sector these last couple of days, I have to say the market reacted to this news very strongly. As for the producers at hand, the actual ones are currently highly diversified to be considered near-term profitable in regards to the cobalt shortage (Glencore, Nyrstar, etc.) since their profits are also made elsewhere. The Katanga mine in DRC (largest cobalt mine in the world) is closed until middle 2018 due to maintenance. This leaves ONLY few virtual producers that are specialized on cobalt pure-play for the investor to make a near-term profit.
    Formation Metals (FCO.TO) – (PEA) – Idaho Cobalt Project, hyped due to Tesla Gigafactory vicinity (Nevada), promotes itself with ethical mining, safety and responsibility, however other than economic studies they offer not much information about their deposit, other than estimated reported resources which are not particulary impressive in comparison with the resources elsewhere.
    Equitas Resources (EQT.V) – (N/A) – Garland-Nickel-Cobalt-PGM Project, other than forward looking statements there is no information regarding the surveys, resource deposit, orebody etc. available on their page that I could find. Must be in very early exploratory stages.
    Broken Hill Prospecting (BPL.AX) – (PEA* non JORC) – still lacks a JORC compliant study to further provide economic viability, the scoping studies for cobalt are years out of date, it will need current information for further assessment. The scoping study shows the deposit being fairly vertical with mineralisation occuring to 300m of depth, thus drilling and maintenance being a production cost factor.
    Conico (CNJ.AX) – (PFS) – Mt. Thirsty, potentially 4th largest cobalt producer, is owned, operated and managed by Conico. The orebody is relatively flat lying with an average thickness of 12m and an average depth below surface to the top of the orebody of 14m, deeming the production costs lower due to lack of necessity for extensive drilling.
    Conico (CNJ.AX) is currently way ahead of other cobal developers finishing it’s preliminary feasibility study in 2014, the company’s tangible book value currently exceeds their SP (0,02 SP – 0,05 TBVPS), with the worlds 4th largest cobalt deposit, it makes a very good entry point at the current prices.

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