Diversified miner Vale (NYSE:VALE) is reportedly working on reaching the first Canadian cobalt streaming deal from output at its Voisey’s Bay mine.
Demand for cobalt, a key component in the lithium-ion batteries used to power electric cars, is expected to surge in the next decade as the electric vehicle (EV) revolution continues to heat up.
To take advantage of that increasing need, Vale is looking to sell future cobalt production from Voisey’s Bay at a discounted price through a streaming option, four sources told Reuters on Tuesday (January 30).
The Brazilian miner is said to have hired Canada’s Bank of Montreal (BMO) to raise around $500 million from bidders for cobalt that will be produced at Eastern Canada-based Voisey’s Bay.
The deal could provide the winning bidder with up to 3,000 tonnes of cobalt for production starting in 2020, one of the sources said. Around 2,000 tonnes would be delivered in the first 10 years, with the remaining 1,000 tonnes sent in the next 10 years.
“BMO is also going out to talk to the automakers and battery producers, people like Samsung (KRX:005930) and Toyota (NYSE:TM),” one of the sources said. Samsung responded that it does not comment on rumors or speculation, and Toyota had no immediate comment.
Carmakers such as Volkswagen (FWB:VOW) have been looking to secure long-term lithium and cobalt contracts since last year without success.
“Their negotiating stance is weakening by the day as more companies commit tens of billions of dollars to build out their EV production capacity,” Benchmark Mineral Intelligence says in its latest report.
In order to meet this increasing demand, cobalt supply will need to reach 78,000 tonnes by 2021, up from just 48,000 tonnes last year, according to the London-based firm. Analysts believe the increased supply coming out of the Democratic Republic of Congo, the top cobalt-producing country, will be enough to meet the rising demand over the new few years.
“Beyond [that] point the market is expected to be in deficit and EV manufacturers in particular will need to do what they can to ensure security of supply,” Benchmark Minerals Intelligence analyst Caspar Rawles told INN via email.
That said, a number of raw materials/auto deals are expected to be struck in the next 24 months.
“Whilst talks are going on now we think that announcements of larger deals will happen perhaps towards the end of this year but more likely 2019 onwards,” Rawles added.
But negotiating pricing for a cobalt streaming deal could be complicated by the market’s limited size.
“[The] biggest question for such deals would be how to price the material fairly for both parties in the face of what we expect to be such rapidly rising demand in still evolving markets,” Rawles said.
However, with so many EV manufacturers looking to secure material for the long term, “producers are in a position of power at the moment, and if they happen to choose streaming as their contract of choice then purchasers will have to listen.”
Currently, the only cobalt-focused company offering direct exposure to physical cobalt is Cobalt 27 Capital (TSX:KBLT), which has outlined plans to make streaming deals with cobalt-producing companies, and has already acquired royalties on eight exploration-stage properties containing cobalt.
Cobalt 27 and a Vale spokesman in Canada have declined to comment. BMO did not respond to a request for comment.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.