Investing In Cobalt

Investing

Investing In Cobalt

Investors around the world are cashing in on the rise in the price of cobalt. Find out how you can unearth the investment potential of “blue gold”.

Published on 27 December 2017

Seeking out the latest, hottest opportunity is something that intrigues and challenges most investors. As the price of oil continually fluctuates and environmentally-friendly alternatives to polluting fossil fuels are becoming increasingly popular, energy generated by batteries is making major headlines these days.

Delve deeper and we realise these batteries ­­– which power not only our electric vehicles, but also many of our essential everyday electronic devices such as smartphones ­– are fuelled by lithium ions along with a raft of other metals including the relatively unknown cobalt. Around 75% of lithium batteries use cobalt.

The leading company in the electric automotive industry, Tesla Motors, for example, originally used battery cathodes comprising lithium, nickel, aluminium, and cobalt, but its new battery is composed of nickel, manganese, and cobalt. In addition, Toyota recently announced that production of its cobalt pyrophosphate cathodes will start by 2022.

Smartphone batteries, however, are still the main end use market for cobalt, according to BMO Capital Markets.

Cobalt is used broadly across the industrial world to manufacture everything from alloys for jet engines and gas turbines and to drill bits, magnets, and orthopedic implants, but the metal’s primary importance is as a component of lithium batteries.

Some researchers predict that all lithium batteries will eventually include cobalt in their cathodes.

Blue gold

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As one of the chief component minerals in lithium ion batteries, cobalt is generating so much demand that it is often referred to as “blue gold”.

The price of cobalt has more than doubled this year – from around US$15 per pound at the beginning of 2017 to over US$33 per pound – and risen more than 300% since 2015 due to the metal’s importance in the lithium battery industry and its limited supply.

Many analysts, however, believe that the real demand is some years off when the electric car market booms and lithium batteries really start powering the world.

Over 60% of global supply of cobalt comes from what many consider to be the politically-unstable Democratic Republic of Congo. While several large global miners operate there, concerns have been expressed in some quarters over the environmental impact of mining and the poor socio-economic conditions of miners in the Congo.

The top five cobalt mining nations are the Congo, China, Canada, Russia, and Australia. The US accounts for just 4% of global cobalt supply.

Cobalt stocks

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Cobalt investors can consider direct investment in stock market listed miners or in resources funds.

For investors seeking broader mineral exposure in global companies that include cobalt in their portfolio, consider global super miners like Glencore (the world’s largest cobalt mining company, accounting for 22% of global production in 2015), Freeport-McMoRan, and China Molybdenum. Another miner to look at is Congo-based Katanga Mining – which has the world’s biggest reserves of cobalt and is 88% owned by Glencore.

There are other direct investment opportunities with companies identified as mining especially for cobalt.

There are around 110 cobalt-focused companies involved in cobalt mining listed on the Toronto Stock Exchange (TSX) including Cobalt 27, Cobalt One, First Cobalt, Formation Metals, Fortune Minerals, eCobalt Solutions, and Global Cobalt.

There are also a number of firms involved in cobalt mining on the Australian stock exchange including Clean TeQ Holdings, Ardea Resources, Pioneer Resources, Havilah Resources, and Barra Resources.

It is important to note that cobalt is mostly mined as a bi-product of nickel and copper production so investors seeking to diversify their investment portfolio should seek out such miners. Russian miner Norilsk is one such company.

Cobalt funds and futures

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Exchange-traded funds (ETFs) with cobalt exposure aren’t as prolific as direct share purchase opportunities – at least not yet. A few ETFs that have a small exposure in cobalt include Vanguard Small-Cap (VB), Vanguard Small-Cap Growth (VBK) and Vanguard Energy (VDE).

Investors could be well-advised to research mining companies, trusts, and ETFs that invest in a range of metals and not just in cobalt. If so, look closely at First State Global Resources, BGF World Mining Fund, and JP Morgan Global Natural Resources. Other alternatives are to invest in end-user companies such as Tesla and Apple or to buy cobalt futures.

Cobalt futures can be found on the London Metal Exchange under the ticker (CO). Launched in 2010, these futures are quoted in US dollars per tonne. Cobalt futures contracts stretch over a span of 15 months.

The bottom line

Lithium batteries are currently fuelled by a “chemical stew” of lithium metal oxides comprising phosphate, iron, manganese, spodumene, aluminium, tantalite and titanium as well as cobalt and lithium. Scientists are in the labs as you read this researching the next generation of batteries so watch this space for the next high-flying metal investment.

In the meantime, cobalt stocks are poised for further gains on surging demand for the metal as a key ingredient in lithium batteries and its limited supply. No doubt, there will be many opportunities in the cobalt industry for investors to unearth.

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