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Cobalt: The New Gold Rush

Raise your hand if you know anything about the cobalt industry. You might want to Google it and take a long hard look at cobalt mining. This greyish white magnetic metal is not particularly well-known but is a strategic element in the ever-increasing demand for lithium-ion batteries. Cobalt is a strategic metal because it is found in so many devices we use today. Cobalt is a major component of your smartphone, comprising between 5-10 grams in each phone battery.

Some surprising facts about cobalt:

    • Lithium-ion batteries contain cobalt allowing batteries to be denser therefore smaller.
    • Cobalt allows batteries to increase energy density, and to hold their charge longer.
    • Cobalt prices have increased by more than 47% year-over-year, resulting in one of the largest gains in the metals spectrum, even surpassing gold.
    • Currently, the largest deposits of cobalt are found in the Democratic Republic of Congo (DRC).
    • Worryingly, children are used for the mining of cobalt in the DRC.
    • The inevitable result is that when supply chains for major companies such as Tesla and Apple are called into question, as is increasingly the case, the DRC will be considered and unacceptable alternative, as is the case with conflict diamonds.
    • Most of China’s cobalt is currently supplied from the DRC for use in battery production.

With the entire car manufacturing industry eyeing Tesla’s popularity, one can see where the lithium-ion market is heading. The elephant in the room is how to deal with the DRC’s mining practices amidst increasing demand for the product?

According to a report by Amnesty International in 2016, children as young as four years old scoop the mineral out of the ground with their hands, which is the main reason Tesla is not purchasing its supply from the DRC. Even though the DRC produces 60% of the worlds cobalt Tesla has been using a supplier in the Philippines. No one wants to be associated with human rights issues and the pressure o do something about it is growing.

Tesla announced in 2016 that they would stop sourcing cobalt in the Philippines and find a North American supplier by 2017. As Tesla has already stated they intend to produce batteries for the home (as well as for their cars) in their new $5bn Gigafactory, the demand for a North American source is undeniable.

To put everything into perspective Tesla will use approximately 10,000T per year yet the entire US production of cobalt in 2016 was only 700T.

To complicate matters further, China as the biggest user of cobalt to date has had to shut down several of their mines because of environment concerns. This adds to the pressure on supply.

Additionally, most of the world’s cobalt comes as a by-product of copper and nickel mining and finding a pure source is a challenge. Last year marked the first time in eight years that cobalt supply was in deficit.

Hedge funds, such as Pala of Switzerland are hoarding cobalt because of their belief in the acute shortages. Manufacturers are looking for a cost effective source they can tap into that is both environmentally safe and is mined ethically.

​Last year speculation was that cobalt would go to $10,000 a ton by this time this year, some even said with the Chinese environmental problems it might hit $20k – well folks it is trading at $25 a pound or $55,500 a ton – phew!