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Cobalt set for bearish 2019 but demand fundamentals remain strong

Despite a sharp price correction in 2018, shrinking supply sources and growing demand for battery chemicals are predicted to sustain cobalt prices into the 2020s.
Cobalt set for bearish 2019 but demand fundamentals remain strong
The cobalt price was about US$45,000 in mid-January

Following strong upwards trends in 2017, the cobalt price in 2018 climbed to reach an all-time high of US$95,250 a tonne in March before plummeting more than 50% by year-end.

The market volatility across the year was shared by most other base metals, fuelled by the US-China trade dispute as well as China’s contracting economy.

Market sentiment for cobalt shifted further due to announcements from major battery makers such as Tesla to decrease the amount of cobalt to be used in their batteries.

It was also affected by a supply-side response in the form of larger artisanal production from the Democratic Republic of Congo (DRC), which put medium-term pressure on prices.

Six-year cobalt price. Source: tradingeconomics.com

 

Strong demand fundamentals

Production from the DRC has added to volatility due to considerations of ethically-sourced cobalt and the country’s recent contested elections.

Nonetheless cobalt demand remains strong and its use in lithium-ion batteries will potentially triple by 2026.

This was given a jump-start late last year when Katanga Mining (TSX:KAT) halted export sales at its Kamoto mine in the DRC after identifying uranium in its cobalt production.

Cobalt demand increased at a rate of 8% per year from 2010-2017, according to Roskill, mainly driven by demand from the battery sector which now accounts for more than half of total cobalt consumption.

Demand for cobalt in batteries is predicted to grow at 14.5% a year to 2027, which, coupled with increases in other end-uses such as nickel alloys used in aerospace, paint a rosy picture for cobalt outlook across the next decade.

‘Demand will continue to grow’

The 2018 price correction was expected by some analysts, with Benchmark Mineral Intelligence analyst Casper Rawles noting he had anticipated the market to correct but was somewhat surprised by how much.

Rawles said: “There were some exceptions to the rule, but from the end of quarter one and throughout 2018, we’ve seen prices decreasing and continuing to fall.”

Explaining the downward trend, Rawles pointed to the increase in the price basis of raw material feedstocks from the DRC going into China and the resulting credit availability and cash flowing in China.

He remained cautious looking ahead, saying “demand will continue to grow, consumption of lithium-ion batteries is going to grow, but as of right now there’s enough cobalt around to meet the needs of the market”.

Rawles expects the recent election uncertainty in the DRC to potentially have small supply disruptions but these would be short-lived and have no impact on prices.

Advanced technology applications

Most cobalt is mined as a by-product of copper or nickel and is reliant on the strength of those markets.

The US Geological Survey estimates that 43% of world cobalt production in 2015 was from copper mining and 44% from nickel.

There is only one modern primary cobalt operation, the Bou-Azzer mine in Morocco, but that only contributes around 2% to global production.

Cobalt is useful in the manufacture of varying products due to its ferromagnetism and wear-resistance when alloyed with other metals.

The transition metal retains its magnetism at high temperatures and can be used in advanced technology applications as well as in superalloys and as a refining catalyst.

 

Diversification of supply sources

More than 60% of the world’s cobalt production comes from the DRC, of which 10-25% is estimated to be artisanal in nature.

According to the US Geological Survey, total global cobalt production in 2017 was 110,000 tonnes, down from 111,000 tonnes the previous year.

The DRC contributed 64,000 tonnes in 2017 with Russia in second place at 5,600 tonnes.

Australia and Canada, the third and fourth highest producers respectively, have had added interest as cobalt jurisdictions due to stable mining codes, established supply chains and promising cobalt developments.

Darton Commodities Limited estimates that annual cobalt demand will exceed 120,000 tonnes by 2020, with further demand growth linked to potential technological advancements in the battery space.

The global hybrid and electric vehicle market grew by 33.2% in 2017, according to MarketLine data, and demand is predicted to keep rising through 2020.

This could potentially create substantial shortages in cobalt as early as 2022 with current production estimates.

A number of companies are actively developing cobalt projects in Australia and Canada which may soon begin contributing to global production if demand predictions and supply-side challenges persist.

Chinese contraction causes medium-term price weakness

Data shows China’s gross domestic product (GDP) has decreased for the past five consecutive quarters and the country’s leader Xi Jinping has remained vague on Beijing’s plans for a wider economic stimulus.

In terms of both supply and consumption China is a key market for base metals and its economic growth has a strong impact on prices and market sentiment.

According to Darton Commodities, China accounts for more than 80% of the production of cobalt chemicals and it remains a key producer of batteries.

Overall 2018 GDP growth for China is anticipated to be 6.6% and it is expected that the Chinese government will lower its economic growth target to 6%-6.5% in a March parliamentary session.

Forecasts from the International Monetary Fund for world GDP growth are 3.7% for both 2018 and 2019, including slower growth for the US and China at 2.5% and 6.2%, respectively.

India’s GDP is expected to grow by 7.4%.

Cobalt end-uses. Source: Benchmark Mineral Intelligence and Global Energy Metals.

 

Trade dispute foments uncertainty

Talks between the US and China are ongoing and have assuaged some investor concern, but until the dispute is concretely resolved the market uncertainty will persist.

According to Fastmarkets MB Research, China is planning new incentives to boost domestic consumption for goods associated with metal demand including auto and home appliances.

Along with any further economic stimulus, the measures could spark a brief recovery in metals prices but would need an established trade deal to sustain upwards price pressure.

Scotiabank analysts reported in mid-October that the global trade dispute was not only the primary driver of the base metals slump but that also it would continue to have an affect up to 2020 and potentially beyond.

Scotiabank said: “US-China trade concerns remain front-and-centre for commodity markets with no obvious end in sight.

“We now believe that the US-China trade dispute will remain a slow-burn drag on industrial commodity sentiment through to the 2020 US presidential election.”

The Scotiabank analysts pointed out that prices were down despite falls in base metal stockpiles, with nickel inventories at five-year lows and copper down 50% over the last six months.

Cobalt driven by Chinese consumption

With demand sustained from downstream manufacturing sectors producing smartphones and electric vehicles, and supply primarily constrained to the volatile DRC, cobalt prices are likely to remain strong in future.

China imports 99.3% of the DRC's cobalt exports, making it the world's largest cobalt importer at 38% of global imports.

In order to secure stable supply, Chinese state-owned enterprises are increasingly investing in cobalt production in the DRC, with Bloomberg noting eight of the fourteen cobalt mines in the DRC are Chinese-owned.

The largest example is China Molybdenum which is now the world's second largest cobalt producer behind Glencore.

Limited corporate social responsibility and a lack of awareness of local supply chains have given Chinese enterprises an advantage in securing products for its cobalt refining and chemical industry.

Cobalt producers will need to produce more than 200,000 tonnes of cobalt in battery-grade chemicals a year by 2028, according to Benchmark, pushing total demand to 250,000-300,000 tonnes including consumption in other products.

Global cobalt resources by jurisdiction. Source: United States Geological Survey

 

Defining new cobalt jurisdictions

While the DRC is expected to remain the world’s primary supplier of cobalt in the foreseeable future, the issues plaguing the mining industry in the central African country have prompted a spike in exploration for cobalt in other jurisdictions.

A number of Australian cobalt and battery metal developers are advancing work on projects both at home and abroad, aiming to define and extract economic cobalt resources.

READ: Artemis Resources recommences drilling at Carlow Castle, resource update pending

Artemis Resources Ltd (ASX:ARV) recently resumed aircore drilling at its 100%-owned Carlow Castle Gold-Copper-Cobalt Project in Western Australia’s Pilbara region.

Results from the program will be combined with other exploration data to design a resource development drill program scheduled for the March quarter 2019.

A JORC resource update is underway using the near-24,000 metres of previous drill data and is expected this year.

Initial metallurgical results indicate that Carlow Castle ore is amenable to low-cost gravity gold recovery and base metal flotation processes.

READ: Australian Mines’ BFS values Sconi Cobalt-Nickel-Scandium Project at $697 million

Australian Mines Limited (ASX:AUZ) released a definitive feasibility study (DFS) last year for its Sconi Cobalt-Nickel-Scandium in Queensland, valuing the project at $697 million.

The DFS estimates life-of-mine revenues of about $513 million a year, with average EBITDA at $295 million per year.

The company signed a binding term sheet with SK Innovation last year for the sale of all cobalt and nickel sulphate to be produced at Sconi and is also progressing financing discussions.

Historical mining in the area has produced 15,000 tonnes of cobalt and 327,000 tonnes of nickel.

READ: Blackstone Minerals raises $1.2 million for further exploration in Canada and Western Australia

Blackstone Minerals Ltd (ASX:BSX) is developing its landholding around the Little Gem project in Canada, which is rapidly emerging into British Columbia’s premier cobalt belt.

Last year Blackstone identified multiple new large-scale targets at the Jewel copper-gold-cobalt prospect within Little Gem.

The Jewel prospect is 1.1 kilometres northeast of the Little Gem prospect and is associated with the high-grade Jewel Underground Mine with historical production of 51 tonnes between 1938 and 1940.

Historical average mining grades of 73 g/t and 0.4% copper have been supported by Blackstone rock chip samples assaying up to 98 g/t gold, 3.2% copper and 0.1% cobalt.

 

READ: Cape Lambert Resources highlights value in tailings pipeline

Cape Lambert Resources Limited (ASX:CFE) is focused on its Kipushi Cobalt-Copper Tailings Project in the DRC, from which it aims to recover cobalt from old tailings left behind in the hunt for copper.

The company has ambitions to produce thousands of tonnes of material a year near the town of Kipushi in the DRC’s Katanga Copper Belt.

The tailings dam extends for a kilometre, is more than 400 metres wide and up to 15 metres deep, and has enough material to last as long as five years.

Cape Lambert executive chairman Tony Sage said the company expected to produce about 2,900 tonnes of cobalt and 7,500 tonnes of copper a year, worth about US$200 million.

READ: Cobalt Blue’s Thackaringa drilling returns broad, high-grade cobalt results

Cobalt Blue Holdings Ltd (ASX:COB) is developing the Thackaringa Cobalt Project in western NSW with joint venture partner Broken Hill Prospecting Ltd (ASX:BPL).

Drilling at the Pyrite Hill deposit late last year reinforced the project’s potential for resource growth and a substantial mine life.

Pyrite Hill represents 36% of the existing 72 million tonne mineral resource and about 36% of the contained cobalt inventory of 61,500 tonnes.

Results from the first seven infill holes have confirmed substantial thicknesses of cobalt mineralisation consistent with the existing geological model.

They include: 68 metres at 1,128 ppm cobalt, 13.4% iron and 13.4% sulphur from 116 metres; and 52 metres at 1,042 ppm cobalt, 11.1% iron and 11.2% sulphur from 93 metres.

READ: Corazon Mining to advance knowledge of Mt Gilmore, Cobalt Ridge this quarter

Corazon Mining Ltd (ASX:CZN) aims to define a large deposit at the Cobalt Ridge prospect within its Mt Gilmore Cobalt-Copper-Gold project in northeast NSW.

The company is also developing the Lynn Lake Nickel-Copper-Cobalt Sulphide Project in Canada.

Drilling at Cobalt Ridge included 5 metres at 2.14% cobalt within a broader intersection of 27 metres at 0.47% cobalt from 49 metres.

Results from a geochemical soil sampling program which ended in November indicated cobalt and copper values of up to 450 ppm and 1,060 ppm, respectively, and rock chip samples have graded up to 1,795 ppm cobalt and 16.3% copper.

 

READ: Fe Limited advances copper-cobalt in DRC and is leveraged to highly prospective ground in WA

Fe Limited (ASX:FEL) is advancing its Kasombo Cobalt-Copper Project in the DRC towards production in the first quarter of 2020.

Kasombo is 25 kilometres from the DRC’s second largest city, Lubumbashi, in the Katanga Copper Belt.

Recent trenching returned elevated cobalt results including: 10 metres at 0.21% cobalt from 42 metres; and 12 metres at 0.23% cobalt from 17 metres.

FEL executive chairman Tony Sage said Kasombo could be a very viable copper-cobalt mine, but needed a little bit more work on the ground.

READ: Great Boulder Resources prepares for deeper drilling of nickel-rich Eastern Mafic target

Great Boulder Resources Ltd (ASX:GBR) is continuing to drill test targets at its Eastern Mafic nickel-copper-cobalt deposit within the Yamarna project in Western Australia.

A revised geological model based on geophysics and drilling completed in the Decemvber quarter infers that the Eastern Mafic intrusion was formed at depth and deep drilling will test this theory.

The company believes that drilling to date, which has returned encouraging copper, nickel and cobalt results, has only intersected the top of the intrusion, leaving the main body untested.

READ: Havilah Resources’ native title agreement paves way for mining lease at copper-cobalt-gold project

Havilah Resources Ltd (ASX:HAV) is progressing development of its Kalkaroo Copper-Cobalt-Gold Project in South Australia as well as its nearby Mutooroo Copper-Cobalt Project.

The company is aiming to find additional resources at Mutooroo to complement the maiden 100 million tonne resource at Kalkaroo, which contains 23,000 tonnes of cobalt.  

Havilah technical director Chris Giles said a 2018 achievement at Mutooroo was to confirm the cobalt potential of deeper ground at the project, with economic levels of cobalt, copper and gold found.

Mutooroo’s deposit contains 195,000 tonnes of copper and 8,400 tonnes of cobalt.

 

READ: Meteoric Resources begins diamond drilling program at Joyce in Canada

Meteoric Resources NL (ASX:MEI) has recently begun drilling at its Joyce Copper-Cobalt-Gold Project in western Ontario, Canada.

Joyce is Meteoric’s highest priority target based on thick sequences of undrilled massive and disseminated sulphides exposed at surface.

Historical high-grade assays from Joynce include 11% copper, 0.3% cobalt and 8.07 g/t gold, confirming the potential of the system.

The mineral explorer also identified 18 cobalt targets from an airborne electromagnetic (EM) survey at its Mulligan East and Iron Mask projects last year.

READ: Marquee Resources prepares Werner Lake resource update, metallurgical sample

Marquee Resources Ltd (ASX:MQR) expects to update the mineral resource estimate for its high-grade Werner Lake Cobalt Project in Canada this quarter after earning into a 30% stake last year.

Drilling at Werner Lake has returned strong results such as 2.6 metres at 0.313% cobalt and 0.177% copper from 316.4 metres, including 1.6 metres at 0.406% cobalt and 0.176% copper.

Werner Lake features cobalt sulphide mineralisation and was discovered in the 1920s and mined in the 1940s.

Marquee’s other projects include the Skelton Lake Cobalt Project, also in Ontario, and the Clayton Valley Lithium Project in the US state of Nevada.

 

READ: Panoramic Resources on track for first shipment from recommissioned nickel-copper-cobalt project

Panoramic Resources Ltd (ASX:PAN) is aiming to recommission its Savannah Nickel-Copper-Cobalt Project in WA with the first concentrate shipment scheduled early next month.

The ramp-up to full underground mining production continues for the project in the Kimberley region while the process plant achieved a daily throughput rate of 2,000 tonnes early this month.

The company also holds platinum group metals and gold assets and its goal is to become a major diversified mining company.

READ: White Cliff Minerals’ new assays feature 40 metres at 0.22% cobalt and 1.75% nickel

White Cliff Minerals Ltd (ASX:WCN) is developing its Coronation Dam Cobalt Project in Western Australia, recently completing a 5,000-metre reverse circulation drilling program.

Highlighted drill results include: 40 metres at 0.22% cobalt and 1.75% nickel from 8 metres; and 36 metres at 0.1% cobalt and 0.88% nickel from surface.

The drilling has increased the extent of high-grade mineralisation to more than 600 metres long, 400 metres wide and with an average thickness of 20 metres.

Coronation Dam is 90 kilometres south of Glencore’s Murrin Murrin mining operation and 45 kilometres south of GME Resources Ltd’s (ASX:GME) proposed nickel-cobalt processing facility.

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