EDITOR: | May 16th, 2016 | 8 Comments

Cobalt: The Bass Player in the Tesla Band

| May 16, 2016 | 8 Comments
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cobaltNumbers are numbers and facts are facts: we make serious money when we figure out how those statistics could affect the future.

For the past year, we’ve been haranguing about the global shortage of cobalt. We’re not alone in this. See John Petersen‘s series of beautifully analytical data-driven articles and Chris Ecclestone‘s thesis. The key facts you need to know:

  1. roughly 97% of the world’s supply of cobalt is produced as a by-product of nickel or copper production. Fact;
  2. the spot prices for copper and nickel have plummeted to and have stayed at levels that make many deposits uneconomic. Fact;
  3. as a result of these economics, the owners of some of those copper and nickel mines are closing the mines, putting those mines on care and maintenance in a Hail Mary that someday the commodity price will recover enough to someday make these mines economic. Fact;
  4. if those mines are shut in, the supply of cobalt will fall in tandem. Fact;
  5. geographically, roughly 53% of the world’s supply of cobalt comes from nickel and copper mining in Conflict Africa. This supply is at risk on the best of days. Even worse, there are ethical concerns involving child labour. Read this article from Wired magazine, and understand why there is a global movement to impose an ethical supply chain on cobalt out of that area. Fact;
  6. the experts who specialize in this area are anticipating a 10 – 15% decrease in cobalt supply in 2016, resulting from a combination of ethical controls on the supply chain and mines being shut in. Fact;
  7. every battery used in an electrically powered vehicle needs cobalt. Fact;
  8. Tesla says it will punch out 500,000 electrically powered vehicles by 2018, each one of which will need an electric battery. Actually, each car will use many small electric batteries, each one containing lithium, graphite and cobalt. John Petersen’s work, supported by others, indicates that roughly 7,000 tonnes of additional cobalt will be needed to create the batteries for these vehicles. That number could be as high as 12,000 tonnes. Fact.

Simple facts, easily verifiable by your own due diligence. Global demand is increasing while supply is decreasing.

So what do those numbers mean?

Econ101 tells us that if demand increases and supply decreases, the price for the item must increase.

Think of the last time you went to a bar and saw a live band. You’re having a great time and really appreciating the music. The crowd is moving and the band is smokin. The drummer makes your arms move. The guitar player makes your hips pivot and your hips swing. Then you look down and your foot is moving … you don’t even know it but your toes are tapping along with the groove. That’s not the sax solo, that’s not the singer … it’s the forgotten bass player who makes your toes tap.

If lithium is the lead singer in Tesla’s band, cobalt is the bass player.

Lithium gets all the media attention. It seems that every day there is another mining company announcing a lithium project, and those forays always reference Tesla directly or indirectly. Some of them are idiotic. Recognize that some of those are merely marketing plays, trying to shore up a disastrous stock price with blumphus and hoopla. These are the same companies that marketed a run at rare earths in 2009, at gold during its bull run, then at marijuana, and today they speculate with your investment money with passing references to lithium.

But Tesla needs cobalt in the cells to be provided by Panasonic (page 25 on Tesla’s quarterly disclosure here). Volkswagen needs cobalt. Honda needs cobalt. BMW needs cobalt. Demand is increasing and global supply is falling.

You can probably name a dozen companies with a lithium asset. How many can you name whose primary asset is a cobalt deposit? Right. Think about all those facts above. Draw a conclusion as to what those facts mean. Then do one of two things.

If you think Tesla is wrong and it won’t build those cars, it is now an obvious short. All shorts are high-risk, and this would be no different. But if you don’t believe in the Cult of Musk, then Tesla’s marketing machine has set you up for the fortune of a lifetime.

If you think Tesla is even partially right, then the right answer is to leave the crowded lithium world to others and go find yourself a cobalt company. Take a large early position and wait for the rest of the investing world to join you.

That’s where serious money gets made.


Peter Clausi

Editor:

Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <Read more about Peter Clausi>


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Comments

  • clive ashworth GeoXplor Corp

    Formation metals seems to be the only advanced primary cobalt potential producer in the USA.
    However, there seems to be a problem and I believe it is metallurgical. The upward price of coblat MAY mitigate this problem (if that is the problem).
    The stock is cheap.

    May 16, 2016 - 11:40 AM

  • Jack Lifton

    Peter,

    The CATHODE of a lithium cobalt oxide battery contains the lithium and the cobalt along with some nickel and manganese in the most commonly manufactured “chemistries.” The anode is principally a battery type of graphite, which researchers are trying to modify with silicon or graphene or a combination of both.

    I am urging that the large mass produced batteries of the “lithium cobalt oxide type of cathode” be recycled whenever possible to lessen our dependence on new production of cobalt and even of lithium, although lithium shortages will be geopolitical not geological in the future. Battery graphite looks also to be recoverable and recyclable.

    I was encouraged last week in Toronto by the number of lithium juniors who have plans to use their to-be-built processing systems to also recycle.

    Most of the lithium juniors like most of the rare earth juniors are just promotional hype to sell stock, but of the ones that have production plans based on technology best practices many will succeed.

    Cobalt is an economics and byproducts story just as you have pointed out.

    There’s light at the end of the tunnel and it is a lithium cobalt oxide type battery powering the light.

    Jack

    May 16, 2016 - 6:39 PM

  • Tom Lochting

    There is talk of titanium oxide replacing graphite in Li batteries in future.
    There is one stock on the Australian Stock Exchange which has JORC resources for supply of both these materials. The Cobalt is “pure play” and the titanium is via a shallow Heavy Mineral Sands project

    May 16, 2016 - 10:54 PM

  • KT

    What’s the name of the AUS Co?

    Thanks

    May 17, 2016 - 6:39 AM

  • Ian Pringle

    Broken Hill Prospecting (ASX:BPL) has deposits with both Ti and Co.

    May 17, 2016 - 5:34 PM

  • Peter

    Conico (CNJ.AX) [50% JV with BAR.AX, a gold miner] – Mt. Thirsty, potentially 4th in the world by obtainable cobalt resource, is 50% owned, operated and managed by Conico (CNJ.AX), the companies tangible book value exceeds their SP (0,02 SP – 0,05 TBVPS). 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.

    May 17, 2016 - 7:53 PM

  • Lok Chong

    You are right about Conico and Barra. I bought them less than 2 months ago. Barra shot up over 30% the next day and has gone up close to 200% since. Conico shares spike a few days later and has kept going until it went sideways over the last couple of weeks. Barra stayed fairly solid. (Could it because of their gold interests?)
    They are looking for JV partner to progress their claims in Northern Territory.
    Would not be surprise if the Chinese take a plunge/punt. Great risk and greater reward. I took the money off the table last week to buy a piece of land to build a Child Care Centre – a risk mitigation strategy leaving others to profit.

    May 19, 2016 - 4:15 AM

  • merlion

    Barra Resources has no interests in Northern Territory.

    What say you, Lok Chong?

    May 23, 2016 - 12:05 AM

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