An opportunity like this comes once in a lifetime. Be one of the early people to get into this, and you will see the returns come your way. I believe the mineral cobalt will increase more than 10 fold over the next few years, this is how to make money from this.
Cobalt is projected to be one of the most in-demand resources in the western world by 2020, but with the little supply and problems with increasing demand, I am speculating that the price of it will soar.
But why the high demand?
Lithium-ion batteries have 20-60% of cobalt in them, that’s right, the batteries in every new phone and electric car. Making this bet is betting that the demand for these products is going to increase.
Going into a bit more detail, the image above shows in an illustrative form of the sorts of things that cobalt is mainly used for. However, we will be concentrating on the biggest driver of demand, electric car manufacturers. A lot of things in the future are dependent on cobalt, making this a long-term play.
A brief example of the other uses of cobalt is that it takes up 20% of super alloys, which, can be seen to increase in the future, as it is more absorbent to stress, corrosion resistant and has a higher melting point. Something incredibly useful for rocket ships and jet engines.
Currently, some of the US biggest car manufacturers are trying their hardest to get their hands on this commodity, such as Tesla, which this article will mainly focus on, as they are only willing to buy from North American Miners, which I will go into detail a bit later.
The supply of cobalt is low and it is hard to produce as it is a by-product of copper and nickel mining, (60% of it from nickel and 38% from copper) therefore increasing the supply is difficult, and means that it won’t be able to match demand. This is the main reason I believe the price of cobalt will increase by a significant amount, it’s just basic economics. As of right now because of this reason car companies and miners are attempting to stockpile cobalt.
Why North American companies?
We will concentrate on North American miners, although 47% of cobalt is mined in the DRC (The Democratic Republic of the Congo), it is risky, and I personally will not yield as high returns. This is because the companies in the DRC are incredibly risky and hard to ship to the USA car manufacturers due to the high costs involved. There is also a lot of political instability within the region. Currently, the country is 148th out of the 169 countries on the corruption perceptions index. The country is in famine and has the most war-related most deaths out of every country since world war 2.
There are also some other reasons, these companies in the DRC employ child slave labor, many working under $2 a day. Which many international rights organizations are trying to intervene with, such as Amnesty International, who are trying to ensure phone manufacturers, such as apple, Samsung and Sony to not use these miners who use child labor, these companies have stated they do not tolerate these practices.
I believe these reasons are why US companies would have the incentive to only buy from the NA companies, as they would need a consistent, reliable supply of cobalt, as their production heavily relies on it, especially Tesla, whose biggest problem is the production of their vehicles.
Now for the math
However most of the world’s supply of cobalt comes from the DRC, Elon Musk (CEO of $TSLA) has stated that he will only be taking cobalt from America due to logistical reasons.
Now, each Tesla Vehicle has 22.5kg of cobalt in it, Tesla is aiming to produce 10,000 a week in 2018, that would be 520,000 cars a year, that would mean they would need 11,700 metric tonnes of cobalt to make the batteries in the cars, currently the production for cobalt is at about 6,300 metric tonnes in North America. Although supply is projected to increase, like stated before, it is difficult to increase.
This is a massive outstrip of supply to demand just with Tesla, just ONE car manufacturer, not taking into account any of the other producers, not any of the materials needed for it, now this is assuming Tesla meets their targets, however, many analysts don’t believe this.
However, if Elon Musk can meet his targets, this means that cobalt mining companies will need to be able to keep up with this, also it means the price of cobalt will skyrocket and therefore causing a massive profit to be made from it.
But how has cobalt the price action been?
Already the price has rocketed up, just over doubling from $25 to $55 since September. However, this is just early investors getting into cobalt because of speculative reasons, I believe that there is much more room to grow, and increase over the next few years. I don’t believe this bet is a short term one. In the short run, yes I believe the speculative actions will be able to yield results, however, when electric cars become more widely produced, I believe it can go to 2007 levels and above.
The reality of the matter is that cobalt is nowhere near the all-time highs of 120 in 2007. The reason for this price action was caused by two main factors, the DRC restricting its exports, then the US government stop selling off its remaining cobalt stockpiles.
The Companies worth looking at
Now I finally shut up about my reasons why, and actually tell you how you can profit from this.
It is possible to trade cobalt directly, however this must be through the LME (London Metals exchange), but for this you need at least £50,000 (Net worth) to play with and have to pay the £4,000 yearly fee, and be a well-versed commodities trader, however, I have companies I believe have the best exposure to cobalt, however, are the riskiest. As long as your broker has access to Canadian markets, you should be able to trade these companies.
These companies are quite small, due to cobalt only being in the spotlight recently. There are less risky avenues to go down, however, most of the big companies have diversified portfolios and cobalt takes up less than a 1%, as they are mainly copper miners, such companies being Glencore, which is on the London Stock Exchange listed as LON: makeGLEN.
DISCLAIMER: The author currently has holdings in these companies.
Most of these companies are Canadian and are listed on TSX (Toronto stock exchange) and the TSX Venture exchange. Now these are the companies you should buy for the highest gains:
First, we have CobalTech Mining Inc (TSX:CSK), this company is only worth about $28.11M, however in the future, we can only imagine what it could be worth. The company is based in Canada and currently has many explorations, including the Duncan Kerr Project, being their largest.
‘The Duncan Kerr Project was acquired in November 2016. This acquisition encompasses all assets of this 32.3 hectare property, including the existing stockpiles and milling facility. An independent mineral resource study prepared in 2014 by Golder Associated Ltd. estimated 6,588 dry metric tonnes of crushed material resources contained in the 3 above ground stockpiles (at an estimated average grade of 761 g/t and 95% Co). Management estimates that an additional 1.3 million tonnes of stockpiles exist on the property and require further drilling. Historical drilling depths on the property have not exceeded 182 m depth, leaving ample exploration targets. The milling infrastructure consists of a fully permitted 360 tpd milling facility with a gravity and flotation circuit (expandable to 500 tpd) that is stored on the property site.’ – CobalTech Website
I believe this company is a massive speculative play, as they are currently in the exploration phase, with the Ducan Kerr project, however, if their projections are correct, we can see some big returns, making this company one of my personal favourites. The site is located in Northwestern Ontario, which is known to be cobalt-rich, the infrastructure to the site also makes it very attractive, with links to a municipal road, highways, railway spurs, power, and ample fresh water supply.
As you can see CSK tracks cobalt price quite closely, however the dip on it currently makes it quite an attractive buy at the moment. Currently up 800% on the year, but I believe it has much more room to grow.
Now, the next company Ecobalt solutions (TSX:ECS), their current main project is in Idaho which now totals 264 hectares including 9 historical past producing mines. The company is currently worth about 141.06M, however, this company would be worth in the 10s of BILLIONS in the years to come, due to its location. The new project can carry a high production capacity and can yield some great results, the location alone may produce some great results, especially as it neighbouring the state of Nevada, where Tesla’s gigafactory is located, this would fit perfectly with Elon wanting the best logistical access to the cobalt producers.
As you can see the stock of this company has recently shot up and has stagnated a bit, this, like CSK is tracking the price of cobalt. Currently up 600% on the year.
Some other tickers worth considering
KAT, CUZ, GOM, UMI, FT, S
I haven’t looked into these companies a great amount, however, these are some avenues for you to look down and see if anything sticks out that you like.
So in my opinion cobalt is something which will be heavily demanded in the future and the problems with supply will cause the price to rise. North America is the best companies to look at as they will be the most consistent in the future, and the best options for North American car, metals and phone companies. ECS and CSK are the companies I currently hold and I believe will see good returns.
Article By: Matthew Oates